The U.S. Department of Justice (DOJ) has decided to review existing regulations regarding the return of digital assets to victims following fraud and theft cases. In an official note published on Monday, the department reopened discussions about the fairness of fixed-date payments, particularly referencing high-profile bankruptcy cases like FTX. Currently, victims receive payments based on the market value of their assets at the time they lost them; however, this approach has faced serious criticism due to the high volatility of the cryptocurrency market.
Fixed Valuation Payments Spark Controversy
Under current practices in the U.S., digital asset victims are typically compensated based on the market value at the time of loss. While this method may seem fair within the framework of traditional bankruptcy law, it faces criticism due to the extreme volatility inherent in the cryptocurrency market. In bankruptcy cases like FTX, Celsius, and Voyager, many victims lost assets that significantly appreciated over the years but received payments based merely on previous lower prices, leading to widespread dissatisfaction among victims.
Attorney Calvin Koo argues that this approach could detract from the fairness of the process. He asserts that due to timing discrepancies, some victims miss out on substantial gains while others benefit from the system. There is growing support for granting judges more discretion in these matters.
FTX Case Raises New Concerns
In the legal processes following the FTX bankruptcy, the court decided to compensate victims based on fixed-date USD equivalents. However, the rally in the cryptocurrency market post-2023 significantly increased the value of these assets. As a result, affected investors have demanded that their cryptocurrencies be returned in kind. Yet, this approach also creates new risks due to the severe fluctuations in cryptocurrency prices.
Expert attorney Evelyn Baltodano Sheehan contends that while the current system aims to prevent long-term victimization, recent market developments have made it imperative to update this structure. Over 300 victims have formally filed complaints regarding losses attributed to fixed valuation. The DOJ indicates that future federal law changes and judicial decisions could shape a new system.
