FTX Recovery Trust Halts Payouts to 49 Jurisdictions Over Legal Hurdles

The FTX Recovery Trust has announced that it will temporarily halt payouts to creditors in 49 foreign jurisdictions, pending legal clearance. This decision comes as local regulations in these regions prohibit either cryptocurrency trading or the use of distribution agents, complicating the process of distributing funds. The trust has informed the Delaware bankruptcy court of this measure, which affects a significant portion of the total claims, particularly in China.

The trust's filing with the court outlines a detailed framework for handling these disputed claims. Once the court approves the procedure, the trust will send a "Restricted Jurisdiction Notice" to all creditors in the affected countries. This notice will explain the reasons for the designation and set a deadline of at least 45 days for creditors to object. During this period, all distributions related to the challenged claims will be suspended. If the dispute remains unresolved by the distribution record date, the withheld amount and any accrued interest will revert to the estate.

Creditors who wish to object must submit a sworn statement accepting the jurisdiction of the US court. The trust will then seek a court ruling on the reasonableness of its determination of restricted jurisdiction. Failure to object within the specified deadline will result in an automatic forfeiture of the claim. The trust considers the service of notice complete once mail or email reaches the last address on file, deeming this effort "commercially reasonable."

According to the trust's advocate, Sunil Kavuri, the 49 jurisdictions represent about 5% of allowed claims but hold 82% of their dollar value, with China being the most significantly affected. The trust's strategy involves obtaining legal opinions on each jurisdiction, distributing funds where feasible, and formally disputing claims when residence in a blocked market is confirmed. Claims will remain disputed until the status of the potentially restricted foreign jurisdiction is resolved and the claim is either allowed or disallowed.