FTX has filed a motion in court seeking to freeze creditor distributions in 49 countries with restrictive or unclear crypto laws. This action aims to ensure legal compliance before distributing crypto assets.
Reasons for Freezing Payouts
FTX's estate warned that sending funds to these jurisdictions could lead to fines, personal liability, or even criminal charges. These risks stem from local laws banning crypto activity or third-party intermediaries. Therefore, the FTX Recovery Trust proposes freezing affected payouts until legal clarity is obtained.
Objects of Dispute and Legal Consequences
China accounts for 82% of the disputed claim value, though it constitutes only 5% of the total claims. While crypto trading is banned in China, holding digital assets remains legal. Chinese FTX users are challenging the freeze, arguing they have the right to receive dollar-based payouts offshore. If court approval is granted, the trust will issue a 'Restricted Jurisdiction Notice' to affected creditors. They will have at least 45 days to file objections.
Overview of the Current Situation
Failure to file timely objections will result in claim forfeiture. Even creditors who object but lose in court will forfeit their claims. One Chinese user confirmed consulting legal counsel and plans to object through every legal channel. FTX initiated its second repayment phase in May, aiming to distribute $5 billion, but the freeze affects $500 million linked to blocked jurisdictions.
These actions by FTX aim to ensure compliance with local laws and protect the financial structure from potential legal repercussions. The importance of legal clarity in the cryptocurrency space continues to grow.
