FTX Customers Challenge 2022 Cryptocurrency Valuation in Bankruptcy Case
Summary:
Clients of the now-defunct crypto exchange FTX have appealed to a U.S. bankruptcy judge, arguing against FTX's method of valuing their crypto deposits based on 2022 prices. This argument stems from the belief that such valuation is preventing them from benefiting from the recent crypto price surge. Debtor's motion advocates collectively estimating claims based on digital assets to accelerate claim reconciliation and Chapter 11 Cases advancement. The debate centers around whether the appreciated crypto should be returned to customers or used to cover claims, and the controversy over FTX's intent to refund customers in U.S. dollars based on the cryptocurrency rates at the time of bankruptcy filing. Accusations of unfair treatment and challenge to FTX's valuation method have been made by FTX customers globally, with a court hearing slated for January 25.
Multiple clients of the now-defunct crypto exchange FTX have petitioned a U.S. bankruptcy judge to prevent FTX from evaluating their crypto deposits based on prices from 2022. They argue that this strategy by FTX is denying them the chance to maximize profits from the recent crypto price surge. The Official Committee of Unsecured Creditors supports the Debtors' motion to collectively evaluate claims based on digital assets, stating it's the most efficient means to navigate the claim settlement procedure and expedites the progress of the Chapter 11 Cases.
The Debtors' motion indicates that if the court rules that crypto deposits are not part of the estate, then the appreciated cryptocurrency (now worth over $5 billion since initial filing) should be returned to the customers and not used to cover other claims. FTX aims to refund clients in U.S. dollars, calculated using cryptocurrency rates during FTX’s bankruptcy application in November 2022. The customers, however, contend that this undervalues cryptocurrencies, which have seen a significant surge since the low point in 2022.
Sunil Kavuri, an activist creditor with FTX, revealed that his lawyers, Moskowitz and Boies, were objecting to the debtor's motion to evaluate claims. When questioned about the lawyer's stance on in-kind reimbursements, Kavuri clarified that the lawyers insist customers should receive “at least the value of crypto back,” given unresolved property rights.
Both the Official Committee of Unsecured Creditors and global FTX customers have submitted similar challenges to the U.S. bankruptcy court prior to the deadline, contesting FTX's valuation technique. A court hearing scheduled for January 25 in Wilmington is set to approve the company's list of cryptocurrency prices. Some customers believe that the proposed valuation approach unfairly favors holders of stablecoin and outside investors purchasing FTX bankruptcy claims at lower values.
The valuation of key cryptocurrencies—Bitcoin, Ether, and Solana—held by FTX customers has seen a marked increase since FTX's bankruptcy announcement. Clients have also opposed FTX's decision to value its equity shares and token, FTT, at zero, essentially eroding over $700 million in FTT and FTX equity held by customers under the bankruptcy plan.
In a court document submitted on December 27, FTX argued that basing crypto prices on the bankruptcy petition date was the most feasible way to start repaying customers. FTX pointed out that courts had allowed other bankrupt crypto companies like Celsius Network, BlockFi, and Voyager Digital to employ petition-date prices in determining their customers' claims.
Published At
1/12/2024 11:44:00 AM
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