The filing also reflected the sentiments of many FTX customers who feel disillusioned, viewing the bankruptcy process as a “second act of theft”.
A group of customers whose digital assets were held at FTX when it collapsed have filed a petition urging the judge to allocate forfeited assets from the criminal case to users rather than to the bankruptcy estate.
FTX, a once upon a time second largest crypto exchange in the industry, declared bankruptcy during the 2022 bear market, leaving many customers unable to access their funds. In May, the bankruptcy estate introduced a proposed restructuring plan aimed at repaying up to 98% of customers’ claims in cash within 60 days of court approval.
However, this plan faced opposition from victims who argued that they deserved direct compensation for their frozen assets, which remained inactive while the crypto markets recovered significantly this year.
Legal Action and Argument
As a result, crypto lawyers, Adam Moskowitz and David Boies filed a new motion on behalf of the claimants at a United States court in New York, demanding the judge to relinquish access to the Forfeited FTX Customer Assets to FTX customers which is estimated to be valued around $11 billion to customers instead of the bankruptcy estate.
Under the proposed restructuring plan, the estate plans to measure the value of customers’ assets based on their market value from the time FTX officially sought Chapter 11 bankruptcy protection in November 2022.
However, the lawyers argued in the new petition that the move would be unfair to customers as most digital assets such as Bitcoin (BTC ) and Solana (SOL) held by the claimants have recovered significantly from the 2022 crypto winter.
The attorneys said that BTC has quadrupled in price since the date of the petition while SOL has increased by ninefold since then.
Concerns Over Fair Distribution
Additionally, the lawyers representing the victim are so concerned that the bankruptcy estate will not distribute the assets fairly to creditors. They alleged potential conflicts of interest within the estate that could compromise the equitable distribution of forfeited FTX customer assets.
“The Bankruptcy Estate is laden with conflicts that may risk compromising the just distribution of the Forfeited FTX Customer Assets to FTX customers, as well as possibly the integrity of that distribution process,” said the filing.
Additionally, Moskowitz and Boies criticized the bankruptcy code for prioritizing certain creditors, leaving holders of FTX’s FTT token at a disadvantage in the distribution hierarchy.
They also claimed that FTT token holders are unlikely to receive compensation from the estate.
According to the court filing, it is “unlikely that holders of that token will receive compensation from the estate.”
Continuation of Fraudulent Practices
The filing also reflected the sentiments of many FTX customers who feel disillusioned, viewing the bankruptcy process as a “second act of theft”.
According to the filing, some customers condemned the estate 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.
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