On Tuesday, customers of the defunct crypto exchange FTX initiated a class action lawsuit against the exchange and its former top executives, including Sam Bankman-Fried. The lawsuit aims to assert that the digital assets held by the company rightfully belong to the customers.
This legal action is the most recent attempt to stake a claim on the diminishing assets of FTX, which is already entangled in disputes with liquidators in the Bahamas and Antigua, as well as the bankruptcy estate of Blockfi, another failed crypto company.
The lawsuit, filed in U.S. Bankruptcy Court in Delaware, alleges that FTX, despite pledging to segregate customer accounts, allowed them to be misappropriated. As a result, the customers argue that they should be prioritized for repayment over secured or general unsecured creditors in the bankruptcy proceedings involving FTX Group and Alameda.
FTX, which ceased withdrawals last month and filed for bankruptcy amid concerns about its financial stability, has not yet responded to the legal action.
Sam Bankman-Fried, facing charges related to what a federal prosecutor termed a “fraud of epic proportions,” including the alleged use of customer funds to support his Alameda Research crypto trading platform, has acknowledged risk-management failures at FTX. However, he denies criminal liability and is currently out on a $250 million bond with travel restrictions.
The proposed class in the lawsuit, representing over 1 million FTX customers globally, seeks a declaration that traceable customer assets are not the property of FTX. Additionally, they want the court to affirm that property held at Alameda, traceable to customers, does not belong to Alameda.
In the event the court deems the assets as FTX property, the customers are requesting a ruling granting them priority in repayment over other creditors. The unique challenges posed by lightly regulated crypto companies, often based outside the U.S., where deposits are not guaranteed, add complexity to the question of ownership of deposits between the company and its customers.