The administrators of bankrupt crypto exchange FTX criticized traders and market makers on a key creditor panel, accusing them of seeking control of assets regardless of the impact on other stakeholders.
(Bloomberg) — The administrators of bankrupt crypto exchange FTX criticized traders and market makers on a key creditor panel, accusing them of seeking control of assets regardless of the impact on other stakeholders.
The dispute flared in the wake of last month’s draft reorganization plan from FTX’s new management team under Chief Restructuring Officer John J. Ray III. The official committee of unsecured creditors alleged a lack of consultation and said FTX is missing out on better returns from its vast cash and token holdings.
In a rebuttal filed on Wednesday, lawyers for FTX’s administrators said there had been extensive discussions between representatives of both sides and added that the creditor panel’s objections are “heavy with the weight of an unstated agenda specific to the individual members of the committee.”
‘Unrestricted’ Traders
The creditor panel’s stance “foreshadows an inclination to pursue an unrepresentative plan that vests control of the debtors’ billions of dollars in liquid assets in the hands of unrestricted crypto traders and market makers,” the lawyers for FTX wrote in the filing.
Sam Bankman-Fried’s FTX empire fell apart last November in what prosecutors say is one of the largest financial frauds in US history. The FTX.com exchange owed customers approximately $8.7 billion when it filed for bankruptcy and about $7 billion in liquid assets have been recovered so far.
The official committee of unsecured creditors has called on FTX to invest a portion of a near $2.6 billion cash pile in short-term Treasuries to net greater income for the bankruptcy estate. It said that would help offset professional fees that topped $330 million through the first eight months.
Portfolio Management
The panel in a July 31 filing also said it had urged the debtors to adopt a “proper staking, hedging and monetization process” for FTX’s coin holdings. Staking involves earning rewards by pledging tokens to help run a blockchain.
FTX’s advisers retorted in their filing that the members of the creditor panel had “resisted asset sales which would provide liquidity to the estate at a substantial premium to par and have delayed prudent token monetization in favor of going ‘long’ on large crypto holdings.”
Investing in Treasuries would require permission from the bankruptcy court and comes with the risk of loss, the advisers said, adding the creditor panel “may be willing to gamble estate assets on higher returns, but the debtors and their independent board do not agree that such an approach is appropriate.”
Footnote Frustration
In footnotes, FTX’s filing indicated Ray’s team is frustrated that many members of the official committee of unsecured creditors refused to meet in person and that some remained cloaked on Zoom calls. Certain members at times also engaged in “unprofessional conduct,” according to the court papers.
FTX’s lawyers wrote that one of many “delicate” issues in the bankruptcy is how to control access to material, non-public information about potential token sales when the market makers and traders on the creditor committee neither are, nor want to be, restricted from trading.
Customers outside the official panel of unsecured creditors have bigger claims but this so-called ad hoc committee hasn’t complained, FTX said in the filing.
The case is FTX Trading Ltd., 22-11068, US Bankruptcy Court, District of Delaware
–With assistance from Yueqi Yang.
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