In November 2022, the FTX exchange abruptly stopped processing withdrawals, only days after reassuring clients about the safety of their funds. This led to a total loss of access to the platform. Subsequently, the exchange was hacked, and its founder Sam Bankman-Fried (SBF) was extradited from Dominica. After a trial, SBF received a prison sentence of over 20 years. Despite the significant time elapsed, creditors are still awaiting reimbursement of their cryptocurrencies.
New Development in FTX Case
On June 25, a hearing took place addressing the concerns of FTX creditors. The exchange, which went bankrupt in November 2022, has yet to commence the refund process for its defrauded customers. During the bankruptcy hearing, lawyers discussed a document outlining the exchange’s restructuring plan. Approval from Judge John Dorsey of the US Delaware Bankruptcy Court is needed before creditors can vote on the plan.
FTX’s restructuring plan, announced in May, proposes distributing 118% of claims to 98% of its creditors, with claims under $50,000 eligible for a compensated refund. This plan awaits creditor approval via a voting process.
Objections Raised
Lawyers representing a significant number of creditors argue for payments in cryptocurrency rather than USD converted from token prices at the time of the bankruptcy. Given that all cryptocurrencies have appreciated since November 2022, they believe such payments would be more beneficial. Andrew Dietderich, the lawyer for FTX, claims the plan was crafted with broad consensus and minimal objections, aiming to gather creditor feedback through the voting process.
David Adler, a lawyer for the creditors, criticized the plan, stating that customers generally prefer receiving their crypto in kind. He emphasized that in-kind returns could lead to substantial tax savings and questioned the obstacles preventing such payments.
Concrete Inferences for Creditors
Creditors should consider the following insights:
- Payment in cryptocurrency could avoid taxable events under US tax law.
- In-kind payments may result in significant tax savings.
- Monitor upcoming hearings on July 17 and August 15 for potential developments.
- Participate in the voting process to ensure your stance is considered.
Although creditors are hopeful that their stance on in-kind payments will influence future hearings, the conversion of assets to cash by FTX poses a significant challenge. The resolution of this dispute remains uncertain as further legal proceedings are scheduled.
