A group of creditors from the bankrupt FTX cryptocurrency exchange has filed an adversary lawsuit challenging the proposed payout plans, asserting that their deposits should be considered their property rather than belonging to FTX. The defunct exchange’s plan suggests repaying creditors based on November 2022 prices of digital assets, which are notably lower than their current market values. For instance, Bitcoin’s valuation at $43,250 currently was worth $16,800 in November 2022. In response, the creditors argue for a centralized approach to valuing millions of unliquidated claims based on digital assets in the Chapter 11 Cases.
FTX’s proposal involves dollarizing the values of claims based on digital assets other than fiat and stablecoins, relying on a Digital Assets Conversion Table. This table, based on Coin Metrics pricing, is used to estimate the values of the claims. FTX justifies this approach as necessary under the Bankruptcy Code and as the “most equitable approach.” However, creditors have raised objections, presenting varying opinions on how to value these claims.
Most of the claims against FTX are based on US dollar-denominated fiat and stablecoins, with a significant portion involving other assets that aren’t easily converted to US dollars. FTX believes that valuing these assets as of the petition date is essential, considering the volatile market conditions, to prevent claim values from fluctuating post-petition. The proposed order allows the court to evaluate claims based on digital assets before finalizing the disclosure statement and commencing the plan’s solicitation and voting.
While certain objections concerning the valuation of specific digital assets require further discovery and will be considered in a future evidentiary hearing in March 2024, FTX maintains that estimation is appropriate for claims based on digital assets. The exchange asserts that the values provided in the Digital Assets Conversion Table are fair and suitable. FTX’s legal team argues that treating some digital assets differently based on post-petition appreciation or depreciation would result in disparate treatment, violating the Bankruptcy Code and being inequitable for creditors.
As this legal battle unfolds, the court’s decision on the valuation of digital assets and the resolution of the lawsuit will undoubtedly have far-reaching implications for FTX’s creditors and the broader crypto community.
