A group of FTX creditors has filed an adversary lawsuit in response to the bankrupt crypto exchange’s payout plans, seeking to establish that deposits are their property rather than FTX’s.
FTX’s proposed plan would see creditors repaid based on November 2022 prices of digital assets — far below what they are now. Bitcoin, for example, is worth $42,708 at press time but was worth 60% less in November 2022 at just $16,871.
Despite complaints by creditors over these huge price changes, in an omnibus reply filed on Monday, FTX argued that bankruptcy law requires digital asset repayment prices to be determined based on when a firm filed for bankruptcy (November 2022).
However, FTX also acknowledged that the court has not established that creditors’ digital assets are in fact under its possession. Creditors Sunil Kavuri, Ahmed Abd-El-Razek Noia Capital SARL, and Pat Rabitte believe that digital assets constitute creditor property rather than the property of the FTX estate, based on the crypto exchange’s terms and conditions.
In an adversary lawsuit filed on Wednesday, Kavuri et al. have formally asked the Delaware bankruptcy court to determine who owns the digital assets. They believe that if the assets are found to be creditor property, FTX creditors have a chance to be paid in-full based on current crypto prices.
However, FTX’s omnibus reply has already considered it to be a moot point. In the debtors’ view, even if the assets were found to be under the possession of creditors, “the imbalance between Claims based on Digital Assets and those reflected on the Debtors’ balance sheets means that the Debtors are unable to make in-kind distributions. Nor is there any legal right for that result.“
Under FTX’s repayment plan, all assets will be sold and proceeds distributed to creditors. However, if these assets are considered the property of customers, they would be distributed accordingly. For example, anyone who held bitcoin would receive a portion of the bitcoin that FTX holds — which is next to nothing.
It appears that, if Sunil et al. are successful, certain FTX creditors might lose even more value through repayment. This prospect seems dim, however, especially considering that the presiding judge has already ruled that FTX’s plans are fair and reasonable.