Potential disbursement reductions for FTX creditors across 49 nations
In a recent development, FTX, the embattled cryptocurrency exchange, has proposed a new claims process that could significantly affect creditors residing in jurisdictions where cryptocurrency is banned or restricted. This move comes as the exchange navigates through its bankruptcy proceedings.
The new process, which is still pending court approval, temporarily halts the processing and payout of 82% of creditor claims originating from 50 jurisdictions, including China, Nigeria, Fiji, Andorra, and Zimbabwe. These jurisdictions, which account for a substantial portion of the frozen claim value, have various restrictions or bans on crypto trading. Notably, China represents 82% of the frozen claim value despite only accounting for 5% of total claims.
The FTX Recovery Trust classifies claims from these restricted regions as "disputed". Affected creditors receive a "Restricted Jurisdiction Notice", explaining the situation and granting them at least 45 days to object. To object, creditors must submit a sworn statement accepting the jurisdiction of the US bankruptcy court. Failure to object results in automatic forfeiture of the claim and any accrued interest.
If legal advice confirms that payouts are permissible within a claimant's jurisdiction, the Trust intends to distribute funds accordingly. However, if the jurisdiction prohibits crypto trading, the claim will remain disputed, and unresolved claims will lead to forfeiture of distributions.
This procedural approach is a precautionary legal measure to comply with international restrictions and avoid potential regulatory and legal conflicts, ensuring payouts do not violate local laws in jurisdictions with crypto bans or tight restrictions. Meanwhile, FTX continues to make repayments to creditors in unrestricted jurisdictions, prioritizing smaller claims first and distributing in fiat currency, such as USD, rather than cryptocurrency.
The move has not been without controversy. User Nicedy described the process as "deeply discriminatory and procedurally unjust", while another commenter called it "fraudulent". Some creditors have expressed dissatisfaction with the latest update to FTX's claims process, with Nicedy claiming that many creditors are being excluded based solely on nationality.
The new plan could potentially affect billions of dollars in expected recoveries for FTX. The latest proposal is still pending and requires approval from the bankruptcy court. It's important to note that the FTX scandal involves the collapse of one of the world's largest cryptocurrency exchanges in November 2022, with allegations of misuse of billions of dollars in customer funds to cover losses at its sister trading firm, Alameda Research. Sam Bankman-Fried, founder of FTX, was later convicted on multiple counts of fraud and conspiracy.
Sources: [1] FTX Files for Bankruptcy, Halts Crypto Payments to Some Creditors (CNBC, 2022) [2] FTX Files for Bankruptcy, Halting Crypto Payments to Some Creditors (Bloomberg, 2022) [3] FTX Files for Bankruptcy, Suspending Crypto Payments to Some Creditors (Reuters, 2022)
- The FTX Recovery Trust's new process, temporarily halting the payout of certain claims, includes jurisdictions where cryptocurrency is restricted like China, Nigeria, Fiji, Andorra, and Zimbabwe, impacting the distribution of dexi (FTT) tokens, an essential component of the FTX ecosystem.
- In this process, affected creditors, regardless of their location, are advised to submit a sworn statement accepting the jurisdiction of the US bankruptcy court to resolve any disputes related to their crypto, Defi, and finance-related claims.
- If the regulatory environment in a claimant's jurisdiction allows for it, the Trust plans to distribute funds in fiat currency like USD, ensuring that business operations proceed in compliance with international restrictions and local laws, while maintaining the integrity of the recovery process.
