On Tuesday, clients of the defunct cryptocurrency exchange FTX and several of its former employees, notably Sam Bankman-Fried, launched a class action lawsuit in an attempt to have it ruled that the customer’s digital assets are rightfully held by the firm. This action is the latest attempt to seize control of the bankruptcy estate of Blockfi, another defunct cryptocurrency startup, and its remaining assets. FTX is already at odds with liquidators in the Bahamas and Antigua.
The action filed in U.S. Bankruptcy Court in Delaware alleges that FTX promised to separate client accounts but instead enabled them to be misused. “Customer class members should not have to stand in line along with secured or general unsecured creditors in these bankruptcy proceedings just to share in the diminished estate assets of the FTX Group and Alameda,” the lawsuit reads.
Unfortunately, FTX did not immediately react to our request for comment. Customers flocked to remove their holdings from the previously second-largest cryptocurrency exchange FTX, situated in the Bahamas after doubts were raised about the legitimacy of the company’s finances. FTX ultimately filed for bankruptcy last month.
The allegations against Bankman-Fried arise from his allegedly utilizing client cash to sustain his Alameda Research cryptocurrency trading platform, which the federal prosecutor has described as a “fraud of epic proportions.” Bankman-Fried has admitted that there were shortcomings in FTX’s risk management, but he maintains that he is not criminally liable. He was freed last week on a $250 million bail with travel limitations but has not yet filed a plea.
With over a million potential members, the proposed class demands a declaration that customers’ traceable assets are not FTX’s property. According to the lawsuit, the customer class also seeks a declaration from the court that any customer-traceable property held by Alameda is not Alameda property.
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Litigants are asking the court to rule that customers’ monies in their FTX U.S. accounts (for clients in the United States) and FTX Trading accounts (for clients outside the United States) and other traceable customer assets are not FTX’s property. The lawsuit also expressly requests that the court declare that any customer-traceable property owned by Alameda is not Alameda property.
If the court rules that the items in question belong to FTX, the consumers will ask for a declaration that they are entitled to reimbursement ahead of any other creditors. When it comes to crypto firms, the answer to the issue of who owns the deposits is murkier than usual because of the lack of regulation and the fact that many of them are situated outside the United States.
On Tuesday, customers of the now-defunct FTX cryptocurrency exchange, together with several former employees including Sam Bankman-Fried, filed a class action lawsuit seeking a ruling that the business is lawfully in possession of the customer’s digital assets.
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Jessa Martin is the author of Nogmagazine, A professional in writing by day, and novelist by night, she received her bachelor of arts in film from Howard University and her master of arts in media studies from the New School. A Brooklyn native, she is a lover of naps, cookie dough, and beaches, currently residing in the borough she loves, most likely multitasking.