FTX will repay customers over 100% of their original holdings but using the lower crypto prices from November 2022, drawing criticism for undervaluing customer holdings due to market volatility.
The saga of FTX’s collapse continues with a new twist on June 5, 2024. The bankrupt crypto exchange has filed a motion in a Miami federal court to stop ongoing lawsuits against its former insiders and venture capital firms. These lawsuits, including class actions by FTX customers, threaten the company’s efforts to recover funds and repay its creditors, according to Reuters.
FTX argues that these lawsuits could deplete a significant recovery fund. The company claims to have amassed an estimated $16 billion to compensate its customers. However, the ongoing external lawsuits could reduce this amount, risking the repayment plan.
This move by FTX follows the recent resumption of class-action litigation against the exchange. The lawsuits were initially paused during the criminal trial of FTX founder Sam Bankman-Fried. Sentenced to 25 years in March 2024 for defrauding customers and misappropriating funds, Bankman-Fried remains central to the FTX debacle.
Attorney Fee Dispute in FTX Case
The plaintiffs in the class-action lawsuits have clear goals. They want to take control of assets held by federal prosecutors, continue legal claims started by FTX, and collect a 33% attorney fee on recovered funds. FTX says this fee would apply to funds the class-action lawyers didn’t help recover.
The bankrupt crypto exchange challenges the proposed legal fees, estimating that class-action lawyers could make $400 million. They argue that these fees haven’t provided any significant financial benefit to FTX customers or other victims.
Adam Moskowitz, a lead attorney for the plaintiffs, is confident in the court’s review process. He wants a thorough evaluation of all settlements and pending claims, including a fraud lawsuit against Sullivan & Cromwell, the law firm handling FTX’s bankruptcy. Moskowitz stressed the plaintiffs’ dedication to securing relief for FTX victims and appreciated those helping in their efforts.
Repayment Plan with a Twist
FTX filed for bankruptcy in November 2022. The company recently announced that it will repay customers more than 100% of their original holdings. However, there’s a crucial catch. FTX plans to base compensation on the much lower cryptocurrency prices from November 2022 when they filed for bankruptcy. This has drawn criticism, with some arguing it undervalues customer holdings because of the cryptocurrency market’s volatility.
The company claims to have secured $16 billion for repayments, but they face external lawsuits, which adds a layer of complexity. The court’s decision on FTX’s motion will determine how these lawsuits proceed and how the recovered funds will be distributed.
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