Written by: FinTax
On July 3, 2025, Sunil, a representative of FTX's creditors, stated on the social media platform X that FTX has applied for court approval to authorize a new "Restricted Jurisdiction Procedures" in 49 jurisdictions that restrict cryptocurrency activities, including China (hereinafter referred to as "Restricted Jurisdictions"), which will no longer settle claims for users in "Restricted Jurisdictions." According to the proposed framework of the FTX Recovery Trust, affected creditors who fail to respond within the deadline will completely lose their right to compensation.
FTX has blocked Chinese creditors from compensation under the guise of "Restricted Jurisdictions." What is the official reason given for this? Is the basis for this refusal to compensate truly valid? The following will briefly review the FTX bankruptcy event and analyze the official reasoning.
Review of the FTX Bankruptcy Event
From Glory to Bankruptcy
FTX was founded in May 2019 by Sam Bankman-Fried (SBF) and Gary Wang, quickly rising to become the world's second-largest cryptocurrency exchange with over 1 million global users, thanks to high-leverage derivatives trading. Top institutions like Sequoia Capital, SoftBank, and Temasek rushed to invest, with a Series B funding of $900 million in 2021 and a Series C funding of $400 million in 2022. SBF's personal wealth once soared to $24 billion, earning him the title of "the next Buffett."
However, on November 2, 2022, a major news story turned the fate of FTX and SBF upside down. The well-known crypto media CoinDesk revealed the balance sheet of FTX's hedge fund Alameda Research, which showed that 60% of its $14.6 billion in assets were FTX's own token, FTT, lacking real value support. On November 6, 2022, Binance's CEO Changpeng Zhao announced on Twitter that he would liquidate all FTT tokens in his possession, worth up to $580 million. Although Binance initially expressed interest in acquiring FTX, it ultimately backed out. Within ten days, this cryptocurrency exchange, once valued higher than Credit Suisse, collapsed and filed for bankruptcy in the U.S. on November 11.
Initiation of Bankruptcy Liquidation Process
On February 18, 2025, FTX officially began the process of compensating user assets. According to the compensation plan, creditors with losses under $50,000 have priority for compensation, with recovery amounts calculated at approximately 119% cash compensation based on the cryptocurrency price on the bankruptcy date. However, the regional restrictions on FTX's compensation were already apparent. On February 21, 2025, FTX creditor representative Sunil posted on social media platform X that users from China, Russia, Egypt, Nigeria, and Ukraine were temporarily excluded from this round of compensation. FTX did not specify the exact reasons for the compensation restrictions, but the cryptocurrency community generally believes that the restrictions on cryptocurrency-related business activities in mainland China have made FTX particularly cautious about compensating creditors from mainland China.
Formal Submission of "Restricted Jurisdiction Procedures"
On July 2, 2025, the FTX Recovery Trust formally submitted a motion to the U.S. Bankruptcy Court in Delaware for the "Implementation of Restricted Jurisdiction Procedures in Potentially Restricted Jurisdictions." This motion, initiated by the FTX Recovery Trust, requests the court to authorize the FTX Recovery Trust to implement "Restricted Jurisdiction Procedures" in specific countries and regions based on sections 105(a), 1142(b) of the U.S. Bankruptcy Code, and Rule 3020(d) of the Federal Rules of Bankruptcy Procedure.
In the context of U.S. bankruptcy law, a motion is a request for an "authorization order" made by a trustee to the court, aiming to seek court authorization for the trustee to execute a procedure for managing bankruptcy assets. According to section 105(a) of the U.S. Bankruptcy Code, the court may issue any order, process, or judgment necessary or appropriate to carry out the provisions of the bankruptcy law. Even if the parties do not raise an issue, the court can act or make a ruling sua sponte to enforce or implement court orders or rules or prevent abuse of process.
The term "Restricted Jurisdictions" in the document refers to countries and regions where the FTX Recovery Trust has investigated applicable laws and regulations globally but has not confirmed whether the "FTX Recovery Trust and its distribution service providers" can legally make payments to creditors in those areas. According to the motion's attachment, there are currently 49 jurisdictions listed as "potentially restricted," involving a total claim amount of about 5%, with the value of claims from China accounting for as much as 82%. Affected creditors in "Restricted Jurisdictions" have 45 days to contest the restricted status of their claims. If no affected creditors contest this or if the court dismisses the creditors' objections, the FTX Recovery Trust will no longer distribute to creditors located in "Restricted Jurisdictions," and any rights to the distribution funds will revert to the FTX Recovery Trust.
