Companies and investors may need to return billions in funds | Crypto Fight
Companies and investors may need to return billions in funds paid by FTX.
Billions of dollars paid in the months leading up to FTX’s bankruptcy may be returned to pay the crypto exchange’s creditors, according to an insolvency attorney.
The collapse of FTX Group may not yet be finished with its contagious spread, as clawback provisions could force businesses and investors to return billions of dollars paid in the months leading up to the crypto exchange’s collapse, an insolvency attorney told Cointelegraph.
In short, a “clawback” refers to money paid out that is required to be returned due to special circumstances or events, such as an insolvent company that needs to recover funds paid within 90 days before filing for Chapter 11. If the creditor is an insider, the 90-day period is extended to one year.
As a result, creditors could seek a clawback on transfers made by FTX to external parties, including the $2.1 billion paid by FTX to Binance when Binance exited its Series A investment in FTX. Changpeng “CZ” Zhao, Binance‘s CEO, recently dismissed concerns regarding the return of the money in an interview with CNBC, saying Binance’s lawyers should handle it.
In the event of a clawback to recover funds for creditors, the bankruptcy court could require the return of the crypto assets or the money equal to the value of the crypto transferred, explained bankruptcy attorney Mark Pfeiffer, who is a member of the Blockchain and Crypto Assets Practice group at law firm Buchanan Ingersoll & Rooney.
“If the court decides to require the defendant to pay the value, it is not clear whether the amount will be the value at,” noted Pfeiffer. As a result, the court would have to determine the assets’ value considering when the transfer occurs, or when the bankruptcy or a lawsuit was filed, or when a judgment is entered. According to the insolvency lawyer:
“Customers who liquidate the crypto as cash run the risk that they will have to return crypto, which exposes them to the risk that the value of the crypto will increase. Customers who hold the crypto, run the risk the court will require them to return cash even though the crypto they are holding might not be liquidated for the amount of the judgment. In other words, no matter what they do, they run the risk of compounding their problems if they guess wrong."
