Onusz v. West Realm Shires Inc., et al., No. 22-50513-JTD (Bankr. D. Del.) (FTX Adversary Class Action)

On December 27, 2022, E&C filed an adversary class action complaint against the FTX Group, its senior executives and affiliates. By filing this complaint, E&C seeks, among other things, a declaratory judgment that (i) Customer property held in accounts at “FTX US” (the FTX Group’s exchange for U.S. Customers) or “FTX Trading” (the exchange for non-U.S. Customers, also known as FTX.com) is not property of the FTX entities bankrupt estates, and (ii) Customer funds held or recovered by these entities should be returned to Customer victims.

The adversary complaint is brought on behalf of all FTX Customers that have been unable to withdraw, access or use their funds and digital assets held at FTX (the “Customer Class”).

The action (“Customer Class Action”) arises because the closely-knit group of young executives (the “FTX Executive Defendants”) who operated FTX, the second largest “cryptocurrency” electronic trading exchange, totally abdicated or ignored their duty to put in place adequate controls to protect Customer property. The FTX Executive Defendants – who insiders at the FTX Group confirm controlled, and were the only individuals with access and authority to transfer, customer property – intentionally used Customer property to fund: (i) obligations and losses from risky strategies employed by Alameda, their entwined cryptocurrency trading firm; (ii) acquisitions and investments by FTX and Alameda to grow their personal cryptocurrency fiefdom; and (iii) their lavish lifestyles, including through more than $1.7 billion in loans from Alameda that were never repaid.

Because of the Defendants’ breaches of Customer agreements, fiduciary duties and duties of care, billions of dollars in assets that were contractually required to be held safely in Customer accounts were commingled with firm assets. Even worse, according to widespread reports, up to $2 billion in Customer property went missing.

By filing this action, E&C intends to protect assets belonging to the Customer Class from becoming part of the bankruptcy estates or, in the alternative, fight for Customers to have priority payment of their property.

If you wish to view the adversary complaint, please click here.

On October 16, 2023, E&C announced the settlement of that portion of its Customer Class Action that raised Customer property claims against FTX Trading Ltd. (d.b.a. FTX.com), and its affiliated debtors (together, the “FTX Debtors”), as part of the proposed settlement of Customer property disputes in the pending FTX chapter 11 cases (the “Customer Shortfall Settlement”). The Customer Shortfall Settlement resolves, among other things, Customer property litigation filed against the FTX Debtors by E&C as part of the broader adversary Customer Class Action filed in the Bankruptcy Court against the Debtors and various individual defendants, including Sam Bankman-Fried and other insiders. The Customer Shortfall Settlement also contemplates an opportunity for eligible Customers to resolve the current uncertainty about any preference exposure applicable to their claims. Details regarding the Amended Plan (incorporating the Customer Shortfall Settlement), customer recoveries and the proposed preference settlement are provided in the materials filed by the FTX Debtors, which include the following:

On December 16, 2023, the FTX Debtors filed a Proposed Joint Chapter 11 Plan of Reorganization and Disclosure Statement with the Bankruptcy Court. E&C anticipates the Bankruptcy Court will enter an order approving the form the Proposed Joint Chapter 11 Plan of Reorganization and Disclosure Statement in early 2024, at which time voting deadlines, the date of the confirmation hearing and other relevant deadlines will be established. You may view copies of the Proposed Joint Chapter 11 Plan of Reorganization and Disclosure Statement via the following links:

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