FinTax Brief Commentary
From the wording disclosed in the motion document, the "Restricted Jurisdiction Procedures" proposed by FTX appear to be a compliant and prudent measure to adhere to various countries' cryptocurrency regulatory laws in cross-border bankruptcy distributions. However, it is difficult to conceal the suspicion of evading compensation obligations for the following reasons:
Firstly, the rationale behind FTX Recovery Trust's proposal of the "Restricted Jurisdictions" mechanism is hard to believe. The FTX Recovery Trust emphasizes in the motion document that the regulations in each "Restricted Jurisdiction" vary, but generally prohibit individuals or entities from engaging in any activities related to digital assets, including trading cryptocurrencies or paying cryptocurrency earnings to residents of those areas (for example, in Macau, "financial institutions and non-bank payment institutions are explicitly prohibited by mainland Chinese authorities from providing services for these tokens and virtual currencies." In Moldova, "providing virtual asset services is considered a crime, whether within the territory of the Republic of Moldova or as an auxiliary or supplementary activity."). The document states: "If the FTX Recovery Trust distributes in violation of local laws, it may incur fines, personal liability for management, or even criminal penalties, thereby harming all stakeholders; but at the same time, they cannot indefinitely withhold these distributions." "The FTX Recovery Trust must not violate relevant laws by distributing to residents of jurisdictions where its activities are not permitted or to accounts located in prohibited areas. Reallocating funds designated for residents of these areas back to the FTX Recovery Trust for distribution through the planned distribution process is reasonable and an effective exercise of the FTX Recovery Trust's authority."
However, while mainland China indeed does not support cryptocurrency trading activities and financial institutions providing related services, the legal ownership of virtual currencies and their derived claims by Chinese residents has never been prohibited by law. Chinese courts have repeatedly recognized the property attributes of virtual assets. Furthermore, FTX's compensation plan for users is essentially denominated and settled in U.S. dollars, and what users receive should also be U.S. dollar compensation, which does not directly conflict with engaging in cryptocurrency trading. More critically, there are no legal barriers for Chinese residents to legally hold and receive overseas U.S. dollar assets within the foreign exchange quota, and bank wire transfers are entirely feasible. In fact, other cryptocurrency platforms like Celsius, which are also under U.S. bankruptcy proceedings, have successfully compensated users, including those in China, via bank wire transfers without refusing payment due to so-called "regulatory restrictions." It is evident that the compliance and prudent rationale for FTX's Restricted Jurisdiction Procedures is difficult to justify and appears more like an excuse to evade compensation responsibilities to Chinese creditors under the guise of excessive caution.
Secondly, on a procedural level, the standards for "Restricted Jurisdictions" are also not fair. In the motion, FTX determines whether a jurisdiction is a "Restricted Jurisdiction" by stating, "If there are still doubts about a potential restricted jurisdiction, the FTX Recovery Trust will hire qualified local lawyers to provide formal legal opinions on whether distributions can be legally made to residents or custodial accounts in that area." The FTX Recovery Trust emphasizes hiring local lawyers for compliance due diligence but does not provide any guarantees regarding the independence and fairness of the lawyers, allowing the locally hired lawyers to determine "compliance risks" without a neutral oversight mechanism. This method of due diligence raises suspicions of discrimination against Chinese creditors and does not fully align with the principle of maximizing creditor interests under U.S. bankruptcy law. Additionally, while the "Restricted Jurisdiction Procedures" do provide creditors with the opportunity to raise written objections and seek court relief to prove their legality within 45 days, this mechanism is almost meaningless for retail investors. For most scattered overseas individual creditors, hiring professional lawyers across borders, translating local laws, preparing evidence, and dealing with U.S. court jurisdiction and evidence disclosure procedures within such a short time frame incurs extremely high time and financial costs.
Overall, FTX's use of "Restricted Jurisdictions" to exclude certain creditors, especially Chinese creditors, from normal compensation has serious flaws in factual basis, substantive fairness, and procedural justice. In cross-border bankruptcy distributions, maximizing the legitimate rights and interests of all creditors should be the priority principle, and any compliance arrangements should not come at the expense of the legitimate rights of a minority. Moreover, in the decentralized world of cryptocurrency, equal rights are a common pursuit, and nationality and identity should not be reasons for "you have, I do not."
免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。
