FTX customers file class action suit to have their payments prioritized

FTX customers file class action suit to have their payments prioritized

2022/12/28

Four FTX customers filed a class action lawsuit demanding priority in repayment, citing $2 billion in customer funds which have gone missing.

The suit was filed in the U.S. Bankruptcy Court for the District of Delaware, where FTX's bankruptcy proceedings are ongoing. Retail customers who suffered financial losses following the bankruptcy filing of FTX and sister company Alameda Research “should not have to stand in line” with other creditors waiting for fund recovery, the complaint argues.

Customer funds at FTX were misappropriated to cover financial gaps in closely affiliated investment fund Alameda Research, former Alameda CEO Caroline Ellison told prosecutors in a statement. The plaintiffs said that “unlawful” FTX transfers to Alameda were “in direct violation of FTX’s own customer agreements and terms of service, as well as common law and basic principles of honesty and fair dealing.”

A committee representing unsecured creditors was formed in mid-December for over 100 entities invested in the collapsed exchange and its affiliated companies who did not have collateral for what FTX owes them.

“Cash and assets traceable to customers, which never belonged to FTX or Alameda and do not belong to the estates, should be earmarked solely for customers, and victimized customers should likewise have priority to any other cash possessed or recovered by [the group of affiliated debtors],” the court filing reads.

FTX and Alameda co-founder Sam Bankman-Fried faces multiple fraud charges that could land him up to 115 years in prison. Ellison and FTX co-founder Gary Wang pled guilty to criminal and civil charges earlier this month, increasing the already intense legal pressure on Bankman-Fried.

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.

Reference : https://www.theblock.co