FTX creditors seek priority payout for $1.6B locked in custody wallets

A group of FTX customers seeking priority repayment of roughly $1.6 billion locked in their custody wallet on the bankrupt FTX exchange, the Financial Times reported.

Eversheds Sutherland — a law firm representing the affected FTX clients — will petition the Delaware bankruptcy court to approve faster repayment for its clients on the basis that the customers’ funds are custody assets, which are not a part of FTX’s bankruptcy estate.

As per bankruptcy laws, assets held for interest-bearing reasons are part of the company’s property, while assets that earn no returns remain the property of the customer.

There is precedent for such a petition and the court will likely approve it. In a similar bankruptcy case involving Celsius Network, the courts approved repayment for custody clients, while earn-account holders have to wait until the end of the bankruptcy process to receive their funds.

Eversheds Sutherland said its clients held approximately $1.6 billion as custody assets on FTX which should be prioritized in the repayment process.

Counsel to Eversheds Sutherland Erin Broderick said:

“If the assets belong to the customer, there is no line. It’s just their assets.”

Broderick added that FTX’s terms of service support custody clients to gain access to their trapped funds.

Evershed Sutherland said it will proceed with the legal process from January 2023 and expects it to go smoothly.

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