FTX Cancels $2.5 Billion In Claims Due To KYC Non-Compliance

FTX, the bankrupt cryptocurrency exchange, has canceled nearly 392,000 customer claims due to users' failure to complete the required Know Your Customer (KYC) verification process by the March 3, 2025 deadline. This action, disclosed in an April 2 U.S. Bankruptcy Court filing for the District of Delaware, affects claims worth approximately $2.5 billion. The KYC process is a critical regulatory requirement aimed at preventing financial crimes and ensuring the legitimacy of users on the platform.

FTX's disqualification of these claims is a result of users not meeting the KYC verification requirement. Financial institutions need legal approval through KYC verification to establish user identities. Unverified customers are ineligible to receive any funds from the bankruptcy estate assets. The non-compliance touched 2,377 pages of claims evidence, resulting in a massive scope of disqualification. The initially estimated dollar amount for unprocessed claims reached $1 billion according to past reports. Sunil Kavuri, who leads FTX creditor advocacy, asserts that the exact amount surpasses those previously estimated by other experts.

Based on Sunil’s assessment, a total of $655 million was excluded for claims under $50,000 while additional $1.9 billion larger claims were removed. The overall number tops $2.5 billion. The combined value of these amounts exceeds $2.5 billion as it diminishes the pool of eligible creditors seeking repayment. The assets recovered by FTX amount to $11.4 billion, which will be used to disburse funds to creditors. FTX will distribute funds according to the asset evaluations at the time of its market failure in November 2022.

The payment procedure for future payments has already started its designated process. FTX Trading Ltd. and the FTX Recovery Trust provided a schedule when payments will be distributed during the next phase. According to Sunil, the next round will start using the investor records on April 11, 2025, before starting payments on May 30, 2025. The next payment round will process both large claims greater than $50,000 as well as small claims under $50,000 that remained outstanding during the first disbursement plan. The strategy puts first priority to creditors who hold substantial and unresolved claims within the payment layer.

FTX takes this action because international KYC regulations uphold it as a valid stance. As part of the bankruptcy procedure, clear deadlines needed to be set and lawfully required notices needed to be sent to all interested parties. FTX wants to pay back its confirmed creditors according to legal steps. Reducing claims by 392,000 will likely help the recovery fund systems become more effective for paying qualifying beneficiaries. Many people in cryptocurrency see how FTX moves forward with this new payment process because they hope remaining borrowers will ultimately recover their money.

Although the decision may disappoint unverified users, it follows legal protocols and enhances efficiency in fund allocation to users. With $11.4 billion recovered for distribution, FTX aims to prioritize substantial and pending claims in the upcoming disbursement cycle beginning May 30, 2025. However, the crypto community now awaits the next steps as FTX continues its effort to repay verified creditors. The cancellation of these claims underscores the importance of compliance with regulatory standards in the cryptocurrency industry. FTX's previous management had failed to collect key user data, which has now led to the disqualification of a substantial number of claims. This move is part of the ongoing efforts to streamline the bankruptcy process and prioritize legitimate claims. The company has raised $11.4 billion for distribution, which will be allocated to creditors whose claims have been verified and approved.