An insolvency lawyer informed that the infectious spread of the FTX Group failure may still be ongoing since clawback clauses might require companies and investors to refund billions of dollars that were invested in the months before the collapse of the cryptocurrency exchange.
A “clawback” is a term used to describe monies that have been disbursed that must be repaid due to unique situations or occurrences, such as an insolvent business that must recover payments disbursed within 90 days of filing for Chapter 11. The 90-day window is increased to a year if the creditor is an insider.
Therefore, transfers made by FTX to other parties, such as the $2.1 billion it paid to Binance when it sold its Series A investment in FTX, might be subject to a clawback request by creditors.
In a recent interview with CNBC, Changpeng “CZ” Zhao, CEO of Binance, downplayed worries about the return of the money by stating that Binance’s attorneys should handle it.
According to bankruptcy lawyer Mark Pfeiffer, a member of the Blockchain and Crypto Assets Practice group at law firm Buchanan Ingersoll & Rooney, in the case of a clawback to collect money for creditors, the bankruptcy court might demand the return of the crypto assets or the money equivalent to the value of the crypto transferred.
Pfeiffer stated that it was unclear if the quantity would correspond to the value if the court ordered the defendant to pay the value. As a result, the court would need to assess the assets’ worth based on the date of the transfer, the filing of the bankruptcy or the litigation, or the entry of the judgment. The bankruptcy attorney claims:
Customers bear the danger of having to return cryptocurrency, which exposes them to the risk that the value of the cryptocurrency may rise when they liquidate their cryptocurrency for cash.”
He went on to say that;
“Customers who possess cryptocurrency to incur the possibility of refunding cash to the court even if their cryptocurrency may not be liquidated for the full amount of the verdict. In other words, if they predict incorrectly, they might, no matter what they do, make their issues worse.”
As the bankruptcy action moves forward, several more companies, including Silvergate Bank, may be asked to refund money.
According to experts with high-level experience, FTX clients filed a complaint in December alleging that the bank assisted the now-defunct cryptocurrency exchange in fraudulent operations through erroneous payment transfers.
Pfeiffer described three primary forms of clawback to Cointelegraph. Any transfer of property made to a creditor within 90 days of the bankruptcy while the debtor was insolvent may be avoided by using the first preference under Section 547 of the Bankruptcy Code.
A preference claim can be defended in a number of ways. The most frequent scenario is when a transfer occurs naturally in the course of business. However, it’s debatable whether a de facto “run on the bank” would be acceptable, according to Pfeiffer.