QUICK TAKE

• FTX victims urge a New York court to rule that the crypto exchange’s forfeited assets belong to its customers, not the bankruptcy estate.
• The bankruptcy process has left FTX customers feeling “aggrieved and robbed,” according to victim attorneys.
• The bankruptcy code prioritizes certain creditors over others, placing FTX’s FTT token holders near the bottom of the list.

FTX victims have taken legal action, asking a New York court to declare that the failed crypto exchange’s forfeited assets, amounting to $8 billion, should belong to its customers rather than the bankruptcy estate. This request comes as part of a broader effort to address grievances and perceived injustices in the ongoing bankruptcy process.

A Plea for Fair Treatment

In a recent filing with the U.S. District Court for the Southern District of New York, FTX victims argue that the current bankruptcy proceedings have further victimized them. The filing highlights that FTX filed for bankruptcy during a period known as the “crypto winter,” a time when cryptocurrency prices were significantly depressed. Measuring customer claims based on the value of assets during this period would be unfair, the victims assert, noting that the prices of major cryptocurrencies like Solana (SOL) and Bitcoin (BTC) have surged significantly since then.

The proposed reorganization plan by the bankruptcy estate, which aims to return 118% of claims to 98% of creditors in cash within 60 days of court approval, has been met with discontent. Many FTX customers feel that this plan does not compensate for the opportunity loss they endured while their funds were tied up during the bankruptcy proceedings.

Legal Arguments and Sentiments

Attorneys Adam Moskowitz and David Boies, representing the victims, have expressed their clients’ frustrations. They argue that the bankruptcy process has left FTX customers feeling “aggrieved and robbed.” Many view the proceedings as a continuation of the fraudulent activities that led to FTX’s collapse. The attorneys emphasize that FTX’s bankruptcy estate should not perpetuate the fraudulent practices of the past, particularly those associated with former CEO Sam Bankman-Fried (SBF), who is serving a 25-year prison sentence for fraud.

Bankman-Fried’s conviction included the theft of at least $8 billion from FTX customers. The court also ordered him to forfeit $11 billion. Despite his conviction, Bankman-Fried plans to appeal both his sentence and conviction. The victims’ legal team argues that if not for SBF’s crimes, FTX customers would still have ownership of their crypto investments today.

Prioritization of Creditors

The filing also touches on the complexities of the bankruptcy code, which prioritizes certain creditors over others. According to the filing, holders of FTX’s FTT token are near the bottom of the priority list, making it unlikely that they will receive compensation from the estate. This prioritization adds another layer of complexity to the victims’ quest for fair compensation.

Moskowitz, speaking to CoinDesk, acknowledged the challenges in determining the exact damages owed to the victims, given the fluctuating value of cryptocurrencies. However, he estimated that the damages would exceed $8 billion. The legal team continues to push for a comprehensive accounting to accurately assess the owed amounts.

The Broader Impact of FTX’s Collapse

FTX’s collapse in November 2022 sent shockwaves through the cryptocurrency community. The exchange, once a prominent player in the crypto market, left thousands of customers in financial limbo. The ongoing legal battles and bankruptcy proceedings have only added to the uncertainty and frustration felt by many.

The victims’ latest filing is a clear indication of their determination to reclaim what they believe is rightfully theirs. They argue that the bankruptcy estate’s handling of the situation has compounded their losses, and they seek a court ruling to rectify this perceived injustice.

Looking Ahead

As the legal process unfolds, the outcome of this filing will have significant implications for FTX customers and the broader cryptocurrency market. A ruling in favor of the victims could set a precedent for how customer assets are handled in future crypto exchange bankruptcies. It could also influence how regulators and courts view the prioritization of creditors in such cases.

For now, FTX victims and their legal team remain hopeful that the court will recognize their plight and rule in their favor. The next steps in this legal battle will be closely watched by the crypto community and beyond, as they could reshape the landscape of crypto exchange bankruptcies and customer protections.

In conclusion, the ongoing FTX bankruptcy saga underscores the challenges and complexities of navigating the aftermath of a major crypto exchange collapse. The victims’ plea for fair treatment highlights the need for clearer regulations and protections for cryptocurrency investors. As the court considers the latest filing, the crypto world waits to see if justice will be served.

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