FTX Withdraws Motion to Limit Repayments in Restricted Jurisdictions

News

FTX

  • FTX withdrew its motion to limit repayments in countries like China, Russia, and Ukraine.
  • The motion aimed to address regulatory challenges in 49 jurisdictions, affecting $800 million in claims.
  • Sam Bankman-Fried is seeking clemency after his fraud conviction and blames bankruptcy counsel for FTX’s collapse.

FTX has officially withdrawn its motion to implement a “Restricted Jurisdiction Procedure” that could have impacted the repayment process for customers in certain countries. This decision follows significant opposition from creditors and legal challenges, particularly from claimants in China. Had the motion been approved, customers in jurisdictions such as China, Russia, and Ukraine could have seen their claims forfeited due to regulatory hurdles.

Proposal to Evaluate Compliance in Challenging Jurisdictions

FTX’s original motion, part of its Chapter 11 restructuring plan, aimed to create a procedure to evaluate local regulatory challenges in 49 jurisdictions. This included countries where compliance issues might complicate the repayment of customer claims. 

The jurisdictions listed in the motion accounted for around $800 million in claims, about 5% of the estate’s total $16 billion in potential distributions. China represented the largest portion, making up 82% of the claims within the restricted jurisdictions.

Under the proposed procedure, FTX would have retained local counsel in each jurisdiction to assess whether compliant payouts were feasible. If a jurisdiction were deemed too complicated for a legal payout process, it would have been designated as restricted. Claims in these regions would then be forfeited and returned to the bankruptcy trust for reallocation after a 45-day objection period.

Opposition from Creditors, Particularly in China

The proposal faced substantial opposition, most notably from a group of over 300 Chinese claimants. The claimants, represented by Weiwei Ji, filed an objection to the motion in a Delaware court. Ji, a Chinese national living in Singapore, argued that there was no factual or legal basis to designate China as a restricted jurisdiction. His objections played a significant role in FTX’s decision to withdraw the motion.

The withdrawal of the motion signifies a major turning point in the bankruptcy case of FTX that has been going on for some time now. Sam Bankman-Fried, the convicted founder of FTX, is also in the spotlight as he is set to have an appeal hearing in New York. The week before last, Bankman-Fried shared a paper asserting that FTX and Alameda Research were “never insolvent.” He pointed at the bankruptcy counsel of the company for misrepresenting FTX’s financial condition, which allegedly led to its closure in 2022.
The FTX case, which caused a major disruption in the crypto market, led to the conviction of Bankman-Fried, who is now a fraud and conspiracy defendant, in November 2022. However, he keeps proclaiming that he is not guilty. His lawyers want to appeal the verdict through a compassionate release, and they have the backing of his relatives. Besides, they are counting on President Donald Trump’s involvement.

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