Small creditors put at risk by latest FTX bankruptcy development

Josh O"Sullivan10 hours agoSmall creditors put at risk by latest FTX bankruptcy developmentThe transfer of the bankruptcy claim from FTX EU to FTXcreditor could have a significant impact on stakeholders.6428 Total views3 Total sharesListen to article 0:00NewsOwn this piece of crypto historyCollect this article as NFTJoin us on social networksA significant claim against FTX EU — previously known as K-DNA Financial Services —has been transferred to FTXcreditor in the latest development in the FTX bankruptcy case. The transfer has the potential to accelerate all further proceedings but also presents risks to smaller creditors.

According to the documents filed in the U.S. Bankruptcy Court for the District of Delaware on May 15, the claim is part of the ongoing Chapter 11 proceedings previously held against FTX EU.

The transfer was conducted under the rules required by the Federal Rules of Bankruptcy Procedure, particularly Rule 3001(e)(2), which deals with claims transfers:"Seller hereby waives any notice or hearing requirements imposed by Rule 3001 of the Federal Rules of Bankruptcy Procedure, and stipulates that an order may be entered recognizing this Evidence of Transfer of Claim as an unconditional assignment and Buyer as the valid owner of the claim.”

The move is a strategic attempt to simplify the administrative processes of the bankruptcy case by consolidating all claims under a single creditor.

Though this has the potential to expedite the case toward a conclusion, it does present a risk to smaller creditors. Due to the single-point of entry to claims through the company, smaller creditors could be overshadowed in favor of larger creditors — receiving less or less favorable terms.

The new single claim holder, FTXcreditor, is represented by Michael Bottjer; however, the transferor’s identity remains confidential at this time.“To protect the identity of the Transferor, Transferee has not disclosed the Transferor’s name or address, and has not attached the signed Evidence of Transfer to this Notice of Transfer of Claim.”

The lack of transparency could raise questions about the handling of the bankruptcy process amid this consolidatory process — exposing risks for manipulation where claim transfer identities remain shrouded behind anonymity.

Related: Post-FTX crypto industry needs education before regulation: Former Biden advisor 

After filing for bankruptcy in November 2022, the cryptocurrency exchange FTX faced sudden financial downturns, which have had lasting consequences for all affected creditors.

Since then, regulations — particularly in the U.S. — have honed in on cryptocurrencies in an attempt to assert more controls and ensure investor safety. 

This latest development in the case follows a recent development from FTX co-founder Sam Bankman-Fried, who maintained his innocence after his 25-year jail sentence.

In an interview on May 9, Bankman-Fried described his experience, explaining that he had been living on beans and rice — the latter becoming what he called “one of the currencies of the realm inside.”

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