FTX victims go after company’s assets from criminal forfeiture

The NFT Unicorn f03c7ac6-10dc-42c4-9e1b-ebfb17304792 FTX victims go after company’s assets from criminal forfeiture Crypto News

Different groups have filed competing claims over some or all of the assets at issue in the criminal case against former FTX CEO Sam Bankman-Fried, who is currently serving a 25-year sentence in federal prison.

In a June 14 filing in the United States District Court for the Southern District of New York, lawyers representing the FTX debtors and the firm’s Bahamian entity, FTX Digital Markets, argued that they had a “superior right” to assets that may be used to satisfy the court’s $11-billion judgment against Bankman-Fried. The legal team claimed that FTX’s aircraft, funds held at Signature Bank, Farmington State Bank and Silvergate Bank, the sale of shares of Robinhood stock and political contributions associated with former FTX executives should not be used for Bankman-Fried’s judgment but to benefit victims of the defunct exchange.

Source: Courtlistener

“Amending the Preliminary Forfeiture Order to provide for the return the Specific Property to the Debtors and/or FTX Digital will benefit all the creditors and stakeholders in the Debtors’ Chapter 11 bankruptcy proceedings and FTX Digital’s liquidation in The Bahamas, including victims of Bankman-Fried’s crimes,” said the June 14 filing. “Distributing the value of the Specific Property to the more than 1 million victims of BankmanFried’s criminal scheme is no small feat, and doing so through the Debtors’ existing claims administration architecture and processes will maximize the funds available for distribution by minimizing the incremental administrative and professional costs.”

Everyone wants a piece of the pie

The debtors’ petition followed two filed on June 14 by lawyers representing the company and joint liquidators of Emergent Fidelity Technologies. The firm held more than 55 million shares of Robinhood for Bankman-Fried and FTX co-founder Gary Wang. The petition focused solely on the Robinhood shares and $20 million held by Emergent rather than the other FTX assets claimed by the debtors. 

Separately, a group of claimants “whose digital assets were stolen by SBF,” represented by crypto lawyers Adam Moskowitz and David Boies, filed a petition calling for a judge to surrender the forfeited assets in the criminal case to FTX users rather than the debtors. Sunil Kavuri, one of FTX’s customers who also testified against Bankman-Fried, is one of the plaintiffs in the case.

“The Bankruptcy Estate is laden with conflicts that may risk compromising the just distribution of the Forfeited FTX Customer Assets to FTX customers, as well as possibly the integrity of that distribution process,” said the filing.

At the time of publication, Judge Lewis Kaplan had not filed a decision regarding a potential hearing or judgment over the three petitions. FTX’s bankruptcy case in the District of Delaware filed a proposed reorganization plan in May to reimburse creditors. Some, including Kavuri, have objected, claiming that the proposal doesn’t account for losses due to U.S. taxes.

Related: FTX reaches $200M settlement with IRS on tax bill

Bankman-Fried was convicted of seven felony counts related to his role in the misuse of customer funds between FTX and Alameda Research. In March, Judge Kaplan sentenced him to 25 years in prison. His lawyers have filed a notice of appeal, and he will remain in custody at the Metropolitan Detention Center in Brooklyn as the process moves forward.

Other former FTX and Alameda executives involved in the firm’s collapse — Wang, Caroline Ellison and Nishad Singh — have pleaded guilty and await sentencing after testifying at Bankman-Fried’s criminal trial. Ryan Salame, former co-CEO of FTX Digital Markets and the only individual charged who did not testify at SBF’s trial, was sentenced to 90 months in May. He is expected to report to prison on Aug. 29.

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