FTX Bankruptcy Objections

Overview

Recent documents filed in the FTX bankruptcy reveal objections to the amended reorganization plan from the U.S. Trustee, Andrew R. Vara, and a group of creditors.

U.S. Trustee’s Concerns

The U.S. Trustee outlined ten critical flaws with the amended plan, despite the FTX estate claiming it has broad creditor approval. Key points include:

• Legal Exemptions: The Trustee criticized the plan for providing broad legal exemptions to those involved in the bankruptcy.
• Unequal Reimbursement: There is an unequal distribution of reimbursements according to claim size.
• Data Breach Costs: The plan refuses to cover costs associated with a data breach from last year. Vara stated, “The Debtors’ estates should not bear that cost.”

Distribution Scheme Issues

Vara highlighted that customers in ‘convenience’ classes would receive a smaller percentage distribution compared to larger claimants, indicating there is no legal distinction justifying this disparity.

Exculpation Concerns

The Trustee also criticized the plan for providing unfamiliar immunity to estate administrators and advisors, which exceeds typical protections under relevant laws.

Ongoing Investigations

The FTX bankruptcy is also under investigation by prosecutor Robert Cleary, who was reappointed as an independent examiner after a ruling was overturned.

Creditors’ Complaints

Sunil Kavuri, representing the largest FTX creditor group, filed his own objections alongside other representatives for retail customers. His main points include:

• The overly broad definition of Exculpated Parties in the plan.
• A call for creditors to receive in-kind reimbursements, allowing them to reclaim lost bitcoin instead of monetary value, which would avoid triggering a taxable event.

Kavuri pointed out that other bankruptcies, like BlockFi’s, successfully accommodated such requests.

With the deadline for objections passed, no further filings are anticipated before the confirmation hearing on October 7.

Correction

An earlier version of this story misstated the role of the Trustee and the independent examiner.