FTX customers petition to allocate forfeited assets from the criminal case to users instead of the bankruptcy estate.
A petition has been filed by a group of customers whose digital assets were held at FTX during the company’s collapse.
The petitioners are requesting that the judge allocate forfeited assets from the criminal case to users rather than to the bankruptcy estate.
FTX, which was once the second largest crypto exchange in the industry, declared insolvency during the 2022 bear market, resulting in a significant number of customers being unable to access their funds.
A proposed restructuring plan was introduced by the bankruptcy estate in May with the objective of repaying up to 98% of consumers’ claims in cash within 60 days of court approved.
Nevertheless, this strategy encountered opposition from victims who contended that they were entitled to direct compensation for their suspended assets, which remained inactive despite the significant recovery of the crypto markets this year.
Consequently, crypto lawyers Adam Moskowitz and David Boies submitted a new motion on behalf of the claimants in a United States court in New York.
The motion seeks to compel the judge to grant FTX customers access to the Forfeited FTX Customer Assets, which are estimated to be worth approximately $11 billion, rather than the bankruptcy estate.
The estate intends to assess the value of customers’ assets by measuring their market value from the moment FTX officially sought Chapter 11 bankruptcy protection in November 2022, as outlined in the proposed restructuring plan.
Nevertheless, the lawyers contended in the new petition that the action would be unjust to customers, as the majority of digital assets, including Bitcoin (BTC) and Solana (SOL), that the claimants possess have experienced substantial recovery from the 2022 crypto winter.
SOL has increased by ninefold since the date of the petition, while BTC has quadrupled in price, according to the attorneys.
Furthermore, the attorneys who are representing the victim are extremely concerned that the bankruptcy estate will not distribute the assets in an equitable manner to creditors.
It was alleged that the equitable distribution of forfeited FTX customer assets could be jeopardized by potential conflicts of interest within the estate.
“The Bankruptcy Estate is burdened with conflicts that have the potential to undermine the integrity of the distribution process and the equitable distribution of the Forfeited FTX Customer Assets to FTX customers,” stated the filing.
Furthermore, Moskowitz and Boies criticized the bankruptcy code for prioritizing specific creditors, which resulted in the FTT token holders of FTX being at a disadvantage in the distribution hierarchy.
Additionally, they asserted that it is exceedingly improbable that the estate will provide compensation to holders of FTT tokens.
The court filing indicates that it is “unlikely” that the estate will provide compensation to the holders of that token.
The filing also reflected the sentiments of numerous FTX customers who are disillusioned, perceiving the bankruptcy process as a “second act of theft.”
The estate was denounced by certain customers as a “continuation of the fraudulent practices such as misappropriation of users’ funds conducted by its former CEO Sam Bankman-Fried (SBF), who has been indicted and recently sentenced to 25 years in prison for fraud,” according to the filing.
