FTX Disqualifies 392,000 Claims Worth $2.5 Billion Over KYC Failures

• FTX disqualified 392,000 claims worth $2.5 billion over KYC failures.
• Creditors with unverified accounts missed the March 3 KYC deadline.
• Repayments to verified users begin May 30, totaling $11.4 billion in funds.

FTX has disqualified nearly 400,000 customer claims after users missed a deadline to verify their identities. These claims, now void, could have been worth more than $2.5 billion. The crypto exchange enforced a March 3 Know-Your-Customer (KYC) deadline. Many users failed to meet it. FTX filed confirmation of the disqualified claims in the US Bankruptcy Court on April 2.

KYC Violations Wipe Out Billions in Claims

The court filing states that 392,000 claims have been fully disallowed and expunged. These claims are spread across more than 2,300 pages. Early estimates put the unverified claims’ value at $1 billion. However, new assessments suggest the figure could be over $2.5 billion.

Creditor advocate Sunil Kavuri provided a breakdown of the affected claims. He said $655 million came from claims under $50,000. The remaining $1.9 billion came from larger customer claims. These totals are part of a bigger $3.36 billion group of disputed claims. FTX included this in its claims reserve breakdown.

FTX Blames Old Leadership for Poor Data Handling

FTX stated that the disqualification process is necessary and legal. The exchange said its former leadership failed to gather KYC data properly. This lack of basic customer checks led to inaccurate records and fraud risks.

By enforcing strict KYC standards now, FTX aims to correct past oversights. The process will help in distributing recovered funds more fairly. It also ensures that valid users receive their proper share of the available assets.

Payouts Begin May 30 Amid Massive Filing Volume

FTX plans to start creditor repayments on May 30. This will be a key step in closing one of crypto’s largest collapses. The exchange has recovered $11.4 billion for distributions. Creditors will receive full cash recoveries based on November 2022 asset prices.

Despite these steps forward, the bankruptcy process remains challenging. FTX’s legal team revealed it received over “27 quintillion” submissions. Many of these are said to be fraudulent or inflated. The team continues to review and verify all entries before releasing payments.

Fraudulent Submissions Complicate Bankruptcy Efforts

The massive volume of invalid claims has caused delays and confusion. FTX’s team is working to ensure that payouts go only to verified claimants. The process has also highlighted the importance of secure identity verification in crypto.

FTX’s actions send a strong message about accountability. The exchange wants to ensure that future users follow identity checks. This will improve trust and reduce legal risks in crypto finance.