Technology

FTX’s attempts to claw back political donations may target largest recipients, experts say


Over the weekend, FTX and affiliated debtors sent confidential letters to politicians, PACs and other recipients of donations to return the funds given by the formerly massive crypto exchange. It might seem like an odd request, but it was unsurprising to some legal experts who keep tabs on the space.

“Given the sheer scale of the political donations — as well as allegations that these were potentially financed through FTX customer funds (through Alameda) — current FTX management has strong reasons to seek a return of these funds as a way to meet creditor shortfalls,” Yesha Yadav, professor of law and director of diversity, equity and community at Vanderbilt University, said to TechCrunch.

FTX and about 130 of its affiliated companies filed for Chapter 11 bankruptcy in mid-November after it failed to keep itself afloat and misused an “excess of $7 billion” in customer funds, the company’s new CEO, John J. Ray III, said at a hearing in mid-December.

But the request for donations to be returned is an “appropriate move in order to attempt to obtain as much of the misused customer deposits as possible, given the circumstances,” Michael Fasanello, crypto compliance officer at AnChain.AI, said to TechCrunch.

“Bankruptcy Code sections 548(a) and 550(a) give Chapter 11 debtors in possession (and appointed trustees) the power to sue and recover money and other forms of property the debtor sold, loaned, gifted, or otherwise transferred to third parties within two years of the bankruptcy filing if the transfers were (literally or constructively) designed to defraud other creditors,” Fasanello said.

“It is also likely that FTX or a liquidating trustee and their legal team will specifically cherry-pick cases where there is both (1) high value of funds to recover and (2) some level of awareness by the recipient that the source of funds is not wholly pure,” Fasanello added.

Yadav agrees. The main targets for donation returns will be larger recipients, where potential litigation (if needed) will be worth it, she said. But the hope is that recipients return the cash and the tone of the notice, as well as its terms, “make clear that FTX management wants to motivate voluntary give-ups, opposed to pursuing legal action,” she added.



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