FTX Creditors Object to Bankruptcy Plan Over Tax and Valuation Concerns

FTX Creditors Unhappy With Estate’s Plan, File Objection

FTX creditors have filed an objection to the cryptocurrency exchange’s proposed repayment plan, arguing that the FTX bankruptcy estate’s proposal is not in their best interests. The objection, submitted on June 5, outlines several concerns, including the potential for a “taxable event” due to investors receiving cash instead of digital assets.

“It is painfully apparent that the debtors’ proposed plan will inflict additional hardships on customers through forced taxation that could be avoided by making an ‘in kind’ distribution,” the filing states.

Dispute Over Asset Valuation

In addition to tax issues, creditors also disagree with the asset valuations assigned to their claims under the FTX plan. They question whether the John J. Ray III-led estate should distribute customer assets.

“The clear and unambiguous terms of service, as well as public records, including statements by the debtors, the CFTC, the SEC, guilty pleas by former controllers of the debtors, and testimony in Samuel Bankman-Fried’s criminal trial support the unequivocal conclusion that the Debtors seek to distribute stolen digital assets,” the objection notes.

Sunil Kuvari, an FTX creditor and activist, highlighted the discrepancy between the debtors’ position and the findings in the criminal case against SBF (Samuel Bankman-Fried), who was found to have misappropriated customer funds.

Concerns Over Legal Fees

The objection arises amidst ongoing debate over FTX’s handling of the bankruptcy estate, with creditors concerned about escalating legal fees. John J. Ray III, known for managing Enron’s bankruptcy, reportedly earned $1,575 an hour for his work with FTX this spring, according to The Block.

A May press release from FTX indicated that the estate expects to repay 118% of allowed claims to 98% of its customers. However, creditors like Kuvari argue that using the tokens’ value from November 2022, when the exchange initially filed for bankruptcy, is flawed and ignores potential gains that would have been realized had the exchange not collapsed.

“By breathlessly touting what they claim to be a full recovery with interest for customer creditors, debtors ignore that offering customers 129% recovery of the value of their cryptocurrency accounts as of the petition date is decidedly not the same as a full economic recovery,” the objection continues.

FTX’s Response

FTX has filed its own complaint against a group of creditors, alleging that their actions are delaying the completion of the bankruptcy estate.