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Accused of ignoring creditors' opinions, FTX restructuring lawyer rebuts: Creditors are missing, idle cash investment carries risks

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Accused of ignoring creditors

After the FTX bankruptcy restructuring team updated its reorganization plan on July 31, a conflict immediately erupted with the Unsecured Creditors Committee (UCC). The restructuring party responded to the UCC's accusations one by one, but the crypto community also found inconsistencies in the restructuring party's response.

Origin of Conflict: FTX Restructuring Ignoring Creditors' Opinions?

The restructuring team of FTX, hereinafter referred to as the reorganizers, immediately encountered conflicts with the Unsecured Creditors Committee (UCC) after updating the restructuring plan on July 31.

The UCC stated that their three suggestions were completely ignored by the FTX reorganizers, with no discussions on the terms conducted via phone or meetings.

The suggestions from the UCC include:

  1. The operator of FTX 2.0 should be selected by the UCC

  2. Issuance of regulated credit tokens to facilitate the restart and enhance creditors' recovery capabilities

  3. Earning interest from $2.6 billion in idle cash

Founder of Kraken also skeptical about the restart: Jesse Powell: Nothing left, worse than starting over

FTX Reorganizers' Response

In a legal document submitted by the reorganizers on August 9, they responded to the above accusations as follows:

1. Months spent perfecting the restructuring plan

The FTX team stated that the restructuring plan was developed through months of collaboration between the debtor and UCC professionals, with over dozens of calls and meetings to finalize. Out of 112 separate documents, 73 were unrestrictedly provided for UCC members to review.

However, after months of planning were exposed, the reorganizers faced criticism within minutes.

2. UCC members declined meetings themselves

The reorganizers stated that in the week prior to the release of the restructuring plan on July 31, there were indeed no meetings with UCC members, but they were in contact with UCC professionals daily.

They emphasized that many members never showed their faces throughout the process, and some even refused to attend remote Zoom meetings.

3. Careful planning required for token issuance

The reorganizers believed that issuing tokens involves many considerations:

  • How to sell tokens in a chaotic market?

  • UCC members do not want trading restrictions, how to conceal significant token issuance information internally?

The reorganizers raised more questions regarding the UCC:

  • UCC members are not only creditors but also traders, potentially market makers

  • Some members expressed strong desires to act as market makers in FTX 2.0 and have governance rights

4. Why does UCC have concerns when major creditors do not?

The reorganizers stated that the total amount claimed by the specially appointed creditors committee is several times larger than that of the unsecured creditors UCC, yet the former has not raised any complaints, so why does the UCC have so many issues?

5. Don't gamble with user assets

The reorganizers argued that UCC's request to earn interest on $2.6 billion in idle cash carries risks:

Considering recent excessive investment in U.S. government bonds leading to bank failures, concerns over this move are not unfounded. Furthermore, the weighted average rate for current deposits is 3.88%, with income from over $1.9 billion in funds exceeding 4%.

Crypto Community Examines Doubts about the Reorganizers

The crypto community, represented by Mr. Purple @MrPurple_DJ, analyzed the reorganizers' responses and raised several doubts:

  1. The reorganizers claim extensive collaboration with the UCC, but out of a total of 447 hours, only 22 hours were spent communicating with the UCC, with a mere 3 hours related to the restructuring plan.

  2. The reorganizers' progress is slow, with a scale less than 3% of Lehman Brothers but costs nearing 89% of Lehman's $3 billion.

  3. The reorganizers claim court approval is needed for investing in government bonds, but this is something the reorganizers should have coordinated.

He concluded that FTX Chief Executive Officer John Ray is not the best choice for creditors, but rather a skilled politician.