- The FTX Debtors Estate proposed paying cash at November 2022 crypto prices.
- FTX creditors seek a better compensation deal.
- Lawyers representing FTX creditors seek in-kind payouts.
The aftermath of the FTX scandal has seen ongoing court proceedings to compensate user losses. In December 2023, the FTX Debtors’ Estate filed a revised Chapter 11 plan detailing a proposal to payout victims based on the cash value of digital assets held on the FTX platform at the November 2022 date of bankruptcy, despite crypto prices rising significantly since then. However, FTX creditors are now challenging this proposal.
FTX Creditors Want Payment In-Kind
Leading the proposal challenge, lawyers for Sunil Kavuri, an FTX creditor activist, have filed an objection to the debtor’s motion to pay customers in cash based on digital asset prices at the date of bankruptcy. The lawyers argued that the proposal was unfair due to a significant rise in crypto prices since the bankruptcy date.
In support of this view, the lawyers cite several examples of crypto price rises since the bankruptcy date, such as SOL having recorded a 6x gain over the period, and BTC posting an almost 3x appreciation in value.
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The FTX Debtors’ Estate is currently in a dispute over the treatment of recovered users’ digital assets as property of the estate, for which administration fees are payable. To maximize recovery for FTX creditors, Kavuri’s lawyers have called on the judge to decide whether the Estate has property rights on users’ funds.
If the Estate is determined not to have those property rights, Kavuri’s lawyers seek an “in-kind” return of users’ crypto assets. The motion threatens the possibility of “adversary proceedings” on the part of creditors to gain property rights over the funds.
Amidst the legal wrangling, FTX’s native FTT token has seen a significant increase in value, increasing 13% in the last 24 hours at the time of writing. This surge in value suggests that the market is in favor of Kavuri’s attempt to get a better deal for FTX victims.
FTT Uptick
January 12 saw the FTT token among the top 100’s biggest gainers, increasing 13% over the last 24 hours. Intraday gains sent FTT as high as $3.46 to record a 13-day high, but profit-taking soon dipped the price lower to around $3.10 at the time of writing.
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FTT has had a mixed start to 2024, opening the year at $3.05. A period of selling since then found a $2.32 local bottom on January 8, before moving higher to post a year-to-date high on Friday.
On the Flipside
- U.S. prosecutors recently opted not to pursue a second trial against former FTX CEO SBF on charges of illegal political donations.
- Some legal experts argue the fair and equitable clause typical in bankruptcy proceedings gives courts broad discretion to approve solutions, even if unfavorable to some.
Why This Matters
The ongoing tussle for FTX justice highlights unresolved issues surrounding cryptocurrency property rights and fair compensation in the event of a crypto exchange collapse. The outcome will set a precedent that could either boost investor protections or further erode trust in centralized exchanges.
Read about the dispute between FTX and the IRS over unpaid tax here:
FTX Tussles with the IRS over Alleged Unpaid $24 Billion Tax
Find out more on brokerage firms refusing to offer Bitcoin ETF products here:
Bitcoin ETF Brokerage Snub Reveals Ongoing Legacy Tensions
