FTX Rejects 500,000 Claims Lacking KYC Compliance

FTX, the bankrupt cryptocurrency exchange, has received court approval to reject claims from creditors who did not complete the Know Your Customer (KYC) process before March 3, 2025. This decision, outlined in an April 2 court filing, invalidates 2,378 pages of claims, encompassing around 500,000 entries. The court order explicitly states that any claim not supported by KYC compliance will be disallowed.

According to the filing, "In accordance with the Order, each claim set forth on Exhibit A attached hereto has been expunged and disallowed in its entirety." This move is part of a broader effort to ensure that only compliant creditors are eligible for payouts. Creditors were previously advised to complete KYC steps to retain their eligibility for future distributions.

Sunil Kavuri, an activist for the creditor community, highlighted on social media that additional claims could be removed after June 1 if the necessary documentation is not submitted. He estimated that the exchange could disqualify up to $655 million in claims under $50,000 and around $1.9 billion in larger claims if users fail to provide KYC documents.

Another advocate for FTX creditors, known by the alias “Mr Purple,” offered a different perspective. He noted that out of 457,000 smaller claims, the estimated value stood at $344 million. Based on updated figures, he believes FTX’s total liabilities may decrease by roughly $300 million.

This development comes as FTX prepares to begin processing repayments for claims exceeding $50,000, scheduled to start on May 30. This marks a significant milestone in the ongoing bankruptcy case, which began in November 2022. Creditors with smaller claims, referred to as “convenience claims” by the estate, have already received payments in February.

Backpack, the exchange that acquired FTX’s European unit, has also started assisting affected users. Former FTX EU customers have been instructed to create accounts, submit KYC documents, and link their old claim data to the new platform. However, the platform has not yet provided a timeline for when repayments will commence.

Despite these advancements, creditors in certain regions, including China, Russia, Egypt, Nigeria, and Ukraine, remain excluded from all distributions. This exclusion underscores the complex and challenging nature of the bankruptcy process, which involves navigating various legal and regulatory hurdles.