FTX customers sue the company, former executives over assets

FTX customers filed a class action lawsuit Tuesday against the failed crypto exchange and its former top executives, including Sam Bankman-Fried, seeking a declaration that the company's holdings of digital assets belong to customers.

The lawsuit is the latest legal effort to lay claim to the dwindling assets of FTX, which is already feuding with liquidators in the Bahamas and Antigua and the bankruptcy estate of Blockfi, another failed crypto company.

FTX pledged to segregate customer accounts and therefore allowed them to be misappropriated and therefore customers should be repaid first, according to the lawsuit filed in U.S. Bankruptcy Court in Delaware.

Customer class members should not have to stand in line along with secured or general unsecured creditors in these bankruptcy proceedings just to share the diminishing estate assets of the FTX GroupFTX Group and Alameda, the complaint said.

FTX, a Bahamas-based cryptocurrency exchange, halted withdrawals last month and filed for bankruptcy after customers rushed to pull their holdings from what was once the second-largest cryptocurrency exchange after questions surfaced about its finances.

Sam Bankman-Fried is facing charges stemming from a fraud of epic proportions that included allegedly using customer funds to support his Alameda Research crypto trading platform.

Sam Bankman-Fried has acknowledged risk-management failures at FTX, but said he does not believe he has criminal responsibility. He has not entered a plea and was released last week on a $250 million bond that included restrictions on his travel.

The proposed class, which wants to represent more than 1 million FTX customers in the United States and abroad, seeks a declaration that traceable customer assets are not FTX property. According to the complaint, the customer class also wants the court to find specific that property held at Alameda that is traceable to customers is not Alameda property.

The suit seeks a declaration from the court that funds were held in FTX U.S. accounts for U.S. customers and in FTX Trading accounts for non-U.S. customers. S. customers or other traceable customer assets are not FTX property. The customer class also wants the court to find specific that property held at Alameda that is traceable to customers is not Alameda property, according to the complaint.

If the court determines it is FTX property, then the customers seek a ruling that they have a priority right to repayment over other creditors.

Crypto firms are often based outside the U.S. and deposits are not guaranteed as U.S. bank and brokerage deposits are, complicating the question of whether the company or customers own the deposits.