The failed cryptocurrency exchange and its former top executives, including Sam Bankman-Fried, filed a class action lawsuit Tuesday 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 currently feuding with liquidators in the Bahamas and Antigua as well as the bankruptcy estate of Blockfi, another failed crypto company.
FTX said it had the power to segregate customer accounts and instead allowed them to be misappropriated and therefore customers should be repaid first, according to the suit filed in the 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 in the diminishing estate assets of the FTX GroupFTX Group and Alameda, the complaint said.
FTX halted withdrawals last month and filed for bankruptcy, after customers rushed to pull their holdings out of what was once the second-largest cryptocurrency exchange, after questions surfaced about its finances.
Sam Bankman-Fried faces charges related to a fraud of epic proportions, which included allegedly using customer funds to support his Alameda Research crypto trading platform.
Sam Bankman-Fried has admitted risk management failures at FTX, but said he does not believe he has criminal responsibility. He has not entered a plea and was released on a $250 million bond last week 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. 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 FTX Trading accounts for non-U.S. customers. The assets of 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.
Although crypto companies are regulated and often based outside the United States, their deposits are not guaranteed as U.S. bank and brokerage deposits are, complicating the question of whether the company or customers own the deposits.