- The FTX reorganization plan faces significant objections from class action lawyers due to undervalued customer recoveries and transparency issues.
- Key contentions include misleading recovery figures, anti-double dip provision concerns, and insufficient creditor representation.
- The lack of creditor representation on the Wind Down Board raises potential conflicts of interest.
Discover the hidden pitfalls of the proposed FTX reorganization plan and its potential impact on customer recoveries.
Major Legal Objections to the FTX Reorganization Plan
Moskowitz Law Firm and Boies Schiller Flexner LLP, representing the plaintiffs in the multi-district litigation (MDL) against FTX, have criticized the proposed reorganization plan fervently. They argue that the plan undervalues customer recoveries by using outdated cryptocurrency values, specifically those from the Petition Date, which significantly lower the real value of the assets that customers should receive. The legal teams assert that the plan fails to meet the full disclosure requirements stipulated by Bankruptcy Code 1125.
Disputed Anti-Double-Dip Provision
The reorganization plan’s Anti-Double-Dip Provision has sparked considerable debate. This clause suggests that any recovery from MDL actions would duplicate that from the reorganization plan. MDL plaintiffs contend that their claims target non-debtor entities for separate legal infractions and should not be conflated with the plan’s recoveries. There is a demand for the Disclosure Statement to clearly delineate this distinction and inform stakeholders whether the provision restricts further recoveries.
Criticism of Transparency and Representation
One of the more pressing criticisms concerns the transparency and fairness of the reorganization plan. The findings from Robert J. Cleary’s Examiner Report, which could highlight essential issues and potential causes of action, are not adequately included in the Disclosure Statement. This lack of transparency deprives creditors of crucial information they need to evaluate the plan thoroughly.
Concerns Over Creditor Representation
The proposed Consolidated Wind Down Trust includes a Wind Down Board devoid of creditor representation. The Board consists only of the Plan Administrator and Bahamian joint official liquidators. This setup, according to MDL Plaintiffs, compromises creditor interests and violates the good faith requirement under Bankruptcy Code 1129. The exclusion of creditor representatives from crucial decision-making processes raises red flags about the plan’s integrity and fairness.
Potential Conflicts of Interest
The involvement of Sullivan and Cromwell, a named defendant in the MDL, in drafting the reorganization plan is another significant bone of contention. The plaintiffs argue that this collaboration could result in conflicts of interest, necessitating revisions to the plan to preserve fairness and transparency standards. This situation calls attention to potential ethical breaches that could undermine the plan’s legitimacy.
Conclusion
In summary, the objections raised by Moskowitz Law Firm and Boies Schiller Flexner LLP underscore fundamental issues with the proposed FTX reorganization plan. From undervaluing customer recoveries and misrepresenting anti-double dip provisions to lacking transparency and creditor representation, the plan has several pitfalls. Stakeholders are left questioning the good faith of the plan and its ability to meet legal requirements, necessitating thorough revisions to address these valid concerns.
