Some former customers of the bankrupt crypto firm FTX Trading Ltd. are pushing a US judge to change how they will be repaid, arguing that proposed rules unfairly leave them out of a yearlong rise in the price of Bitcoin and other digital currencies.
More than 80 individual customers have filed letters attacking a plan to peg the value of their digital assets to the date FTX filed bankruptcy — Nov. 11, 2022 — and pay claims in US dollars instead of returning the crypto coins.
The customers had some form of crypto trapped on the FTX platform when company founder Sam Bankman-Fried stepped down amid fraud allegations. Nearly a year later, he was convicted of orchestrating a massive fraud that led to the collapse of his FTX exchange.
Since the collapse, a team of bankruptcy experts, lead by chief restructuring officer John J. Ray III, has been trying to recover as much cash and as many crypto assets as possible. The team won court approval to sell crypto held on the platform in order to create a pool of billions of dollars that can be returned to customers.
The size of each customer’s claim will be based on the price of the crypto coin they held on the FTX platform when the company filed its Chapter 11 petition in Wilmington, Delaware. For Bitcoin holders, that means they will be owed $16,871 for each of their former coins, according to court records. The current price surged past $49,000 at one point on Thursday after trading began on the first US exchange-traded funds that invest directly in the biggest cryptocurrency.
“The Bitcoin and Ethereum I held on FTX prior to the collapse were purchased nearly a decade ago,” Robert Shearer, of Bronxville, New York, wrote in his objection. “Simply put, I had no intention to sell at the market bottom price.”
The US Securities and Exchange Commission approved Bitcoin-spot ETFs on Wednesday, helping spark a brief rally in the cryptocurrency as the price fluctuated Thursday.
‘Impossible’ Task
The FTX bankruptcy team argues in court papers that it would impractical to figure out the precise value of each customer’s digital portfolio because there are simply too many claims. In the language of bankruptcy courts, the various FTX units, known as debtors, would have to liquidate all the customer claims one at a time. Such a process would be “impossible,” FTX officials said in court papers.
“It is simply not realistic that the debtors would be able to liquidate every one of the millions of claims based on digital assets,” FTX said in a filing.
In the coming months, the payout plan will be sent to creditors for a vote before it goes to US Bankruptcy Judge John Dorsey for final approval. An official committee appointed to represent creditors, and a group that includes several big crypto holders, have agreed to the broad outlines of the plan.
The objections filed this week are from customers who do not have lawyers. Many of the letters contain identical language, which means they were likely based on a form letter shared among the writers.
Since the company filed for bankruptcy, the restructuring advisers have been tracking down assets and trying to untangle a complex web of debt owed to various creditors, including customers who put cash and crypto on the trading platform.
The case is FTX Trading Ltd., 22-11068, US Bankruptcy Court for the District of Delaware.
(Updates with Bitcoin price surge and SEC announcement in fifth and seventh paragraph.)
To contact the reporter on this story:
Steven Church in Wilmington, Delaware at schurch3@bloomberg.net
To contact the editors responsible for this story:
Claire Boston at cboston6@bloomberg.net
Rheaa Rao
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