Chinese Creditors Sue FTX Over $470 Million Payment Delay

More than 500 Chinese creditors have initiated legal action against the bankrupt crypto exchange FTX in a U.S. court, seeking the release of over $470 million in withheld payments. This lawsuit challenges FTX’s recent decision to delay payouts to users in 49 jurisdictions, including China, where cryptocurrency regulations are either unclear or stringent.

FTX’s legal team has justified the delay in payouts by citing the evolving and ambiguous rules surrounding digital assets in various regions. However, the Chinese creditors contend that this approach could create an unfair situation, allowing failed exchanges to selectively withhold payments from certain areas without valid reasons.

The group of creditors is also collaborating with regulators to ensure that FTX treats all creditors equitably during its bankruptcy proceedings, regardless of their geographical location. Their legal documents highlight concerns about the fairness of the process, the absence of proper procedures, and the lack of transparency from FTX’s restructuring team.

The FTX Trust has identified 49 foreign countries that may present legal challenges to distributing funds to creditors. These jurisdictions include major nations such as Russia, Ukraine, Pakistan, and Saudi Arabia. To navigate these obstacles, the Trust has proposed a detailed process known as the Restricted Jurisdiction Procedures.

This plan involves engaging legal experts in each country to assess whether distributions can be made while complying with local laws and regulations. If the legal review confirms that distributions can proceed in a particular country, the Trust will work with service providers to deliver the funds.

In the meantime, the Trust is actively working to reduce the number of restricted jurisdictions by monitoring legal changes and removing countries from the list whenever possible. However, some creditors, particularly those in China, have expressed strong concerns about the proposed plan, deeming it unfair and urging others to voice their objections.

In May, the FTX Recovery Trust commenced the second round of creditor payments, releasing approximately $5 billion to eligible claimants. This distribution is part of the ongoing effort to reimburse users affected by the collapse of the FTX cryptocurrency exchange. The latest payout targets claimants in both the Convenience and Non-Convenience Classes who have completed all pre-distribution requirements.

According to the announcement, the payout covered various categories of claims. Dotcom Customer Entitlement Claims received a 72% reimbursement, while U.S. Customer Entitlement Claims received 54%. Recipients received the funds in their accounts within one to two business days via the official partners.