FTX customers sue the company, former executives

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FTX customers sue the company, former executives

FTX customers filed a class-action lawsuit on 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 claim FTX's dwindling assets, which is already feuding with liquidators in the Bahamas and Antigua and the bankruptcy estate of Blockfi, another failed crypto company.

The lawsuit filed in the U.S. Bankruptcy Court in Delaware states that FTX had agreed to segregate customer accounts and instead allowed them to be misappropriated and therefore customers should be repaid first.

Customer class members must 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 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 faces charges in what a federal judge called a fraud of epic proportions that 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 been in a plea and was released last week on a $250 million bond that included limitations 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 complaint alleges the court 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. The assets of S. customers or other traceable customer assets are not FTX property. The complaint also demands the court to find that property held at Alameda that is traceable to customers is not Alameda property.

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

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