More than one million creditors of failed crypto exchange FTX have been waiting to be made whole since before the firm\u2019s bankruptcy filing on Nov. 11, but according to one expert, recipients of donations and contributions may have a legal means of returning the funds directly to investors and customers.\u00a0<\/p>\n
Louise Abbott, a partner at United Kingdom-based firm Keystone Law, told Cointelegraph it was \u201cextremely unlikely\u201d FTX would have a legal leg to stand on in its demands for the voluntary return of political campaign donations, grants, and other contributions the firm made prior to its bankruptcy. However, many individuals and organizations \u2014 likely the result of public scrutiny \u2014 have already returned or pledged to return an estimated $6.6 million to FTX, a fraction of the millions the company sent in less tumultuous times. <\/p>\n
\u201cIn law, the investors\u2019 claims will be against the FTX trading entity, and\/or those responsible for the fraud,\u201d said Abbott. \u201cIt does not, as matter of general course, extend to claims against those who donated funds, unless one can in some way be proved that they were implicit in the fraud, which is doubtful.\u201d<\/p>\n
Among the funds not returned were a reported $5.2 million from U.S. President Joe Biden\u2019s 2020 presidential campaign, though many lawmakers have announced they already sent back contributions to FTX amid the firm\u2019s collapse. According to Abbott, these refunds were less likely to be about responding to potential legal action, but firms and individuals distancing themselves from the scandal, and \u201cwanting to be seen to do the right thing.\u201d<\/p>\n
The majority of contributions are outside of FTX\u2019s bankruptcy proceedings, currently in the early stages and not guaranteed to make all investors or users whole. Though former CEO Sam Bankman-Fried has suggested on more than one occasion that he planned \u201cto do right by customers,\u201d he largely has no role in bankruptcy court, and instead faces charges from the U.S. Justice Department, Securities and Exchange Commission, and Commodity Futures Trading Commission.<\/p>\n
Abbott said it was possible that third parties who had received FTX donations could be compelled to return them directly to users, as investigations revealed the firm used customer assets to fund investments through Alameda Research \u2014 a likely violation of the platform\u2019s terms and conditions. According to the legal expert, this would mean users could claim in court that assets \u201cremained their property at all times\u201d and could be treated separately from bankruptcy proceedings:<\/p>\n
\u201cSuch assets caught within these terms are not assets belonging to the company, and so the Liquidator has no legal right to collate them as company assets. Those are assets belonging to the respective investors.\u201d<\/p><\/blockquote>\n