FTX’s recent amended proposal, which includes an exculpatory clause, has met with significant backlash from its creditors.
Released on May 7, the proposal is aimed at compensating the creditors, including a noteworthy figure of “billions in compensation.” However, the inclusion of an exculpatory clause has become a major point of contention.
This specific clause would absolve Sullivan & Cromwell (S&C), the law firm managing FTX’s bankruptcy, from any liability for damages incurred during the bankruptcy process.
S&C’s involvement in the company’s affairs, as it had previously served as outside counsel in various transactions, further complicates perceptions.
Sunil, a prominent FTX creditor and member of the FTX Customer Ad-Hoc Committee, which represents over 1,500 creditors, strongly criticized the clause.
He highlighted that the clause would prevent S&C from being held accountable for potential misdeeds including “selling FTX assets at 70% to 90% discounts to their own clients and insiders.”
On May 8, Sunil expressed his discontent on X, stating:
“S&C included an exculpation clause so they can not be held liable for misconduct — selling FTX assets at 70% to 90% discounts to their own clients and insiders (Ledger X, Galaxy), not restarting FTX 2.0, etc if we accept the plan.”
This controversy follows a lawsuit filed three months prior by top FTX creditors against S&C.
The lawsuit accused the firm of actively participating in FTX’s “multibillion-dollar fraud” and profiting from these misdeeds. A February 16 court document illuminated the allegations:
“S&C knew of FTX US and FTX Trading Ltd.’s omissions, untruthful and fraudulent conduct, and misappropriation of Class Members’ funds.
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“Despite this knowledge, S&C stood to gain financially from the FTX Group’s misconduct and so agreed, at least impliedly, to assist that unlawful conduct for its own gain.”
The financial ties are further underlined by the fact that FTX owed S&C up to $1.45 billion in legal bankruptcy fees, a figure confirmed by compensation filings from December 2023.
The response from FTX’s creditors has been overwhelmingly negative, especially concerning the proposal’s payment plan.
While FTX debtors have suggested a compensation formula based on a depreciated Bitcoin valuation of $16,800, critics argue this is grossly unfair given Bitcoin’s price increase since FTX’s collapse.
BitGo CEO Mike Belshe commented on the matter in a May 8 X post:
“0% of FTX creditors agree that receiving $16800 for your bitcoin is fully compensated. I understand why the bankruptcy process needs to work this way but let’s not pretend victims are getting their money back or that FTX wasn’t as awful as it was.”
Given these circumstances, there’s a significant possibility that the amended plan will be rejected by the creditors, as further indicated by Rob, Paradex’s head of growth and a pseudonymous FTX creditor, who voiced his decision to reject the plan on May 8:
“Icing on the cake from the team that destroyed billions of potential value for FTX customers. This can’t be allowed. I’m voting NO on this plan.”
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