Lawyer discusses the current situation of Taiwan FTX victims: 90% are retail investors, with a total amount exceeding 150 million USD

Respondent: Taiwan Shangcheng Law Firm

Interviewer: Wu Says Blockchain

As of now, among the clients we have accepted, there are approximately 950 people from Taiwan, with about four individuals suffering losses exceeding 5 million USD. The total amount of victim losses may exceed 150 million USD, with 90% being individual victims/retail investors. In mainland China, there are about 30 individuals, with one victim having losses exceeding 5 million USD.

When Lehman Brothers went bankrupt, the total number of victims in Taiwan exceeded 50,000, with total losses exceeding 2 billion USD. We speculate that the number of victims in Taiwan this time may be even higher. Previously, Lehman's liquidation took three years and recovered about 30% of the funds. We expect that the bankruptcy liquidation of FTX may also take a similar three years, with the goal of recovering 30% of the funds (although it is more complex and challenging).

Compared to other exchanges, some Taiwanese people are more inclined to use FTX, possibly because they believe FTX is the only major exchange founded by non-mainland Chinese individuals (concerns about personal information leakage). Additionally, local partners and ambassadors in Taiwan have conducted very effective promotions. The deposit and withdrawal process for FTX in Taiwan is also very convenient, which has led to a higher number of victims in this FTX incident.

More importantly, FTX launched a dollar stablecoin interest product with an 8% interest rate, which is very popular in Taiwan. With bank deposit interest rates in Taiwan being almost 0, and mortgage and credit loan interest rates only around 3%, this product has gained widespread popularity. Some individuals even borrowed from banks to deposit into FTX for arbitrage. One issue that arises is that if users are holding coins in FTX for investment, FTX has the right to use them for trading and processing, and it is stated that they may incur losses, so they may end up in a different tier and position during the final liquidation.

The FTX case has now entered the U.S. judicial process, so for creditors, the best strategy to seek compensation is to follow the U.S. judicial process, apply to the court to participate in the bankruptcy process, and seek asset distribution. This is currently the goal our firm is striving for. They may soon form a creditors' group, and there will be a bankruptcy committee to manage the debts and propose a reorganization plan.

For the regulatory authorities in Taiwan, FTX is ultimately an exchange based abroad. For Taiwanese investors, they are conducting their investments or trades online, and these transactions do not actually occur in Taiwan. Although they are related to Taiwanese investors, it is still unlikely that Taiwan's regulatory authorities will intervene subsequently. Even in the U.S., its administrative departments are unlikely to interfere with the court's operations.

For different creditors, who has a higher priority? Some specific debts may be classified as priority debts. For example, the bankruptcy administrator's fees, court-related expenses, employee salaries, and funds related to employee rights will be settled first. Most other debts are ordinary debts, and based on basic principles, as long as you have declared your debt to the court, in principle, debts should be distributed equally.

The entire FTX group has over 100 subsidiaries, and the exact amount of its assets may not have been thoroughly investigated. If it enters the so-called bankruptcy reorganization (as opposed to liquidation) phase, it is certain that the compensation for investors will not be 100%, and there will definitely be a discount. The final percentage will need to be negotiated. Of course, if the proposed reorganization plan is too unfriendly to creditors, it may indeed not be accepted.

Whether SBF, FTX employees, and their promoters or community representatives will face criminal liability depends on whether they were aware of the company's internal decisions and whether they had subjective knowledge, which can further discuss the possibility of criminal prosecution.

Finally, for victims, we suggest that those with losses under 10,000 USD may not need to hire a lawyer. Those with losses over 100,000 USD or more may consider seeking legal assistance. Because the case is relatively complex, it is difficult to complete independently without the assistance of professionals.

Currently, many people suggest taking screenshots of their assets on FTX for future proof of their asset quantity. Actively gathering evidence is certainly a good thing, but it needs to be effective evidence. Screenshots are prone to human tampering or fabrication, and their evidence trail is not reliable, so it is not the best method. From my own experience, after applying for withdrawal from FTX, you will receive a letter regarding the withdrawal application, which is relatively reliable. If you are using Google Mail, you can further store the letter in Google Vault. Additionally, please keep the on-chain records of deposits and withdrawals to FTX.

Since FTX is a centralized exchange, all transaction records are based on its internal ledger, and we can only hope that FTX will not delete or tamper with the ledger; otherwise, it would be like another case that left Taiwanese investors with nothing, similar to the Bitmain case, which would lead to a deadlock during court proceedings.

Furthermore, we advise investors to abandon all irrational thoughts and be cautious of individuals who may exploit various pretexts for financial gain or fraud.

(Note: The author has no commercial relationship with the respondent.)