FTX Bankruptcy Resolution May Take Longer Than Expected, Legal Experts Says

The collapse of FTX, a once prominent cryptocurrency exchange, has thrown the financial landscape into disarray, with bankruptcy proceedings poised to be a protracted affair.  

Alan R. Rosenberg, a bankruptcy lawyer familiar with the case has revealed to The Block that the resolution may extend over several years due to the intricate web of clawback claims initiated by FTX lawyers.

“Clawback” refers to the legal process wherein funds dispersed by an insolvent entity are pursued and recovered to repay creditors. In FTX’s case, these clawback claims are multifaceted, as lawyers seek to recoup the funds expended by the exchange in the period leading up to its demise.

Rosenberg Unveils Some Primary Challenge

The primary challenge lies in untangling the financial intricacies of FTX’s operations. As a cryptocurrency exchange, FTX dealt with a myriad of transactions involving various digital assets. The lawyers are faced with the daunting task of deciphering the flow of funds and identifying where and how the exchange’s resources were allocated.

However, this meticulous process is crucial for establishing the validity of clawback claims and ensuring that all creditors are treated fairly in the distribution of recovered assets. Moreover, the volatile nature of the cryptocurrency market adds an extra layer of complexity to the bankruptcy proceedings. The value of digital assets can fluctuate dramatically, impacting the overall worth of FTX’s estate.

FTX Bankruptcy and Legal Battles are Time-Consuming

Notably, this volatility necessitates a cautious and calculated approach to asset valuation, as inaccurate assessments could lead to disputes among creditors. Undoubtedly, the legal battles surrounding FTX’s bankruptcy are not only time-consuming but also resource-intensive.

“Given that some of these transactions are very significant and some were made to large organizations, which are very capable of defending themselves, the possibility that some of these things may last for a long period, is high, Rosenberg said in the interview.

Furthermore, Rosenberg added that such claims do not go to trial as it is usually settled outside the court. However, the extensive documentation, coupled with the need for expert analysis in the cryptocurrency domain, contributes to a prolonged resolution timeline.

FTX Implosion Caused a Broad Market Crash

FTX under the leadership of its former CEO Sam Bankman-Fried (SBF) filed for Chapter 11 bankruptcy on November 11th, 2022 after the exchange faced some insolvency issues. The unexpected crash of the Bahamian-headquartered cryptocurrency exchange led to the downfall of other crypto businesses, especially those involved with FTX like BlockFi.

Similarly, the FTX implosion also caused a notable dip in the broad crypto market, leading to a price plunge of several cryptocurrencies and the broad crypto market capitalization.