By Michael Scott
Customers of the troubled FTX crypto exchange filed a class-action suit pleading with the court to exempt them from queuing alongside other creditors to recoup the funds stuck in the collapsed crypto platform.
The class lawsuit filed by four customers seeks priority to recover the frozen funds rather than enjoin the queue of proceedings initiated by various government agencies against the bankrupt FTX and former executive Sam Bankman-Fried. The four plaintiffs filed a motion petitioning the court for access to their trapped digital wealth as priority parties.
Lawsuit Alleging FTX Neglecting Customers
The suit filed by the four plaintiffs’ attorneys before the District of Delaware court claims to represent former customers estimated to exceed 1 million individuals. Documents submitted before the court on December 27 require the court’s authority for the customers to exercise the priority rights in laying claim to the digital assets held within FTx.com and FTX US.
The plaintiffs allege that borrowing and rerouting customers’ deposits to settle the operating expenses was impermissible.
In particular, the plaintiffs argue that FTX contravened the user agreement that prohibited them from rerouting the users’ funds to satisfy their purposes. The complaint equates the withdrawal of customer funds from respective accounts as impermissible and amounts to misappropriating, misusing, and illegally converting the users’ properties.
The plaintiffs suggest the Delaware District Court should find that funds frozen since FTX filed for bankruptcy protection and traceable to the accounts as customers’ property. As such, their attorneys plead with the court to hold that FTX cannot leverage such property to settle the non-customer expenses and creditors’ claims till customers recoup their funds.
Reasons for Seeking Priority Rights of Customers
The plaintiffs argue that the court should hold that customers cannot queue as investors, secured creditors and holders of unsecured notes till the conclusion of the bankruptcy proceedings seeking division of the diminished estate of troubled FTX Group and Alameda.
The move by customers to seek priority rights to access the trapped digital wealth derives inspiration from the recent announcement by the Department of Justice to investigate the mysterious disappearance of $372 million of cryptos from FTX.
Also, the plaintiffs cite the November 12 admission by FTX of abnormal outbound transactions involving 228523 ETH initiated by an anonymous perpetrator. The customers’ pleas coincide with the discovery of restored activity within the crypto wallets managed by Alameda Research days after the court granted Bankman-Fried bail.
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