Attorneys for FTX bankruptcy victims have argued that the failed crypto exchange’s forfeited assets, amounting to approximately $8 billion, should be returned to its customers rather than being absorbed into the bankruptcy estate.
This request was made in a filing on Friday in the U.S. District Court for the Southern District of New York.
Discontent Over Reorganization Plan
Last month, the FTX estate proposed a new reorganization plan that promised 98% of creditors would receive 118% of their claims in cash within 60 days of court approval. However, this plan has angered many FTX customers who were unable to benefit from the rise in cryptocurrency prices while their funds were tied up in the bankruptcy process.
Claims of Unfair Valuation
The filing emphasized that FTX’s bankruptcy occurred during the “crypto winter,” a period marked by a sharp decline in cryptocurrency prices. The attorneys argue that valuing customer claims based on the depressed prices at that time is profoundly unfair. Since the petition date, the price of Solana (SOL) has increased ninefold, and Bitcoin has quadrupled in value.
Customer Grievances
Lawyers Adam Moskowitz and David Boies stated that the bankruptcy process has left FTX customers feeling “aggrieved and robbed.” Many view the process as a “second act of theft” and believe that the FTX bankruptcy estate is still a fraudulent entity, similar to when it was operated by former CEO Sam Bankman-Fried (SBF). SBF was sentenced to 25 years in prison for fraud, with the jury finding that he stole no less than $8 billion from FTX customers.
Bankman-Fried’s Appeal
Bankman-Fried, who has also been ordered to forfeit $11 billion, plans to appeal his sentence and conviction. The filing argues that if not for SBF’s crimes—specifically the theft and misuse of customer assets—customers would still possess their crypto investments today.
Bankruptcy Code and Prioritization
The filing highlights that the bankruptcy code prioritizes certain creditors over others, leaving holders of FTX’s FTT token near the bottom of the priority list. As a result, it is unlikely that these token holders will receive compensation from the estate.
Ongoing Uncertainty
“We don’t know what the damages will be because complete accounting has not been done,” Moskowitz stated. While the fluctuating value of cryptocurrencies might impact the final amount, he asserted that “it is safe to say that over $8 billion” in damages are owed.
