FTX Modifies Settlement Motion After US Trustee Objection in Bankruptcy Case – What’s Going On?

Journalist

Hassan Shittu

Journalist

Hassan Shittu

About Author

Hassan, a Cryptonews.com journalist with 6+ years of experience in Web3 journalism, brings deep knowledge across Crypto, Web3 Gaming, NFTs, and Play-to-Earn sectors. His work has appeared in...

Author Profile

Share

Copied

Last updated:

August 21, 2023 18:54 EDT

Why Trust Cryptonews

Cryptonews has covered the cryptocurrency industry topics since 2017, aiming to provide informative insights to our readers. Our journalists and analysts have extensive experience in market analysis and blockchain technologies. We strive to maintain high editorial standards, focusing on factual accuracy and balanced reporting across all areas - from cryptocurrencies and blockchain projects to industry events, products, and technological developments. Our ongoing presence in the industry reflects our commitment to delivering relevant information in the evolving world of digital assets. Read more about Cryptonews

Ad Disclosure

We believe in full transparency with our readers. Some of our content includes affiliate links, and we may earn a commission through these partnerships. Read more

Bankrupt crypto exchange FTX submitted a “Reply” on Sunday, August 20, to back its Settlement Plan and address the US Trustee’s objection to the Motion.

On August 16, FTX Trading and its associated debtors submitted a court filing titled “Motion of Debtors for an Order Authorizing Procedures for Settling Certain Existing and Future Litigation Claims and Causes of Action.” 

The docket outlines a settlement procedure for addressing “Small Estate Claims” totaling approximately $176 million.

This procedure enables them to settle these claims without needing to file motions or give notice to creditors or other parties, except the Official Committee of Unsecured Creditors and the international customer ad hoc committee. Additionally, court approval for settlement terms would not be required.

The same day, the Official Committee of Unsecured Creditors of FTX (UCC) objected to the proposed FTX settlement plan due to dissatisfaction among FTX creditors.

Andrew R. Vara, representing the United States Trustee for Regions Three and Nine (US Trustee), presented the objection filing, citing three independent reasons for the denial.

The US Trustee highlighted that FTX’s notification of eligible claims for Settlement Procedures lacks adequacy. The Motion’s vague definition of “Small Estate Claims” could encompass a wide range, leaving creditors and relevant parties uninformed. The Trustee insisted on precise claim type definitions and resubmission for a new hearing.

Furthermore, FTX needs more information about the nature and amounts of claims under Settlement Procedures. This information gap prevents the Court from evaluating fairness, reasonableness, and alignment with estate interests—prerequisites for Court-approved settlements.

According to the US Trustee’s objection, the Motion proposes Settlement Procedures for Small Estate Claims Up to $10 Million, an excessively high threshold for a “small” claim settlement without broader notice.

The $10 million limit only covers the settlement payment, allowing for potential inflation of claim values. The Motion lacks a proportional stipulation between the settled claim value and payment.

FTX Response to US Trustee’s Objection and Proposed Revisions to Address Concerns

On August 20, FTX Trading countered the UCC’s objection by submitting a “DEBTORS’ REPLY IN SUPPORT OF SETTLEMENT PROCEDURES MOTION,” addressing the sole complaint to the Motion raised by the US Trustee.

The FTX  and its debtors, in the “Reply” filing, while criticizing the US Trustee’s opposition to the Motion, expressed their intention to address concerns by proposing revisions. They aimed to accommodate the US Trustee’s input, even though the settlement process is already well guarded by two creditor committees.

In response to the US Trustee’s objection, FTX plans to integrate the US Trustee as a “noticed party” in the settlement process. 

“The US Trustee—the sole objector to the Motion—seeks to inject itself into a routine settlement process already adequately safeguarded by two creditor committees. The UCC and the AHC have both provided input into and support the proposed Settlement Procedures. Unlike similar procedures, those proposed by the Debtors provide notice to the Noticed Parties of every settlement, no matter how small. ” 

Additionally, they will lower the maximum settlement value for claims under the procedures from $10 million to $7 million.

To enhance transparency, FTX will submit monthly reports detailing executed settlements. Any objections these “noticed parties” raise will need resolution via a court order before the claims process can proceed.