Attorneys representing FTX.com’s non-US customers have joined the bankruptcy battle, filing a motion Wednesday asking a Delaware judge to rule that customer assets locked in the collapsed exchange are customer property — not the property of the FTX estate.
The Ad Hoc Committee of International Creditors represents 18 international clients of FTX with total assets of $1.94 billion locked on the FTX platform.
At first glance, the ad hoc committee’s request is simple. Unlike other failed crypto lenders like Celsius Network and Voyager Digital, both of which had legal rights to invest customer funds to generate income, FTX’s terms of service are clear: customer funds belong to customers, and FTX had no right to them to touch.
Despite the clear language of FTX’s terms of service, advocates on the ad hoc committee expect a backlash from FTX, which has so far remained silent on the issue of client funds.
One of the attorneys on the ad hoc committee, Erin Broderick, a Chicago-based attorney with law firm Eversheds Sutherland, told CoinDesk that one reason FTX might remain silent about what to do with client funds is that the attorneys and Company executives needing this could bear operating costs.
“The fees in this case are enormous,” Broderick said. “I think they’re going to hit back … and part of that is ‘Well, how do you pay fees?'”
FTX executives aren’t the only ones who have remained silent on the issue of client funds — including the Official Committee of Unsecured Creditors. Broderick told CoinDesk that the committee’s silence could be because expressing an opinion about ownership of client assets could pose a conflict of interest.
“Even though the official committee is made up entirely of FTX.com clients – there are no US clients, there are no general unsecured creditors – seeking a determination that the assets belong to the clients rather than the estate as a whole could be one.” constitute a conflict of interest,” said Broderick.
The story goes on
However, Broderick hopes the official committee could put its weight behind the ad hoc committee’s proposal.
“Now they can be objective and step in and say, ‘Hey, [we] Read the papers and that’s right, we want all creditors to be recognized for their rightful positions,'” Broderick said. “I think that’s fair. But the fiduciary duties of the official committee – they apply to all general unsecured creditors, and the determinations we are seeking relate only to FTX.com customers.”
prevent dollarization
Broderick also said that the ad hoc committee’s motion seeks to prevent the “dollarization” of customer receivables, which FTX has already taken a step towards by listing the dollar value (not the total cryptocurrency amount) of customer receivables with the creditors on the Matrix .
“But if you — no matter what digital asset it is, what type of asset it is — convert it to dollars as of the date of the petition, that essentially gives debtors the power to liquidate anything attached to the Stock market is, and to say, ‘That’s what you get at the bottom end of the market,'” Broderick said. “So it’s an important distinction, not just in terms of priorities and timing of distribution, but also very important from an assessment perspective.”
FTX, a crypto exchange, filed for Chapter 11 bankruptcy protection in Delaware on Nov. 11 after it was revealed to be largely backed by FTT digital tokens following a CoinDesk report that revealed Alameda Research, an affiliated trading company Assets that FTX had created out of thin air.