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- Chinese users make up 82% of restricted FTX claims now at risk due to legal limits.
- FTX seeks court approval to block payouts where crypto laws prohibit distributions.
- Users in China prepare legal action as FTX moves to reject claims from banned jurisdictions.
FTX has filed a motion in U.S. bankruptcy court to enforce a new claims process that could block payouts to users in 49 restricted jurisdictions. Chinese users are the worst losers, though they account for 82 percent of the claimants in these regions.
According to the collapsed exchange, claims from such jurisdictions will only be authorized if regional legal counsel proves to them that the outgoing is legal. Otherwise, the latter claims might be challenged or refuted altogether in the distribution process. The move comes in the wake of tight governmental crypto regulations in several states, particularly China, where a complete crypto trading ban went into effect in 2021.
Chinese claimants, in turn, have most of the aforementioned, which make up only 5% of allowed claims in total. FTX made it clear that if a user still stays in a restricted place where payouts are not considered legal, then they do not have a legal channel for getting distributions. Legal Objections: In case the objections are not overcome, such users can be denied access to any form of compensation forever.
FTX is already repaying its creditors, with the second stage of distribution completed and $5 billion already paid. Yet, this new legal challenge poses a risk of shutting out thousands of users in mainland China from future rounds.
Chinese Creditors Fight Back as Legal Barriers Threaten Funds
Scores of Chinese players are currently getting ready to file lawsuits to protect their demands. As a post by one of the creditors, Sunil, explains, demanding users have been actively opposing FTX’s motion. A user on x, Will, confirmed that he had already retained an attorney in New York and is going to object to the proposed process.
Will added that although crypto trading is prohibited in China, Chinese citizens are permitted to own cryptocurrencies by law. He even asked questions as to why FTX was not able to accommodate USD wire transfers to Chinese customers when holding a foreign currency is not against the law.
Others are considering other options, such as the sale or transfer of their claims to claimants in a jurisdiction that allows payment. Nevertheless, not all users can implement these options.
If the court rules in favor of FTX, thousands of Chinese users are likely to walk away with nothing, although they are entitled to a legitimate claim in bankruptcy.
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