FTX Proposes Blocking 49 Countries From Creditor Repayments

Bankrupt crypto exchange FTX has submitted a proposal to the court, seeking authorization to designate 49 countries, including China, as “Potentially Restricted Jurisdictions.” This move could potentially deny billions in creditor repayments to users in these regions where crypto faces legal restrictions. The proposal, detailed in a court filing, aims to navigate the complex legal landscape and ensure compliance with local laws.

Under the proposed plan, claims from these 49 countries will initially be treated as “disputed.” The FTX Trust will first seek legal opinions for each jurisdiction. If distribution is deemed legally permissible, payouts will proceed. However, if legal advice indicates that distributing funds would violate local laws, the Trust will issue a formal notice to affected creditors. These users will then have a 45-day window to file a formal objection, including submitting it to a U.S. court. If a jurisdiction is ultimately deemed “restricted” and a claimant remains a resident there when repayments are processed, their funds and any associated interest “shall be immediately forfeited and revert to the FTX Recovery Trust.”

This proposal has sparked significant backlash from affected users, particularly those from China, who reportedly represent 82% of the affected claim value. Users have expressed frustration and anger, feeling that they are being unfairly penalized for circumstances beyond their control. One user argued that while mainland China does not support cryptocurrency trading, residents are allowed to hold cryptocurrencies and USD overseas, questioning why wire transfer settlement is not supported. Others have expressed despair, with some suggesting potential workarounds such as selling or transferring the claim to someone in an allowed jurisdiction.

Despite the controversy, other creditors have been making progress with their payments. Those with claims under $50,000 have already received 120% payouts, while larger claimants received 72.5% in May. The remaining 27.5% is expected through distributions extending into 2027. The fallout from FTX’s 2022 collapse continues to resolve elsewhere, with most celebrity endorsement lawsuits dismissed, though retired NBA star Shaquille O’Neal settled for $1.8 million.

FTX's decision to block claims from these countries is a strategic move to navigate the complex regulatory landscape. The exchange is seeking legal advice to determine the feasibility of distributing compensation to users in restricted jurisdictions. This process involves assessing the legal and regulatory frameworks in each affected country to ensure compliance with local laws. The exchange is also considering alternative methods to compensate users who are unable to receive payments directly.

The exclusion of users from 49 countries, including China, has significant implications for the cryptocurrency industry. It underscores the challenges faced by exchanges in operating across different regulatory environments. The decision also highlights the need for greater coordination and standardization of regulations to ensure a level playing field for all users. As the industry continues to evolve, it is crucial for exchanges to prioritize transparency and fairness in their compensation processes to maintain user trust and confidence.