FTX Faces Legal Challenge Over China Payout Restrictions

FTX, the bankrupt cryptocurrency exchange, has proposed a plan to restrict payouts to users in 49 jurisdictions where cryptocurrency regulations are unclear or strict. This proposal has sparked legal resistance from a group of Chinese creditors, who argue that the inclusion of China in the list is both factually incorrect and legally unsupported.

On July 8, 2025, FTX creditor Weiwei Ji filed an objection in the Delaware Bankruptcy Court on behalf of 300 other creditors. Ji, a Chinese passport holder and tax resident of Singapore, contends that distributing funds to users in China carries no regulatory or criminal implications. He argues that FTX claims are denominated and settled in U.S. dollars, not crypto, and can be lawfully received by Chinese residents through standard channels, including wire transfers via Hong Kong-based accounts.

Ji emphasizes that while retail trading of cryptocurrencies may be restricted in China, crypto ownership remains legal. He cites past rulings, including a 2024 decision by a Shanghai Court, which affirmed the protection of digital assets under civil law. Additionally, Ji points out that Hong Kong, which has a more favorable stance on crypto, operates under a separate legal framework and actively supports regulated digital asset activity.

To bolster his case, Ji references legal precedents such as the Celsius bankruptcy, where Chinese users were paid in USD, and the Mt. Gox rehabilitation, where Chinese creditors successfully received crypto payouts through Kraken. Neither of these cases imposed restrictions based on jurisdiction, further supporting Ji's argument.

FTX's motion to restrict payouts remains under review ahead of a court hearing scheduled for July 22. Ji is urging the court to reject any designation that would exclude Chinese creditors from receiving their share under the bankruptcy plan. The outcome of this legal challenge could set a precedent for how similar disputes are handled in the future, particularly in regions with stringent cryptocurrency regulations.

This legal objection highlights the complex regulatory environment surrounding cryptocurrencies and the challenges faced by exchanges operating in multiple jurisdictions. As more countries implement strict regulations on digital assets, exchanges like FTX face increasing difficulties in managing payouts to users in different regions. This situation underscores the significant impact of regulatory uncertainties on the cryptocurrency market and the broader implications for the industry.