Small lenders are at risk of bankruptcy due to the new FTX

A significant claim against FTX EU – formerly known as K-DNA Financial Services – has been transferred to FTXCreditor in the latest development of FTX's bankruptcy case. The transfer has the potential to speed up all further processes but presents risks for small lenders.

According to documents filed May 15 in the United States Bankruptcy Court for the District of Delaware, the claim is part of an earlier Chapter 11 proceeding against FTX EU.

The transfer was made in accordance with the provisions of the Federal Bankruptcy Code, specifically section 3001(e)(2) relating to transfers of claims:

“Seller may waive any notice or hearing requirement set forth in Rule 3001 of the Federal Bankruptcy Code and provide that this transfer of evidence of claim may be ordered as a condition precedent to assignment and acknowledgment that Buyer is the beneficial owner of the claim.”

The move is a systematic attempt to streamline the administrative procedures of bankruptcy cases by consolidating all claims under one creditor.

Although this has the potential to speed up the case to a conclusion, it poses a risk to small creditors. Due to a single point of entry for claims through the company, small creditors can be covered for large creditors – accepting more or less favorable terms.

The new sole claimant, FTXcreditor, is represented by Michael Bottjer; However, the sender's identity remains confidential at this time.

“To protect the identity of the transferee, the transferor has not disclosed the transferor's name or address and has not attached a signed proof of transfer to this notice of transfer of claim.”

A lack of transparency can raise questions about the handling of the insolvency process and – in this increasingly complex process – exposes the risks of fraud when the identities of claimants remain masked.

Related: Post-FTX crypto industry needs education before regulation: Former Biden adviser

In the year After filing for bankruptcy in November 2022, cryptocurrency exchange FTX suffered a sudden financial collapse, with lasting consequences for all affected creditors.

Since then, regulations – particularly in the US – have tightened on cryptocurrencies in an attempt to ensure more controls and ensure the safety of investors.

This latest development in the case follows the recent development of FTX co-founder Sam Bankman-Fried, who has maintained his innocence after 25 years in prison.

In an interview on May 9, Bankman-Fried described his experience, explaining that he lived on beans and rice — the latter of which he called “one of the state currencies within.”

Related: Circle changes legal home to US ahead of IPO