Embattled crypto exchange FTX is under renewed scrutiny after filing a motion in U.S. bankruptcy court to withhold creditor payouts in 49 countries where cryptocurrency regulations are considered restrictive or unclear. The move has ignited a wave of criticism from global creditors—particularly in China—who now threaten legal retaliation.
The motion, filed on July 2 in the Delaware bankruptcy court, proposes a temporary freeze on approximately 5% of total claims due to regulatory risks in these jurisdictions. Critics, however, argue the decision unfairly penalizes users who have already endured nearly two years of financial limbo.
FTX Cites Regulatory Uncertainty as Rationale
FTX, which filed for bankruptcy in November 2022, says its Recovery Trust is concerned that distributing crypto-related funds to users in countries with restrictive laws could expose the organization to fines, penalties, or even criminal charges.
“The collection of potentially applicable non-U.S. laws and regulations is daunting,” the company noted in its filing. The proposed solution is a “hold-and-review” structure, which would freeze creditor distributions in high-risk countries until local legal reviews are completed.
If the reviews confirm no legal issues, the distributions would proceed. But if regulatory hurdles persist, the Recovery Trust would notify affected creditors and seek court permission to designate those claims as restricted. In that case, the frozen funds could be permanently forfeited and returned to the Trust.
Affected creditors will have 45 days to formally object once notified.
49 Countries Affected, With Chinese Creditors Hit Hardest
The list of impacted jurisdictions includes China, Russia, Egypt, Saudi Arabia, Pakistan, Iran, and Ukraine, among others. According to the filing, Chinese claimants account for over 80% of the frozen assets, making them the most affected group.
The backlash has been swift. Chinese creditors argue that despite Beijing’s ban on domestic crypto trading, residents can still hold digital assets and receive U.S. dollars in offshore accounts—an arrangement they say FTX should accommodate.
One creditor, using the pseudonym Zhetengji, questioned why wire transfers to offshore accounts aren’t being offered, especially since claims are being settled in U.S. dollars.
“The claims process uses USD for settlement. Although there are foreign exchange controls, Chinese residents are allowed to hold USD abroad. Why isn’t that an option?” they asked.
Accusations of Bias and Fund Misappropriation
Some creditors are going further, accusing FTX of attempting to reallocate frozen funds to cover shortfalls in other parts of the recovery plan. One user in a WeChat group claimed the trust may be hoping to "quietly redirect funds from restricted countries" to meet other obligations.
“If victims in restricted regions unite, it could force FTX to face serious legal consequences,” the user warned.
The discontent reflects broader frustrations with how the bankruptcy process has unfolded—especially among users outside the U.S., who feel left behind in both communication and compensation.
What Happens Next?
As the bankruptcy process nears a critical phase, FTX’s proposal is expected to face significant scrutiny, both in court and across international legal channels. Creditors in affected countries have already begun organizing potential class actions and may seek to challenge the legality of the proposed fund freeze under international law.
The court has not yet ruled on the motion. But if it approves the request, the move could set a precedent for how crypto companies handle international claims during insolvency—raising questions about fairness, accessibility, and regulatory accountability in cross-border digital finance.
