Unresolved Issues: FTX Creditors’ Complaints and Ripple Case Resurgence

In 2024, the upheavals of past years in the cryptocurrency market continue to make their presence felt. Recently, creditors of the collapsed FTX deemed the compensation amounts “unfair,” while the SEC once again attempted to revive the Ripple case. 

A Flawed Plan

FTX creditor activist Sunil Kavuri reported that he and lawyers from the firm Moskowitz & Boies filed an objection to FTX’s motion to estimate claims against the company. 

My lawyers Moskowitz and Boies that represent FTX creditors in MDL filed an objection to Debtors motion to estimate claims at petition

Fighting for FTX creditors to maximise recovery for FTX creditors

We may commence our adversary proceeding for property rights as unresolved pic.twitter.com/kBx8KWyScU

— Sunil (FTX Creditor Champion) (@sunil_trades) January 12, 2024

Earlier, the exchange submitted a revised reorganisation plan to the court, valuing client assets at the rate on the bankruptcy filing date—November 11, 2022. At that time, Bitcoin was trading around $17,000.

Kavuri noted that the new reorganisation plan contradicts FTX’s Terms of Service. According to the document, digital assets on the platform are the property of users.

According to the creditor, clients of the trading platform are entitled to receive “at least [the nominal] value of the cryptocurrency [in kind].”

However, the Official Committee of Unsecured Creditors supported FTX’s proposal, stating that “a collective valuation of claims is the most efficient way to simplify and expedite the bankruptcy process.” 

According to Cointelegraph, several private clients of the exchange also contested the compensation plan before its final approval. FTX intends to set user asset prices on January 25 during a court hearing. 

Some creditors agree that the proposal is unfair, as it deprives holders of volatile assets like Bitcoin, Ethereum, and Solana of the opportunity to profit from their recent rise. 

Furthermore, according to the bankruptcy plan, over $700 million in FTT and FTX tokens belonging to clients will be cancelled.

Old Grievances

On January 11, lawyers for the U.S. Securities and Exchange Commission filed a motion requiring Ripple to disclose financial statements for the period from 2022 to 2023, as well as “contracts post-complaint governing institutional sales.”

“The SEC requests this limited and targeted disclosure to assist Judge Analisa Torres in determining whether Ripple violated the Securities Act and to apply appropriate remedies, such as injunctions and civil penalties,” the document states. 

In turn, Ripple requested additional time—until January 19—to respond to the regulator’s motion to compel.

In December 2020, the Commission filed a lawsuit against the California company. The agency alleged that the firm sold unregistered securities in the form of XRP worth ~$1.39 billion over seven years.

On June 13, 2023, the company achieved a partial victory in the case. Judge Torres ruled that programmatic sales and other distributions of tokens do not constitute the sale of investment contracts. However, the sale of XRP to institutional industry participants violated securities laws.

In October, the SEC withdrew its lawsuit against Ripple co-founder Chris Larsen and CEO Brad Garlinghouse, which accused them of violating securities laws.

Do Kwon Seeks Court Appearance

Do Kwon, co-founder of the collapsed Terraform Labs (TFL), who remains imprisoned in Montenegro, has requested a U.S. court to postpone the SEC trial.

CRYPTO IN THE COURTS: Do Kwon Wants to Attend SEC Terraform Labs Trial So He Asks to Delay It to Mid March for Extradition — Inner City Press story: https://t.co/R3mq5kcsYs Full filing on Patreon here https://t.co/rQd294gK8k pic.twitter.com/3d525J8B4p

— Inner City Press (@innercitypress) January 12, 2024

The former head of TFL wants to attend the hearing in person, but due to the postponement of the extradition process, he will be unable to do so on the scheduled date. 

“The lawyer hoped that the extradition procedure in Montenegro would proceed faster. Unfortunately, it now appears that Mr. Kwon is unlikely to be extradited before February or March [2024],” the statement reads. 

In case of refusal, to avoid a biased verdict, the entrepreneur requested that the jury be informed that his absence was unintentional.

Earlier, in a summary judgment, the court found that TFL offered and sold unregistered securities in the form of UST, LUNA, wLUNA, and MIR. 

However, the fraud lawsuit will be heard by a jury—the motions for summary judgment from both sides were denied. The first hearing is currently scheduled for January 24, 2024. 

In addition to the U.S., South Korean authorities have also filed claims against Kwon, including violations of capital market laws.