FTX compensation plan released: How to determine the compensation standard in currency circle bankruptcy cases?

Source: Xiao Sa lawyer

In 2023, he will single-handedly drag the entire crypto asset circle into a downward spiral The FTX bankruptcy case has ushered in the latest development-the preliminary compensation plan for investors has been released. On December 26, 2023, the administrator of FTX’s bankruptcy case submitted a revised reorganization application to the court. FTX’s bankruptcy administrator proposed: (1) Using U.S. dollars as the asset calculation unit, estimate the customer’s crypto asset claim amount; ( 2) Use the bankruptcy date (i.e. November 11, 2022) to determine the benchmark price of crypto assets to estimate the value.

FTX’s move aroused the anger of most investors, who believed that the compensation was unfair and unreasonable. Today, Sister Sa’s team will introduce to you the bankruptcy system design and possible handling methods of such emerging assets based on the FTX bankruptcy and reorganization case.

01 Is the FTX compensation plan fair and reasonable?

FTX’s bankruptcy administrator’s compensation plan for investors is actually very simple. It is actually very normal for FTX to use US dollars as the unit of calculation of assets. Sister Sa’s team initially targeted FTX In the analysis of the case, we have already discussed with you that in the bankruptcy and reorganization cases of virtual assets of international virtual asset exchanges such as FTX, the calculation of the investment amount will most likely be based on some legal currency that can be accepted by citizens of different countries. As the unit of calculation for the investment amount, this can eliminate some uncertainty in investors’ compensation.

The behavior of the FTX bankruptcy administrator to determine the benchmark price of crypto assets on November 11, 2022 is a double-edged sword for the bankruptcy administrator, but at present, bankruptcy This recommendation by the administrator is very unfair to investors, mainly because of the huge fluctuations in the price of virtual currencies. To put it simply, the overall crypto asset market was relatively sluggish on November 11, 2022, and the transaction prices of various virtual currencies were low. However, currently the overall crypto assets are experiencing a surge, and the prices of related virtual currencies are lower than those on November 11, 2022. It has risen a lot since the 11th of March, so under this circumstance, it is understandable that investors think it is unreasonable.

From the perspective of FTX’s bankruptcy administrator, the main reason for making the above two suggestions is that using this compensation plan can avoid "unnecessary delays" in the bankruptcy process. At the same time, FTX’s bankruptcy administrator believes that it is “both impractical and unnecessary” to liquidate each investment related to crypto assets individually, because if individual liquidation is carried out, the FTX case will be in accordance with the U.S. Bankruptcy Code. 》Eleventh, delays occurred during processing.

Therefore, the Sajie team believes that the core of whether the FTX compensation plan is fair and reasonable lies in using November 11, 2022 as the base date to determine whether the benchmark prices of various virtual currencies are fair and reasonable.

02 How should the VASP bankruptcy case be handled?

Sajie’s team believes that the handling of bankruptcy cases on trading platforms such as FTX can refer to traditional bankruptcy procedures, and can also appropriately consider the handling of securities dispute cases, especially Refer to the determination standard of “one price every three days” in securities misrepresentation liability dispute cases. Firstly, exchange-model VASPs such as FTX are very similar to listed companies throughout the entire operation process; secondly, VASPs such as FTX themselves issue securities financial products. Therefore, the Sajie team believes that in the process of determining the base date for compensation, we can refer to the method of determining the base date in securities dispute cases.

According to Article 25 of the "Judicial Interpretation of False Statements (2022)": "The scope of civil liability for information disclosure obligations in the securities trading market is limited to the actual losses incurred by the plaintiff due to false statements. The plaintiff's actual losses include investment difference losses, commissions and stamp duties on the investment difference losses." In my country, in related securities misrepresentation dispute cases, the determination of investors' investment losses requires a clear "one price for three days" before the claim can be finally determined amount. The so-called "three days, one price" refers to: the date when the false statement is implemented, the date when the false statement is disclosed, the base date, and the base price.

(1) Date of implementation of false statement: refers to the day when the listed company makes false statement. This is to determine the starting point for compensation time.

(2) False statement disclosure day: refers to the false statement of a listed company, which is published in nationally influential newspapers, radio stations, television stations or regulatory department websites, trading venue websites, major portal websites, well-known industry websites, etc. The date on which it was first publicly disclosed and made known to the securities market on self-media and other media. It is particularly difficult to determine the date when a false statement was disclosed. In practice, the court will generally judge whether investors are aware of the false statement based on evidence such as the reaction of the public trading market to relevant information.

(3) Base date: that is, the base date for calculating investment difference losses. It refers to the date determined after the false statement is revealed or corrected in order to limit the compensation the plaintiff should receive to the scope of the loss caused by the false statement. a reasonable period for calculating losses. According to Chinese laws and regulations, in a trading market that adopts centralized bidding, the base date is the day when the cumulative trading volume of securities affected by false statements reaches 100% of the tradable portion starting from the date of disclosure or correction. Since the date of disclosure or correction, if the cumulative turnover rate of centralized trading reaches 100% of the tradable part within 10 trading days, the 10th trading day will be the base day; if it does not reach 100% of the tradable part within 30 trading days, , with the 30th trading day as the base day.

(4) Base price: that is, the average price of the closing price on each trading day from the date of disclosure or correction of the false statement to the base date, which is the base price for calculating losses.

The Sajie team believes that in similar bankruptcy and reorganization cases such as FTX, a base date and base price cannot be determined arbitrarily just for the reason of "not delaying the reorganization time". This is very important for investment. This is very irresponsible behavior.

In addition, we also need to consider the possibility of future changes in the crypto asset market after the benchmark price is determined. If crypto assets skyrocket or plummet after the benchmark date and benchmark price are determined, it will be very difficult for the bankrupt party and investors. will have a huge impact, a less accurate analogy, which may even create a "zero-sum game" problem.

03 Write it at the end

It is correct to determine the standard of compensation by completely referring to the way traditional securities dispute cases are handled. ? The Sajie team does not think so. VASPs and crypto-assets have their own particularities, whether it is the rise and fall of various virtual currencies, or the process by which VASPs operate and manage their own virtual assets and manage customer assets. The models are different from those of traditional listed companies, and they all deviate from the financial order we are familiar with. Not to mention that the crypto asset market is constantly improving, and new crypto assets may be born every day.

The bankruptcy and reorganization system involving crypto-assets is a long road. At present, the existing legal system cannot provide a solution that is fair enough and balances the interests of both parties to deal with crypto-assets. The base date and base price are determined. When the compensation scheme becomes extremely unfair due to market changes, there is no effective enough remedy to solve the problem. Generally speaking, the Sajie team does not support FTX’s preliminary compensation plan. FTX will most likely make reasonable adjustments and modifications to the base date in the future. We will pay close attention to the relevant compensation plans and provide relevant legal information to readers in need. Serve.