- FTX’s new repayment proposal includes an exculpatory clause that aims to absolve the law firm Sullivan & Cromwell (S&C) from potential liabilities.
- Creditors, particularly from the FTX Customer Ad-Hoc Committee, express discontent, fearing the clause permits unfair advantages and potential misconduct.
- The backlash could influence creditors to reject the plan, despite the promise of significant compensations.
FTX’s latest amended proposal for repaying creditors has sparked controversy and dissatisfaction due to the inclusion of an exculpatory clause that potentially shields the law firm Sullivan & Cromwell (S&C) from liabilities. This clause is particularly contentious because it appears to protect S&C against any legal consequences stemming from their role in the bankruptcy process.
Understanding the Exculpatory Clause
The exculpation clause in question is designed to release S&C from accountability for actions taken during the execution of the FTX bankruptcy process. This has raised eyebrows among creditors, who fear it might allow misconduct such as the undervalued sale of FTX assets to S&C clients and insiders without the possibility of recourse.
Creditor Reactions and Allegations
Sunil, an active member of the FTX Customer Ad-Hoc Committee representing over 1,500 creditors, highlighted the potential conflicts of interest and accused S&C of acting in ways that might not be in the best interests of all stakeholders. These actions, according to Sunil, include selling assets at significant discounts and decisions against rebooting certain FTX operations.
Previously, S&C faced lawsuits from top FTX creditors accusing the firm of being complicit in FTX’s fraudulent activities, benefiting financially from these actions. The history and financial ties between S&C and FTX, including significant legal fees and involvement in major FTX transactions, have intensified scrutiny over the firm’s role and the fairness of its actions.
Potential Impact on the Repayment Plan’s Acceptance
The backlash from this clause has led to a broader dissatisfaction with the repayment plan. Rob, another pseudonymous FTX creditor and head of growth at Paradex, voiced his opposition to the plan, reflecting a sentiment that could lead many creditors to vote against its approval. This sentiment is exacerbated by concerns that the compensation under the plan does not reflect the current value of assets like Bitcoin, which has appreciated since FTX’s collapse.
Mike Belshe, CEO of BitGo, also criticized the plan, noting that no creditors would find the proposed compensation acceptable, especially given the valuation of Bitcoin at $16,800, which he argues grossly underestimates current market values.
