FTX customers file class action to lay claim to dwindling assets

Customers of FTX have filed a class action lawsuit seeking a determination that the company's holdings of digital assets belong to the customers against the bankrupt cryptocurrency exchange and its former senior executives, including Sam Bankman-Fried.

The case is the most recent attempt to use the legal system to assert ownership over the diminishing assets of FTX, which is already at odds with liquidators in the Bahamas and Antigua as well as the bankruptcy estate of Blockfi, another defunct cryptocurrency business.

According to the case filed in U.S. Bankruptcy Court in Delaware, FTX promised to separate client accounts but instead enabled them to be misused; as a result, consumers should be compensated first.

The lawsuit said that class members of customers "should not be required to wait in line with secured or general unsecured creditors in these bankruptcy proceedings only to partake in the decreased estate assets of the FTX Group and Alameda."

A request for comment from FTX was not immediately complied with.

Customers hurried to remove their assets from the Bahamas-based FTX, which was formerly the second-largest cryptocurrency exchange, when concerns about its finances appeared. As a result, the company ceased withdrawals and declared bankruptcy last month.

Bankman-Fried is accused of participating in a "fraud of epic proportions" that includes utilizing client money to sustain his Alameda Research cryptocurrency trading platform, according to a federal prosecutor.

Although Bankman-Fried admitted that FTX had poor risk management, he insisted that he did not think he was criminally responsible. He was freed last week on a $250 million bail with travel limitations despite the fact that he has not yet filed a plea.

Traceable client assets are not considered to be FTX property, according to the proposed class, which aims to represent more than 1 million FTX consumers both domestically and overseas. The lawsuit states that the customer class wants the court to expressly rule that any property held at Alameda that may be linked back to consumers is not Alameda property.

The action requests that the court rule that monies kept in FTX Trading accounts for non-U.S. clients and in FTX U.S. accounts for U.S. customers are not FTX property. The lawsuit states that the customer class wants the court to expressly rule that any property held at Alameda that may be linked back to consumers is not Alameda property.

The consumers ask for a decision that they have a priority right to reimbursement above other creditors if the court decides it is FTX property.

The issue of whether deposits belong to the firm or the consumers is complicated by the fact that crypto companies are not heavily regulated, often have operations outside of the United States, and do not provide the same level of deposit protection as U.S. banks and brokerages.