FTX Creditor Challenges Proposed Payout Block for Restricted Jurisdictions

A Chinese creditor has filed an objection to a motion by the FTX estate that seeks to pause payouts to users in countries with restrictive cryptocurrency laws. The creditor argues that this policy unfairly penalizes compliant creditors and could affect over 300 individuals.

The objection was filed by Weiwei Ji, who resides in Singapore but holds a Chinese passport, challenging a motion from the FTX estate on July 2. This motion proposes pausing distributions to residents in 49 jurisdictions, including China, Russia, Egypt, and Ukraine, citing concerns that making payouts into these regions could expose the estate and its directors to legal or criminal penalties.

Mr. Ji stated that he has been designated as a Chinese creditor and submitted the objection on behalf of a group of similarly affected individuals. "My family holds four KYC-verified accounts with aggregate claims exceeding $15 million," Ji wrote in the court filing. "We have fully complied with every procedural requirement under the Plan. The proposed motion now jeopardizes our right to distribution in an arbitrary and inequitable manner."

Mr. Ji's filing asserts that FTX's planned distributions are denominated in U.S. dollars, a legally recognized form of repayment, and that under Chinese law, cryptocurrencies are classified as "personal property" rather than banned assets. The FTX estate's motion, submitted to the U.S. Bankruptcy Court in Delaware, lists jurisdictions where crypto laws are deemed unclear or hostile, noting that approximately 5% of total approved claims fall under this category.

FTX began repayments in February, based on the dollar value of crypto holdings at the time of the exchange's collapse in November 2022. While the estate has performed well in dollar terms, some creditors have expressed dissatisfaction, arguing they would have received larger returns if paid in crypto due to price surges since the collapse.

Recovery rates vary by claim category, with dotcom platform customers receiving 72% of approved claims, U.S.-based customers 54%, general unsecured creditors and digital asset loan claimants 61%, and convenience claims 120%.