- Global crypto laws are delaying payouts for thousands of FTX creditors.
- China accounts for over 80% of the frozen funds.
- Nearly 400,000 customer claims were disqualified over KYC violations.
China’s crypto crackdown prevents the FTX Recovery Trust from paying out around $435 million to customers caught up in the fallout from Sam Bankman-Fried’s crumbled business empire, according to a Wednesday court filing.
The FTX Recovery Trust said it cannot proceed with payouts to residents of 49 jurisdictions where laws either prohibit or severely restrict crypto activity.
It said global cryptocurrency restrictions are creating even more obstacles, causing over $500 million of an estimated $10 billion in distributions to be frozen.
The filing warned that payouts to countries with crypto bans could drag the trust into “foreign legal proceedings at significant expense to stakeholders.”
China accounts for the lion’s share of the frozen funds, representing roughly 82% of the affected claims, or around $435 million.
FTX was never legally authorised to operate in mainland China, where authorities imposed sweeping bans on crypto trading and services years before the exchange’s collapse.
Despite that, many Chinese residents accessed FTX via offshore accounts or VPNs, leaving their claims in legal limbo under the recovery plan.
Self-proclaimed FTX creditor activist Sunil Kavuri summarised the process in a post on social media, explaining that the trust will first obtain formal legal opinions on whether distributions can legally be made to each potentially restricted jurisdiction.
“If it determines the resident is from a restricted jurisdiction, their claim will be disputed,” he wrote. “Creditors can object, but if it’s not resolved, they will forfeit their distribution interest.”
The repayment process
FTX commenced its second round of distributions at the end of May, with more than $5 billion going out to eligible customers across various claim classes.
Still, the process has been far from straightforward.
In April, FTX revealed that nearly 400,000 customer claims, potentially worth more than $2.5 billion, were disqualified after users failed to complete mandatory identity verification steps.
That included over $1.9 billion in larger claims now effectively wiped out due to know-your-customer noncompliance.
Bankman-Fried and Gary Wang co-founded FTX in 2019. The former quickly gained a reputation as a crypto wunderkind able to woo powerbrokers in Washington.
However, the crypto empire came crumbling down in 2022 after CoinDesk revealed financial discrepancies between FTX and its sister firm, Alameda.
Since then, several executives of the firm have been sentenced for their involvement with the business.
Crypto market movers
- Bitcoin has lost 0.6% of its value in the past 24 hours and is trading at $108,829.
- Ethereum is down 1.6% in the same period to $2,548.
What we’re reading
- Ripple and Circle are applying to become banks — here’s why that matters — DL News
- Ripple’s Legal Saga Is Over. But With Its Stablecoin Pivot, Where Does XRP Go? — Unchained
- OpenAI isn’t stoked with Robinhood — Milk Road
- Suspicious Polymarket activity triggers furore as bettors claim prediction outcomes are being manipulated — DL News
Kyle Baird is DL News’ Weekend Editor. Got a tip? Email at kbaird@dlnews.com
