China’s Crypto Crackdown Hinders FTX Recovery Trust Payouts

Crackdown Prevents Trust From Paying Out $435M Held By Chinese Residents

According to a Wednesday court filing, China’s aggressive crackdown on cryptocurrency prevents the FTX Recovery Trust from paying out approximately $435 million owed to residents caught up in the fallout from Sam Bankman-Fried’s collapsed business empire.

The FTX Recovery Trust announced it cannot proceed with payouts to customers in 49 jurisdictions where laws either prohibit or severely restrict crypto activity.

The trust estimates global cryptocurrency restrictions have frozen over $500 million of an estimated $10 billion in potential distributions to customers worldwide.

The Repayment Process

China accounts for the lion’s share of the frozen funds, representing about 82% of affected claims or roughly $435 million.

FTX was never legally authorized to operate in mainland China, where authorities imposed sweeping bans on crypto trading and related services years before the exchange’s collapse.

Despite these restrictions, many Chinese residents accessed FTX via offshore accounts or VPNs. Their claims are currently in legal limbo under the recovery plan.

The process ahead involves the trust obtaining formal legal opinions on payouts for each jurisdiction. If deemed restricted, claims from those regions will be disputed, potentially leading to forfeiture if creditors cannot resolve the matter.

FTX’s Background

FTX commenced its second round of distributions at the end of May, disbursing more than $5 billion to eligible customers across claim classes.

The process has been complicated; nearly 400,000 customer claims, possibly worth over $2.5 billion, were disqualified in April after users failed identity verification steps.

Bankman-Fried and Gary Wang co-founded FTX in 2019. The self-proclaimed crypto “wunderkind” later gained attention for his political connections in Washington. The empire collapsed in late 2022 following financial discrepancies revealed between FTX and its sister firm, Alameda. Several former executives have since pleaded guilty or been convicted.