A group of customers has filed a lawsuit against FTX in order to get back their funds from the insolvent crypto exchange. The legal action, lodged as part of the bankruptcy proceedings in Delaware, seeks a court ruling that the assets held on the trading platform are the customers’ and not the bankrupt company.
Clients Sue FTX and SBF to Obtain Refund Priority Over Other Creditors
Four FTX customers put forward a suit on Tuesday against the digital currency exchange and its former executives, including its founder and former CEO, Sam Bankman-Fried (SBF). They asked the court to declare that the digital assets held on the platform are solely theirs and not the property of FTX or any other creditors.
Additionally, the group is requesting that its lawsuit be accepted in a collective action as part of the case. According to reports by Reuters and Bloomberg, FTX had filed for Chapter 11 bankruptcy protection in the Bahamas-based jurisdiction on November 11 as traders and investors rushed to withdraw their funds.
Following a series of legal actions to reclaim FTX’s assets, its new management promised that customers would be paid first. The latest lawsuit argues that “members of the client class should not have to line up with secured or unsecured creditors generally in these bankruptcy proceedings just to share in the diminished equity assets of FTX Group and Alameda.”
After his extradition to the United States, Bankman-Fried resigned as CEO. In the US, he could face charges related to a “fraud of epic proportions,” as a federal prosecutor put it. They also claimed that fiat and crypto customer deposits had been used to support the company’s operations.
Ex-SBF Also Responsible for Converting Client Holdings and Litigations
Also, the customers are suing Bankman-Fried’s ex-girlfriend and former Alameda CEO, Caroline Ellison. They claim that both of them should be held accountable for their violations of fiduciary duty to them, and the improper conversion of their holdings. Ellison pleaded guilty to the fraud charges. She testified that she had access to a loan facility consisting of FTX customers’ money.
The court is asked to decide on a proposed class action lawsuit that “cash and assets traceable to customers, which never belonged to FTX or Alameda and which do not belong” to other bankruptcy creditors “should be earmarked solely for customers.” It is intended to represent more than 1,000,000 FTX customers in the United States and around the world.
If the court decides that FTX holds the assets, the clients can request a ruling giving them priority over other creditors to the exchange. FTX was the second-largest crypto market before its crash last month.
In another report, citing an unnamed source, Bloomberg revealed that the US Department of Justice was investigating a cyberattack on FTX that resulted in a loss of more than $370M just hours after bankruptcy court filings in November. It is not yet known whether this was an inside job or a hacking incident.
Do you think FTX customers should be given priority rights for reimbursement over other creditors? Share your thoughts in the comments below.
