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A group of former clients of bankrupt crypto exchange FTX They rebel against a proposed plan that would return all of the money they lost. in a lawsuit unveiled this week, customers argue they are owed much more.
The plan presented by FTX in December to return customer funds does not reflect the full extent of the company’s obligation to customers, claims Pat Rabbitte, one of the plaintiffs in the lawsuit, particularly given a rise in the price of cryptocurrencies since the bankruptcy. “We have filed a lawsuit seeking a fair recovery. “This is a key piece of the puzzle that should have been solved a long, long time ago,” Rabbitte says.
FTX crashed in November 2022 after failing to meet an increase in withdrawal requests. Billions of dollars of customer money were missing. One year later, FTX Founder Sam Bankman-Fried Sentenced of multiple counts of fraud and conspiracy in connection with the collapse of the exchange.
He disorder FTX’s bankruptcy has created uncertainty about the amount of money it will return to customers; Over the past year, bankruptcy filings traded on the secondary market have experienced significant price fluctuations. At a hearing on January 31, Andrew Dietderich, an attorney representing FTX, provided concrete guidance, telling the bankruptcy court that the company expects to have “sufficient funds to pay in full all permitted customer and creditor claims.” . Dietderich stopped short of guaranteeing customers a full recovery, but said the goal is “within reach.”
However, a development that might seem like a cause for celebration is a bitter pill to swallow for some FTX clients. In their lawsuit, Rabbitte and others challenge the way their claims were valued under the FTX plan. Many clients held crypto assets like bitcoin on the FTX platform, but through a process common in bankruptcy proceedings known as dollarization, their claims have been assigned a dollar value based on the price of those assets on the date of the filing. bankruptcy petition.
When FTX crashed, the cryptocurrency market was in the doldrums, but it has since recovered. The value of bitcoin, for example, has risen from approximately $16,000 in November 2022 to more than $40,000 per coin. The market recovery is part of the reason FTX is in a position to pay customers in full, but it also means that customer claims could be less than half worth, dollarized, than they would be if They will be assigned to the current value of the cryptoassets.
At the court hearing, Dietderich acknowledged that some clients might feel that dollarizing their claims does not represent “a true full payment from where they started,” but said it was the appropriate method under the bankruptcy code. The same day, Presiding Judge John Dorsey ruled that FTX’s “methodology for estimating claims is fair and reasonable.”
However, in their lawsuit, the former clients argue that stipulations in FTX’s terms of service complicate the picture. The terms, they claim, make clear that “digital assets held in customer accounts were expressly not owned by nor loanable to FTX.” Therefore, the argument goes, FTX should not be able to sell those assets to pay customers and other creditors, and especially not pay customers at a rate that reflects an outdated valuation.
