FTX Customer Lawsuit Seeks Recovery Of Digital Assets

Legal action continues after the speculator collapse last month of crypto exchange FTX, after a multi-billion dollar hole was found in its balance sheet.

Reuters has reported that FTX customers on Tuesday filed a class action lawsuit against the platform and its former top executives including Sam Bankman-Fried, who last week was released on a $250 million bail bond.

The FTX customer lawsuit reportedly seeks a declaration that the company’s holdings of digital assets belong to its customers.

Customers paid first

Last month, amid the aftershocks of the failure FTX, which had been among the world’s largest crypto exchanges, it emerged that the exchange faced $7 billion in total liability and could have more than 1 million creditors.

This week’s lawsuit is the latest legal effort to lay claim to the dwindling assets of FTX, which is already feuding with liquidators in the Bahamas and Antigua, as well as the bankruptcy executors of Blockfi, another failed crypto company, Reuters reported.

Th customer lawsuit, filed in the US Bankruptcy Court in Delaware, alleges that FTX pledged to segregate customer accounts and instead allowed them to be misappropriated and therefore customers should be repaid first.

“Customer class members should not have to stand in line along with secured or general unsecured creditors in these bankruptcy proceedings just to share in the diminished estate assets of the FTX Group and Alameda,” the complaint reportedly states.

The proposed class action, which wants to represent more than 1 million FTX customers in the United States and abroad, seeks a declaration that traceable customer assets are not FTX property.

The customer lawsuit also wants the court to find specifically that property held at Alameda that is traceable to customers is not Alameda property, according to the complaint.

According to Reuters, the lawsuit seeks a declaration from the court that funds held in FTX US accounts for US customers and in FTX Trading accounts for non-US customers or other traceable customer assets are not FTX property.

The customer lawsuit also wants the court to find specifically that property held at Alameda that is traceable to customers is not Alameda property, according to the complaint.

If the court determines it is FTX property, then the customers seek a ruling that they have a priority right to repayment over other creditors.

Sam Bankman-Fried

Last week Sam Bankman-Fried, who once had a net worth of $26 billion, appeared before Judge Gabriel Gorenstein in a US federal court in Manhattan, after he was extradited to the United States from the Bahamas.

The 30-year-old faces eight charges connected to his role in the collapse of the crypto exchange FTX, after a multi-billion dollar hole was found in its balance sheet.

He has been charged by the SEC of concealing his diversion of FTX customers’ funds to crypto trading firm Alameda Research, while raising more than $1.8 billion from investors, including approximately $1.1 billion from approximately 90 US-based investors.

Meanwhile Damian Williams, the US Attorney for the Southern District of New York, described the fraud Bankman-Fried is accused of as among the largest in US history.

The DoJ has charged Bankman-Fried with conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering.

Bankman-Fried has also been charged with conspiracy to defraud the Federal Election Commission and commit campaign finance violations.

Bankman-Fried has acknowledged risk-management failures at FTX but said he does not believe he has criminal liability.