Key takeaways:
- FTX customers claim they should not be required to wait with other creditors for fund recovery from the defunct crypto exchange.
- The lawsuit was filed in the United States Bankruptcy Court for the District of Delaware on December 27.
The customers of the defunct cryptocurrency exchange FTX decided to file a class action lawsuit against the business and its founder and former CEO Sam Bankman-Fried. They are asking for a ruling that the customers own the digital assets held by FTX.
According to the petition filed in the US Bankruptcy Court in Delaware, four plaintiffs filed the class-action on behalf of millions of former FTX customers, claiming that the firm’s digital assets belong to customers and that they should have priority and guaranteed access to those monies.
According to a statement made to prosecutors by former Alameda CEO Caroline Ellison, customer assets at FTX were improperly used to plug financial shortfalls in the closely related investment vehicle Alameda Research. FTX transfers to Alameda, according to the plaintiffs, were “illegal” and “in blatant contravention of FTX’s own customer agreements and terms of service, as well as legal principles and fundamental values of truth and fair treatment.”
The plaintiffs stress that the FTX User Agreement did not authorise the platform to borrow money from customers or use consumer funds for running costs. The complaint states that any withdrawal of money from client accounts constitutes “unlawful co-mingling, misappropriation, misuse, or conversion of customer property.”
According to the complaint, consumer class members should not have to wait in line in these insolvency procedures alongside secured or general unsecured creditors only to share in the depleted estate assets of the FTX Group and Alameda.
Customers should be given priority over any other cash held by or reclaimed by Debtors over any cash that can be traced to them, regardless of whether it was ever owned by FTX or Alameda or part of their estates.
The class action seeks a ruling that neither FTX assets connected to customers nor Alameda assets traceable to customers should be regarded as Alameda property.
Customers ought to have “priority rights to repayment and/or recovery” above other creditors, the petition stated, if the court determines that the funds continue to be FTX’s property.
