Original Title: "Victory for Chinese Creditors: FTX Bankruptcy Motion to 'Limit Jurisdiction' Withdrawn"
Original Author: Tian Xiaowan Darren, Beijing DeHeng Law Offices

On October 23, 2025, after a renewed hearing in the U.S. Bankruptcy Court for the District of Delaware regarding the FTX Recovery Trust's motion to exclude creditors from mainland China and 48 other jurisdictions from the main compensation list, the FTX Recovery Trust officially withdrew the motion under pressure from various parties.

For Chinese creditors, this is not only a struggle for property but also a difficult battle to defend equality and justice.

To counter the FTX Recovery Trust's motion, lawyer Tian Xiaowan from Beijing DeHeng Law Offices, representing the creditors from China, provided a detailed legal opinion that refuted the so-called "justifications" of the FTX Recovery Trust one by one. This legal opinion was submitted to the U.S. Bankruptcy Court on July 15, 2025. The core points of the legal opinion are as follows:

1. The current cryptocurrency regulatory documents in China are neither judicially binding nor constitute enforceable laws against foreign entities.

Currently, China has not formulated any unified special legislation on cryptocurrency, with only four normative documents regulating cryptocurrencies. The FTX Recovery Trust believes that China's cryptocurrency regulatory policies may impose legal liabilities on FTX and its affiliates, primarily based on the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" jointly issued by multiple departments including the People's Bank of China (the "Notice"). This notice clearly states that activities related to virtual currencies are considered illegal financial activities. However, the "Notice" is an "administrative normative document" and does not fall under "legislative documents" (laws, administrative regulations, local regulations, departmental rules). It reflects a policy statement aimed at guiding the behavior of domestic financial institutions and preventing domestic financial speculation risks, lacking the force of law with judicial binding power.

Therefore, using the "Notice" as a legal basis that could lead to criminal liability for foreign entities is a serious misunderstanding and exaggeration.

2. The FTX Recovery Trust Misinterpreted the Purpose of the "Notice"

The purpose of the "Notice" is to "prevent and deal with speculative risks in virtual currency trading, maintain national security and social stability, curb disruptions to economic and financial order, and prevent illegal activities such as gambling, illegal fundraising, fraud, pyramid schemes, and money laundering." The notice prohibits fraudulent, speculative, and unlicensed business activities but does not intend to deprive investors of their legitimate property rights or prohibit investors from obtaining bankruptcy distributions in legal proceedings. Citing the notice to justify depriving Chinese creditors of their right to compensation contradicts the fundamental purpose of protecting people's property.

3. Chinese investors holding and trading cryptocurrencies on foreign exchanges do not violate Chinese laws or regulatory policies.

The FTX motion implies that all cryptocurrency activities of Chinese citizens are illegal, suggesting that allowing Chinese citizens to obtain crypto assets would incur legal liabilities. However, analyzing two relevant clauses in the "Notice" reveals that holding or trading foreign exchange cryptocurrencies by Chinese citizens is not prohibited:

"(2) Activities related to virtual currencies are considered illegal financial activities. Engaging in the exchange of legal currency for virtual currencies, exchanges between virtual currencies, buying and selling virtual currencies as a central counterparty, providing information intermediary and pricing services for virtual currency trading, token issuance financing, and trading of virtual currency derivatives are all strictly prohibited and will be resolutely banned by law. Criminal liability will be pursued for those engaging in related illegal financial activities."

The core of this clause is to ban all business activities related to virtual currencies within China, such as exchanges, ICOs, OTCs, and banking financial support. Therefore, after the issuance of the "Notice," many exchanges and practitioners in China liquidated, canceled, or moved abroad. However, it does not involve restrictions on Chinese individual investors investing in foreign cryptocurrency exchanges.

"(4) Participating in virtual currency investment and trading activities carries legal risks. Any legal person, non-legal person organization, and natural person investing in virtual currencies and related derivatives that violate public order and good customs will have their relevant civil legal acts deemed invalid, and any resulting losses will be borne by themselves; those suspected of disrupting financial order and endangering financial security will be investigated by relevant departments according to law."

This clause states that investing in virtual currencies and related derivatives within China that violate public order and good customs will render the relevant civil legal acts invalid, but "violating public order and good customs" is a vague legal standard. Chinese courts are particularly cautious in applying this standard and will not automatically invalidate all civil acts involving cryptocurrency investments.

