FTX Group Bankruptcy: Billions at Risk of Clawback Provisions

• FTX Group’s bankruptcy may lead to billions of dollars being returned to creditors as clawback provisions could be applied.
• These clawback provisions could apply to transfers made by FTX to external parties, such as the $2.1 billion paid by FTX to Binance.
• A bankruptcy court could require the return of the crypto assets or the money equal to the value of the crypto transferred.

The collapse of the FTX Group could have a wide-reaching effect, as billions of dollars paid in the months leading up to the crypto exchange’s bankruptcy could be returned to creditors. This is due to clawback provisions, which are legal provisions that can be applied to money paid out that needs to be returned due to special circumstances or events, such as an insolvent company that needs to recover funds paid within 90 days before filing for Chapter 11.

Mark Pfeiffer, a bankruptcy attorney and member of the Blockchain and Crypto Assets Practice group at law firm Buchanan Ingersoll & Rooney, states that if the court decides to require the defendant to pay the money back, the court could require the return of the crypto assets or the money equal to the value of the crypto transferred. This means that any payments made by the FTX Group to external parties, such as the $2.1 billion paid by FTX to Binance, could be subject to a clawback.

In response to this potential situation, Binance’s CEO Changpeng „CZ“ Zhao recently dismissed concerns in an interview with CNBC, saying that Binance’s lawyers should handle it. However, it is still unclear as to whether the clawback provisions would be applied and how much of the money would be required to be returned.

If the clawback provisions are applied, it could have a large impact on the crypto industry, as billions of dollars would be returned to FTX’s creditors. This could cause a ripple effect, as the creditors may need to return money to other parties, and other exchanges may need to make similar provisions to avoid a similar situation in the future.

It is important to note that nothing has been finalized yet and the situation is still in the early stages. However, it is clear that the FTX Group’s bankruptcy could have wide-reaching implications that could affect the whole crypto industry.