FTX Recovery Trust Seeks Court Approval for Restricted Jurisdiction Procedures to Handle 5% of $16 Billion Claims

The FTX Recovery Trust has made a significant move in its efforts to return billions of dollars to creditors worldwide. In a recent court filing, the Trust has requested permission to implement new legal procedures to handle claims from creditors located in what it refers to as “restricted jurisdictions.” These jurisdictions, which include 49 countries, present legal and geopolitical challenges that could hinder the distribution of funds to creditors. Notably, China accounts for 82% of the claims from these restricted regions, which collectively represent about 5% of the total estimated $16 billion in claims.

The complexities arise from sanctions regimes, capital controls, and regulatory hurdles that vary across different countries. For FTX, which collapsed in late 2022, the task of recovering and distributing billions of dollars is already daunting, and navigating conflicting foreign laws adds to this burden.

The proposed “Restricted Jurisdiction Procedures” outline a multi-step plan. The Trust intends to hire local attorneys in each of these jurisdictions to assess whether distributions to creditors can be made lawfully and in compliance with both local and U.S. laws. If local legal counsel determines that compliance is possible, the Trust will proceed with distributions using licensed service providers. However, if compliance cannot be ensured, the Trust plans to notify affected creditors and seek a court order to formally designate that country as a restricted jurisdiction.

If a jurisdiction is officially designated as restricted, creditors in that country will have 45 days to object to the ruling. If no objection is filed, or if objections are overruled by the court, creditors’ claims in those regions will be marked as “Disputed Claims.” This means any funds earmarked for those claimants will be forfeited and revert back to the FTX Recovery Trust for redistribution among eligible creditors elsewhere. The Trust has emphasized that no payments will be made if doing so would violate local laws, stating that “Distributions that cannot be made due to the illegality of doing so under the laws of a Restricted Foreign Jurisdiction will not be made and any interest in such Distribution shall revest in the FTX Recovery Trust.”

These restrictions are not necessarily permanent. The Trust is actively working to reduce the number of countries on the restricted list by clarifying local regulations. If circumstances change, such as a relaxation of capital controls or improved legal clarity, jurisdictions could be removed from the list, and creditors there might see distributions resumed in the future. However, some creditors have expressed frustration, with one creditor based in China posting on social media that they will take action and raise objections at every stage, calling the move “absolutely unreasonable.”

The court is scheduled to review this motion on July 22. If the plan is approved, the Trust will immediately engage local legal counsel, notify creditors, and manage any objections as it continues its efforts to return as much money as possible to rightful owners. This move comes as the Trust expands its distribution network, having recently brought on Payoneer as a third-party distributor, expanding coverage to creditors in 93 jurisdictions. However, many creditors in restricted regions remain out of reach of Payoneer and other distribution channels, fueling discontent and further complicating the path to closure.

The FTX collapse remains one of the biggest black swan events in crypto’s short history, and the road to restitution is proving just as complex as the downfall itself. This latest legal maneuver shows that the Trust is aware of both legal realities and creditor sentiment—but striking a balance between the two won’t be easy. If the proposed Restricted Jurisdiction Procedures are approved, some creditors may find themselves locked out of recovery for the foreseeable future. For others, the Trust’s cautious legal approach might be the only viable way to ensure that distributions are lawful, sustainable, and protected from future clawbacks.

All eyes will be on the court hearing later this month. For thousands of creditors worldwide, it could decide whether long-frozen funds finally start moving—or remain tangled in a web of cross-border legal uncertainty.