FTX customers, whose digital assets have been trapped since the cryptocurrency exchange’s collapse, have voiced their frustration with the recently approved bankruptcy plan. Many are dissatisfied with the proposed method of repayment, which fails to account for the surge in cryptocurrency prices since FTX’s implosion nearly two years ago.
The court-sanctioned plan, approved on October 7, will allow FTX to repay its customers using up to $16.5 billion in assets recovered since the exchange’s downfall. However, customers argue that the compensation scheme is unjust, as it reimburses them based on the value of Bitcoin and other digital assets as of November 2022, rather than their current higher prices. Bitcoin, for example, has skyrocketed from $16,000 in November 2022 to over $62,500 today.
“Justice has not been served,” says Sunil Kavuri, a representative of FTX’s largest creditor group, who has $2 million locked in the exchange. “They are being paid back the price of Bitcoin in November 2022, plus a proposed interest rate. Importantly, it sets a dangerous precedent for future bad actors to commingle customer property and claim it as their own, as the FTX debtors have done.”
Kavuri, who has spent the last two years volunteering to support the FTX community, is among many customers who prefer to be paid back in cryptocurrency rather than cash. “Many customers would like to be paid in crypto rather than cash. We filed an objection to the plan requesting debtors to allow for the option for creditors to receive their claim back in kind or crypto,” he adds.
The bankruptcy plan promises to repay 98% of customers who held $50,000 or less on the platform within 60 days of the plan’s effective date, likely in early 2025. However, larger creditors will face a longer wait for their repayments, with interest payments offered as partial compensation.
The collapse of FTX, once one of the world’s leading crypto exchanges, followed revelations that founder Sam Bankman-Fried had used customer funds to cover risky bets made by his hedge fund, Alameda Research. Bankman-Fried was sentenced to 25 years in prison in March for stealing from FTX customers, a conviction he is currently appealing.
At the heart of the controversy is the FTX debtors’ claim that customer property, once commingled, becomes part of the estate. Kavuri disputes this, stating, “The exchange’s terms of service are explicitly clear and unambiguous – the title of digital assets remains with the customer.” He continues, “If this was the case, Sam Bankman-Fried would not have gone to prison for 25 years for stealing customer property.”
Lidia, another FTX customer, shares her distress after losing funds that had been compensation for a life-changing car crash. “This money was the only way to give me an old age with dignity,” she explains. “First, I was confused, then depressed, then suicidal. Nobody was giving me any sort of answer.” Lidia argues that her property rights have been “trampled” under the restructuring plan.
The long wait for compensation has taken a toll on many FTX customers, with Kavuri noting that some have suffered significant mental health issues, and there have been at least three suicides linked to the financial losses.
Talal Tabbaa, CEO of crypto trading platform CoinMena, believes that “a good portion of the FTX payouts will find their way back into crypto,” reflecting confidence in the market’s future. Meanwhile, Bhavik Mehta, deputy head of research for investment products at Century Financial, warns that the FTX scandal highlights the urgent need for regulators to provide clearer guidelines for the crypto space.