FTX’s bankruptcy estate has asked the U.S. Bankruptcy Court for permission to freeze crypto distributions to creditors in 49 countries with unclear or restrictive regulations. The request, submitted Wednesday in Delaware, is aimed at avoiding potential legal penalties from violating cross-border digital asset laws. “Distributions made by or on behalf of the FTX Recovery Trust into jurisdictions in violation of these legal restrictions may trigger fines and penalties, including personal liability for directors and officers, and/or criminal penalties up to and including imprisonment,” the estate warned. China and Russia Among Targeted Jurisdictions FTX’s creditor base spans the globe, but the estate has cited nations with prohibitive or undefined crypto laws as high risk. These include China, Russia, Iran, Saudi Arabia, Egypt, and Ukraine, among others. The estate said, for example, that institutions in Macau are barred by mainland authorities from engaging in virtual currency services. The estate emphasized that all 49 identified jurisdictions are affected by similarly stringent regulations. Distributions on Hold, Not Cancelled While not rejecting payouts altogether, the estate clarified that it is placing distributions on hold pending legal clarity. This delay includes the majority of claims originating from China, which represent 82% of the affected value. Though China has banned crypto transactions, it hasn’t fully prohibited the possession of digital assets, creating ambiguity. Meanwhile, nearby Hong Kong has taken a supportive stance toward crypto, recently endorsing investment products like ETFs and derivatives. FTX’s legal team is pushing for a clear framework: “The FTX Recovery Trust has developed the restricted jurisdiction procedures to provide notice and a process for resolving the question of whether distributions will be made pursuant to the plan.” The motion seeks court approval to proceed cautiously, allowing some distributions to resume once jurisdictional clarity is achieved. Legal experts have voiced understanding of the strategy. “It doesn’t surprise me that the FTX estate might not make distributions in countries where such distributions might be illegal,” said Aaron Brogan, managing attorney at Brogan Law.
