‘We never gave FTX our coins!’

Some of FTX's customers are challenging the bankruptcy plan filed on Dec. 16, saying it would violate their rights to assets and sell their assets to pay off third-party creditors, including the United States government.

On June 19, a representative of FTX customers told Cointelegraph that they wanted their cryptocurrency returned to them instead of being paid with cash balances. “We never gave away our FTX coins. A May 9 Los Angeles Times report previously said that “almost all FTX customers will get their money back plus interest” if the bankruptcy plan is approved.

The opposition to the plan came from the FTX Customers Ad Hoc Committee, which was established to represent the interests of FTX customers in the bankruptcy case.

In an interview with Cointelegraph on June 19, committee board member Sunil Kavuri said the bankruptcy plan violates creditors' property rights.

According to him, the FTX issue is often compared to crypto lender Celsius and bankruptcy. However, Kavuri believes this comparison is incorrect, saying, “The key difference with Celsius is the terms of service.” While Celsius customers agreed to the terms of service and signed their crypto title, FTX customers did not. As a result, he stated that the funds are their property. “We have never given our coins to FTX,” Kavri said. “If we don't give [the] Our coins title to FTX, [then] FTX is obligated to return those coins.

Kavuri also said FTX is trying to sell client assets to repay unsecured creditors. These creditors include the US government and others. “You're overpaying IRS penalties and CFTC penalties. […] Why do victims pay these fines? ” he asked conversationally. The exchange has argued that it will use customer funds to pay back Alameda lenders such as Genesis and Binance, adding that Binance is “walking away with $1.2 billion, which was customer deposits.” [FTX] They were paying for Binance stock.

Kavuri's view contrasts with that of FTX State, which is said to allow its customers to receive whatever they owe. According to a May 9 Los Angeles Times report, FTX said if the plan is approved, “virtually all FTX customers will get their money back plus interest.” All customers who owe less than $50,000 “receive about 118% of their claims,” ​​the report said.

Kavuri denied that his clients would be fully compliant with the scheme. The exchange has argued that it does not have a legal basis to refund its customers in cash and that they should return their assets instead of selling crypto at a profit and keeping some of the profit for itself or third parties.

“Oh, it's stolen, and you can't say it's gone. I mean, that's not how the law works. […] we don't have […] So we give you back the value of your coins we stole and keep the extra profit for ourselves. […] Using them to pay and pay themselves […] Alameda Lenders and Government Penalties.'

On June 5, Kavuri and other clients filed a motion to stop the bankruptcy plan from being put to a vote. According to the motion, the plan states that customer currency is an asset of FTX and is “disregarded.” […] Whether the property the debtors wish to distribute through the plan is owned by the debtors.

The petition asked the court to dismiss the plan's disclosure statement on the grounds that the plan was “unenforceable as a matter of law.” If the disclosure statement is rejected, it means that the current version of the plan has been rejected.

On December 16, 2023, FTX Estate filed a proposed order approving the bankruptcy plan disclosure statement. The estate announced the plan on May 7, and a hearing to approve the announcement is scheduled for June 25.

If the plan is allowed to go forward, the deadline to vote for or against the proposed order will be August 16 at 8:00 pm UTC.

Some FTX customers have expressed support for the bankruptcy plan, arguing that it will allow customers to get at least some of their money back faster. In response to Kavri's post, X user Sgd said customers should support the scheme as their assets cannot be returned in any case.

Sgd said: “I still don't understand how they want to give back without having 1:1 cryptos.” “There is no money to return 1:1 crypto, not even 1% BTC deposit in BTC.” In another response, he predicted the plan would be approved: “I believe the plan will be approved because in a favorable scenario 98% of creditors would vote yes. They would just need another class to accept it.” […] People just want their dollar back, so 119% is fine for most.

Property rights are not the only issues at stake in FTX's bankruptcy case. In February, FTX client Edwin Garrison filed a lawsuit against the firm's legal representatives, Sullivan & Cromwell, alleging that he profited from the exchange fraud. An independent investigator concluded on May 24 that there was insufficient evidence the law firm knew of fraud. According to a June 4 report by Law.com, the examiner has now ordered a second investigation into the law firm's activities.

The client ad-hoc committee and the estate are also fighting over assets seized by former chief executive Sam Bankman-Fried.

The shutdown of FTX was one of the most dramatic crypto exchange failures in history. An estimated $8 billion worth of cryptocurrency was lost when the exchange stopped issuing funds. Bankman-Fried was subsequently convicted of fraud and sentenced to 25 years in prison for his role in the exchange's bankruptcy.