A Chinese creditor is challenging FTX's motion to halt payouts in countries with restrictive cryptocurrency regulations, a move that has ignited concerns about fairness and transparency in the bankruptcy proceedings. The objection highlights the complexities of cross-border crypto asset distribution and the tensions between legal compliance and creditor rights.

FTX's bankruptcy estate filed a motion to pause payouts to residents of 49 countries with unclear or restrictive crypto laws, citing potential fines, penalties, and even criminal liability for directors and officers. These countries include China, Russia, Egypt, Iran, Saudi Arabia, and Ukraine. FTX's legal team has stated the delay in payouts is due to the evolving and ambiguous rules surrounding digital assets in various regions. The motion affects approximately 5% of total claims, with China accounting for 82% of the affected value, roughly $380 million out of $470 million. The FTX Recovery Trust manages a $16.5 billion recovery plan, executing payouts in fiat currency rather than cryptocurrency.

Weiwei Ji, a creditor residing in Singapore but classified as Chinese due to holding a Chinese passport, has formally objected to the motion. Ji argues that settlements are made in U.S. dollars, a standard legal repayment method, and that cryptocurrency distributions are legal in China, where digital assets constitute "personal property". Ji stated that their family holds claims exceeding $15 million across four KYC-verified accounts and has complied with all procedural requirements.

Over 500 Chinese creditors are challenging FTX's decision, expressing concerns about fairness, transparency, and procedural integrity. They argue that FTX's move contradicts earlier assurances that all verified claimants who supported the reorganization plan would receive distributions equally. These creditors are appealing to U.S. courts and regulators, claiming that FTX's decision undermines principles of fairness and breaks promises made during the reorganization process. Some creditors have already sent formal letters of objection to the bankruptcy court.

Will, a Chinese creditor who has retained a U.S. attorney, argues that the motion could deny rightful compensation based on "nationality or perceived legal uncertainty". He emphasized that "$470 million is not just a cold number—behind it are countless families already hurt once". He added, "A second wound is unfolding. We can't stay silent". Will stated, "We were told clearly: as long as we submitted our claims and voted in favor of the plan, we would be entitled to receive our distributions like everyone else. Based on that understanding, we cooperated, our claims were verified, and we supported the reorganization plan in good faith".

The FTX estate's cautious approach has sparked debate, with some viewing it as prudent risk management while others express outrage over the delayed payouts. Critics see it as a dangerous precedent that could selectively undermine the rights of verified claimants. The creditors also collaborate with regulators to ensure that FTX treats all creditors equitably during its bankruptcy proceedings, regardless of their geographical location. Their legal documents highlight concerns about the fairness of the process, the absence of proper procedures, and the lack of transparency from FTX's restructuring team.

The "Restricted Jurisdiction Procedures" provide a framework for notifying affected creditors and resolving distribution eligibility. The Trust is engaging legal experts in each country to assess whether distributions can be made while complying with local laws and regulations. However, if the legal review confirms that distributions can proceed in a particular country, the Trust will work with service providers to deliver the funds. The legal hearing is scheduled for July 22 to decide the next payment plan, causing further delays for creditors outside the supported area.

The case highlights the ongoing regulatory tension between crypto platforms and jurisdictions with anti-crypto policies. Users in affected countries face new legal uncertainty, with no clear timeline for resolution. The outcome of this dispute could set important precedents for future crypto asset recoveries in restricted jurisdictions.