There has been a significant development in the ongoing FTX bankruptcy case, with the U.S. Trustee raising serious objections to the crypto exchange’s amended reorganization plan.
The Trustee's filing, filed alongside objections from a group of creditors, outlines several concerns, including unfair treatment of smaller creditors and inappropriate costs associated with a data breach.
U.S. Trustee Andrew R. Vara highlighted ten key issues with FTX’s amended plan, which he claims has broad creditor support. One of the most critical is the proposal that creditors should bear the costs associated with a data breach suffered by Kroll, the service provider that handles creditor claims. Vara argued that the FTX estate should not bear those costs. “The estate has sought millions of dollars in damages for responding to the Kroll data breach… The debtor’s estate should not bear those costs,” Vara wrote in his filing, echoing concerns shared by the bankruptcy fee monitor.
Vara's filing also criticizes the plan's distribution scheme, noting that smaller creditors will receive a lower percentage of recovery than larger creditors.
Perhaps most controversially, Vara said, are the “unacceptably broad” legal protections afforded to those who manage bankruptcy that would shield them from potential liability. Such immunity, he argued, goes beyond what is legally permissible and beyond what is typically granted to property professionals.
FTX's bankruptcy is being closely monitored by an independent auditor, Robert Cleary, whose appointment follows a court battle that overturned a previous decision that barred him from participating.
Another objection to the plan was raised by Sunil Kavuri, a representative of FTX’s largest creditor group. Kavuri’s filing reiterated concerns about overly broad legal protections and presented a new argument for in-kind refunds. It suggests that creditors who lose certain cryptocurrencies, such as Bitcoin, should receive those assets back rather than cash equivalents. This approach could potentially allow creditors to avoid taxable events tied to currency conversions.
With the deadline for objections having passed, all eyes are now on the confirmation hearing scheduled for October 7.
*This is not investment advice.
