July 4, 2025

FTX Freezes Creditor Funds in China and 48 Regions; Awaiting Legal Clearance

2 min read

The FTX Recovery Trust has suspended repayments to creditors in 49 regions where cryptocurrency operations face legal restrictions, with Chinese users accounting for the majority of the disputed claims. Payouts Halted in Restricted Jurisdictions The FTX Recovery Trust has placed a hold on creditor repayments across 49 jurisdictions due to unresolved legal and regulatory issues surrounding cryptocurrency activity. The decision, outlined in a court filing on July 2, affects countries where crypto trading is either restricted or outright banned. Notable regions impacted include China, Nigeria, Fiji, Andorra, and Zimbabwe. Despite these areas representing just 5% of total allowable claims, China alone accounts for a striking 82% of the total frozen claim value. The delay comes as FTX seeks legal clarity on whether disbursements to residents in these regions would violate local regulations. The bankrupt crypto exchange recently began the second phase of its creditor repayment program, distributing approximately $5 billion to eligible claimants. China at the Center of the Dispute China’s longstanding crypto trading ban, imposed in 2021, has placed a significant portion of FTX’s repayment obligations in jeopardy. The Recovery Trust has acknowledged the legal risks of distributing funds into jurisdictions where crypto transactions remain outlawed. In response, FTX has submitted a proposal to the U.S. bankruptcy court requesting approval for a new claims protocol targeting these restricted regions. Under the proposed framework, claims would only be honored if legal counsel confirms such payouts comply with the respective country’s laws. Failing that, claims risk being formally disputed and potentially denied. New Claims Process and Dispute Mechanism FTX has introduced a “hold-and-review” system, reclassifying all claims from the 49 affected regions as “disputed.” These claims will remain on hold pending legal reviews. Should the court approve the updated claims process, affected creditors will receive a “Restricted Jurisdiction Notice,” detailing the reason for the hold and offering a minimum 45-day period to contest the decision. FTX has indicated that legal opinions will be sought to determine if distributions can proceed. If legal barriers persist, creditors may be advised to transfer or sell their claims to entities in approved jurisdictions to recover value. Chinese Creditors Prepare Legal Action Chinese creditors, who dominate the list of impacted users, are actively exploring legal avenues. Some have voiced frustrations on social media, questioning why claims settled in U.S. dollars cannot be wired internationally to Chinese residents, given that while crypto trading is banned, holding virtual assets and foreign currencies is permitted under Chinese law. Meanwhile, others have pointed out that unless legal pathways are established, the only options for affected users might be to transfer or sell their claims via approved jurisdictions. Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice

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Source: Crypto Daily

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