In the latest bid to recoup funds for creditors, the FTX bankruptcy estate has launched a lawsuit against KuCoin, seeking the return of over $50 million in assets locked on the crypto exchange. The assets, originally valued at $28 million at the time of FTX’s collapse in November 2022, have appreciated significantly due to market fluctuations. This complaint, filed in the U.S. Bankruptcy Court for the District of Delaware on October 28, claims KuCoin has withheld the assets despite numerous appeals from the FTX estate.
Legal Basis for Recovery of Frozen Assets
According to the filing, the assets have remained frozen on KuCoin’s platform since FTX’s bankruptcy proceedings began, with Alameda Research, FTX’s now-bankrupt trading arm, leading the charge to reclaim these funds. “KuCoin has without justification refused to turn over the assets in the account to the Debtors, despite numerous requests,” states the complaint, emphasizing that KuCoin’s actions may be in violation of U.S. Bankruptcy Code provisions. The FTX estate seeks both the return of these assets and potential damages for KuCoin’s delayed release of the funds, asserting that these assets are rightfully part of the bankruptcy estate and should be directed toward creditor repayment.
FTX’s case against KuCoin follows a growing trend in its recovery efforts. Alameda Research has previously taken similar steps, recently securing a settlement with Bybit to recover $228 million in assets. Bybit agreed to return $175 million in digital assets and facilitate the sale of approximately $53 million in BIT tokens to Mirana Corp, its investment arm. The FTX estate had initially filed a $1 billion lawsuit against Bybit and Mirana, citing preferential treatment and alleged access to VIP withdrawals prior to FTX’s collapse. The Bybit settlement represents a crucial win for FTX’s creditors and reflects an ongoing effort to maximize estate recovery through strategic legal avenues.
KuCoin’s Position and Broader Industry Implications
To date, KuCoin has not publicly responded to the lawsuit or clarified its stance regarding the frozen assets. This silence may stem from ongoing internal assessments or legal strategies in anticipation of court proceedings. Nonetheless, the case signals a growing pressure on cryptocurrency exchanges and third-party platforms to account for assets belonging to bankrupt entities, particularly as investors and creditors seek restitution in an era marked by increasing regulatory scrutiny.
FTX’s estate has accelerated its asset recovery process since a U.S. bankruptcy judge approved its liquidation plan on October 7, granting the exchange permission to wind down operations and initiate creditor repayments. Under this plan, eligible creditors may receive up to 119% of the asset value claimed in FTX’s original filings—valued at the time of the November 2022 collapse, not at today’s higher market prices. Despite the expansive recovery terms, the estate faces a projected $9 billion deficit in fulfilling claims.
Legacy of the FTX Collapse
FTX’s 2022 implosion, which revealed significant mismanagement and allegations of fraud, reshaped regulatory and industry standards within the crypto ecosystem. The scandal spotlighted the practices of FTX’s trading arm, Alameda Research, which reportedly engaged in extensive misuse of customer funds. As bankruptcy proceedings move forward, the FTX estate’s efforts underscore a larger trend of legal accountability within the sector. By pursuing entities like KuCoin and Bybit, FTX’s bankruptcy team not only works to restore lost funds but also underscores the growing rigor with which financial oversight and regulatory compliance are being enforced in the digital asset space.
With the KuCoin lawsuit and other active recovery initiatives, FTX’s estate hopes to narrow the gap between creditors’ claims and available funds—a monumental task given the exchange’s original insolvency and its lasting financial reverberations across the industry.