The scope of the "Notice" is limited to commercial activities conducted within China and applies only to the trading relationships between Chinese investors and domestic cryptocurrency service providers, not to transactions on foreign cryptocurrency exchanges. Therefore, the notice does not have actual jurisdictional effect over investment activities occurring abroad and cannot effectively regulate or invalidate their validity.

4. Chinese law does not have "long-arm jurisdiction" over foreign entities—there is no actual risk in the bankruptcy distribution of overseas cryptocurrency exchanges.

The "Notice" mentions that "overseas virtual currency exchanges providing services to residents within our country via the internet are also considered illegal financial activities," and that the responsibility of "relevant personnel within the country" should be pursued. This clause is likely the most concerning issue for the FTX Recovery Trust and its payment service providers (DSP). While we do not claim that foreign cryptocurrency exchanges are completely free from potential constraints of Chinese law, it must be clarified that, based on the actual enforcement of Chinese law, there is no civil or criminal liability risk when the FTX Recovery Trust and its DSP distribute assets to Chinese creditors:

First, Chinese judicial and administrative authorities lack extraterritorial jurisdiction over foreign entities that do not operate within China. Although this clause implies a theoretical risk exposure, its primary function is declarative—as a policy deterrent rather than a legally binding norm.

Second, the focus of this clause is not on foreign exchanges but on the Chinese entities that assist their operations. Individuals working for foreign exchanges within China, as well as entities providing marketing, payment, or technical services within China, may be held criminally liable. This clause does not contain any specific standards, penalties, or enforcement mechanisms directed at the foreign exchanges themselves.

To date, there is no public record showing that foreign cryptocurrency exchanges have been sanctioned by Chinese courts or regulatory agencies solely for allowing Chinese residents to use their services, or that any such entities have faced civil, administrative, or criminal penalties in China for accepting Chinese users or transactions.

5. The FTX Recovery Trust cannot be held liable under Chinese law for paying Chinese creditors (through payment service providers DSP) in USD or stablecoins.

The FTX Recovery Trust is concerned that its actions of paying Chinese creditors in USD or stablecoins may violate Chinese law, but this concern is unfounded:

(1) Does the act of Chinese investors holding USD or stablecoins through overseas cryptocurrency trading violate Chinese law?

When Chinese investors initially exchanged RMB for foreign currency or cryptocurrencies and invested in the FTX platform, they may have violated China's foreign exchange control regulations. However, the responsible party for this violation is the individual Chinese investors, who may face administrative penalties from China's foreign exchange management authorities. However, this liability does not extend to FTX or the FTX Recovery Trust. The compensation actions of the FTX Recovery Trust are essentially a settlement of a confirmed debt under the U.S. legal framework, occurring entirely outside of China, and do not constitute the provision of currency exchange services within China, thus not subject to China's foreign exchange management regulations. There is no precedent in Chinese law for foreign entities bearing legal responsibility for such actions.

(2) The FTX Recovery Trust's payment of USD or USD stablecoins through DSP does not violate Chinese foreign exchange controls.

Article 4 of the Foreign Exchange Management Regulations of the People's Republic of China states: "These regulations apply to the foreign exchange receipts and payments and foreign exchange business activities of domestic units and individuals, as well as the foreign exchange receipts and payments and foreign exchange business activities of foreign units and individuals conducted within the People's Republic of China."

It can be seen that this regulation does not apply to foreign institutions that operate entirely outside of China, including those that conduct cross-border settlements with Chinese citizens. Therefore, the FTX Recovery Trust's payment of USD or stablecoins to Chinese creditors through DSP is not illegal.

6. If this case were indeed subject to Chinese law, what would the outcome be?

If the FTX bankruptcy case were handled under Chinese law, Chinese judicial authorities might: prosecute the operators of FTX for illegal fundraising or illegal business operations; impose criminal penalties, including imprisonment and fines; confiscate and sell assets, returning the proceeds to the victims of financial crimes.

The focus of Chinese judicial authorities has always been to maximize the protection of investors and recover losses. There has never been a precedent for depriving investors of their right to compensation as victims during the liquidation process simply because they participated in restricted investment activities. From this perspective, the FTX Recovery Trust's refusal to compensate Chinese creditors contradicts the legal intent of Chinese judicial authorities to "protect people's property."

This article is submitted and does not represent the views of BlockBeats.

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