A group of creditors of the bankrupt crypto exchange FTX filed an adversary lawsuit in response to the proposed payout plans, seeking to establish that deposits are their property rather than FTX’s.
The proposed plan of the defunct exchange would see creditors repaid based on November 2022 prices of digital assets, which are significantly lower than their current values. For instance, Bitcoin, currently valued at $43,250, was worth only $16,800 in November 2022.
Creditors Demand ‘Fair Valuation’ Of Digital Assets
In their filing, the creditors highlight the need for a centralized approach to value the millions of unliquidated claims based on digital assets in the Chapter 11 Cases. They argue that a “fair and compliant valuation” is necessary for plan solicitation, voting, setting reserves, and making distributions.
Most of the value of claims against FTX is based on US dollar-denominated fiat and stablecoins. At the same time, a significant portion includes other assets that are not easily converted to US dollars.
To address this, FTX proposes dollarizing the values of claims based on digital assets other than fiat and stablecoins. They rely on a Digital Assets Conversion Table, based on Coin Metrics pricing, to estimate the claims’ values.
FTX believes that valuation based on the petition time pricing for digital assets is required under the Bankruptcy Code and offers the “most equitable approach.”
However, the creditors’ objections reflect varying opinions on how to value these claims, with each objector advocating for their interests. In contrast, FTX, as a fiduciary for the estates as a whole, seeks a methodology that complies with the Bankruptcy Code and treats creditors “fairly.”
FTX Defends Digital Asset Valuation Methodology
The proposed order allows the court to evaluate claims based on digital assets before finalizing the disclosure statement and commencing the plan’s solicitation and voting.
Certain objections concerning the valuation of specific digital assets, such as MAPS, OXY, and SRM, require further discovery and will be considered in a future evidentiary hearing in March 2024.
FTX acknowledges that estimation is appropriate for claims based on digital assets and asserts that the values provided in the Digital Assets Conversion Table are fair and suitable.
Moreover, the exchange further argues that valuing assets as of the petition date is necessary to acknowledge a volatile market and prevent claim values from fluctuating post-petition.
The bankrupt exchange’s legal team contends that treating some digital assets differently based on post-petition appreciation or depreciation would result in disparate treatment, violating the Bankruptcy Code and being inequitable for creditors.
Despite complaints from creditors regarding the significant price changes since the petition date, Bitcoinist reported that FTX maintains that bankruptcy law requires digital asset repayment prices to be determined based on the filing date for bankruptcy in November 2022.
As the legal battle unfolds, the court’s decision on the valuation of digital assets and the lawsuit’s resolution will have significant implications for FTX’s creditors and the broader crypto community.
Featured image from Shutterstock, chart from TradingView.com