“Irreconcilable conflict” in the bankruptcy of FTX Crypto

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Non-US customers affected by the FTX crypto bankruptcy fear that their entrusted money will be embezzled again.

This is according to a formal complaint for declaratory judgment filed Wednesday evening (December 28) by the ad hoc committee of FTX investors based outside the United States, a copy of which was provided to PYMNTS.

The lawsuit, filed in the U.S. Bankruptcy Court for the District of Delaware, lists three claims for relief relating to non-U.S. client assets entrusted to the exchange and now locked in the wake of FTX’s dramatic implosion last month. last.

As reported by PYMNTS, FTX.com’s international clients have created an ad hoc committee to represent them in the company’s Chapter 11 case.

The ad hoc committee is headed by Eversheds Sutherland attorneys Sarah Paul and Erin Broderick., who, on behalf of the committee, is seeking to establish that funds transferred from client accounts to other FTX-affiliated businesses are not part of FTX’s bankruptcy and should instead be returned to the possession of such customers.

Read more: More backdoors found in Bankman-Frieds black box at FTX

Composed of 15 members when complaints were filed, the ad hoc committee represents nearly $1.9 billion in cumulative claims. It has grown every week since its formation on December 2.

What the committee wants is to recover the money it deposited.

According to the complaint, the three requests for relief seek declaratory judgments from the bankruptcy court that Accounts Receivable assets or assets otherwise traceable to Accounts Receivable are not the property of the FTX Estate; that unallocated or commingled assets are held in trust for the collective benefit of FTX.com clients and not treated as the property of the estate; and finally, that client assets, including unallocated or commingled assets, are held in trust by construction or result for the benefit of clients and are not the property of the estate.

An official committee has significant strength in a Chapter 11 case to act on behalf of those it represents, a representative from law firm Eversheds Sutherland said.

The complaint argues that the statements are justified, because these assets are the property of the client, and not the property of the debtors, the assets do not form part of the property of the debtors under section 541 of the Bankruptcy Code. Thus, FTX.com customers are not mere unsecured creditors of Debtors, but rather the owners of real estate interests… If these assets can be identified, either because they remain on the platform or because that they can be identified at another location, the customers have the right to recover the assets, free from any claims from other customers or creditors.

front of the line

FTX founder and former CEO Sam Bankman-Fried has been criminally charged with eight counts ranging from fraud to conspiracy.

While he maintains his innocence so far, he is expected to submit a complaint next week when he is arraigned in Manhattan federal court on January 3.

Two of its top executives, former Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang, have both pleaded guilty to the criminal fraud charges against them and agreed to cooperate with authorities. .

There is no doubt that FTX.com customers have been victims of massive fraud and misappropriation of billions of dollars of their assets in violation of clear and unambiguous terms of service, the complaint reads. ad hoc committees. Indeed, new Debtors CEO John J. Ray III testified under oath before Congress: This really is old-fashioned embezzlement. It’s just about taking customers’ money and using it for your own purposes.

If the court determines that the complaint has merit and makes the three statements requested by the committee, non-US customers of FTX.com hope to prioritize their reimbursement over other creditors.

FTX.com was the largest exchange operated by the bankrupt company FTX outside the United States

Documents Percourt, Ray, appointed CEO to oversee FTX’s bankruptcy, split FTX’s more than 130 subsidiaries into four different silos.

Small financial documents beyond simple tables and a list of the 50 main creditors were made public, frustrating the lawyers of the ad hoc committee.

There can be no fair outcome or maximization of value in these cases if the only parties with a seat at the table are conflicting interests they are obligated to represent, they said in a public statement.

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