FTX customers file class action to claim assets in bankruptcy

A group of customers is now suing FTX in a bid to become the first to recover funds from the insolvent crypto-currency exchange. The lawsuit, filed as part of the bankruptcy case in Delaware, seeks a court ruling recognizing that their assets on the exchange platform belong to them rather than the bankrupt company.

Customers sue FTX and SBF for priority claim over other creditors

Four FTX customers filed a lawsuit Tuesday against the crypto-currency exchange and its former executives, including founder and former CEO Sam Bankman-Fried (SBF). They want the court to declare that digital assets held with the platform belong to its customers rather than FTX or its other creditors.

According to reports from Reuters and Bloomberg, the group is also asking that its complaint be accepted as a class action in the Delaware case. Bahamas-based FTX filed for Chapter 11 bankruptcy protection in the state on Nov. 11, as traders and investors rushed to withdraw their money.

Amid a number of lawsuits seeking to claim FTX’s assets, its new management promised that customers would get their money back first. The latest complaint insists that “members of the customer class should not have to stand in line with secured or general unsecured creditors in these bankruptcy proceedings just to share in the diminished assets of the FTX Group and Alameda“.

After his resignation as CEO and after his extradition from the Bahamas, Bankman-Fried faces charges in the United States related to a “fraud of epic proportions“, as one federal prosecutor put it. Among them was an allegation that customer deposits, in fiat and crypto, were used to support its Alameda Research crypto trading platform.

SBF’s ex is also responsible for converting customer assets, according to the lawsuit.

In addition to Bankman-Fried, the clients are also suing Caroline Ellison, his ex-girlfriend and former CEO of Alameda. They claim that both should be held liable for breach of fiduciary duty and unlawful conversion of assets. Ellison pleaded guilty to the fraud charges. In her testimony, she admitted that Alameda had access to a special loan facility that was FTX client funds.

The proposed class action asks the court to determine that “the money and assets attributable to the customers, which were never owned by FTX or Alameda and which do not belong to“to other creditors in the bankruptcy.”should be allocated only to customers“. It aims to represent more than 1 million FTX customers in the U.S. and around the world.

And if the court rules that the assets are FTX’s property, then the customers are seeking a judge’s ruling granting them priority right to repayment over other creditors of the exchange, which was the second largest in the crypto industry before it collapsed last month.

In a separate report citing a source familiar with the matter, Bloomberg revealed that the U.S. Department of Justice has launched an investigation into an alleged cyberattack on FTX that led to the loss of more than $370 million, just hours after the bankruptcy court filing in November. It remains unclear whether it was an inside job or a hack.