A victory for Chinese creditors: The motion to restrict jurisdiction in the FTX bankruptcy case was withdrawn.

In response to FTX’s motion for a recovery trust, Tian Xiaowan, a lawyer from Beijing DeHeng Law Firm, was commissioned by the creditors’ representatives in China to issue a detailed legal opinion refuting FTX’s so-called “justifications” for the recovery trust point by point.

Author: Lawyer Tian Xiaowan

Following a hearing on October 23, 2025, in the U.S. Bankruptcy Court of Delaware regarding FTX Recovery Trust's motion to exclude creditors from 49 jurisdictions, including mainland China, from the primary payout list, FTX Recovery Trust has formally withdrawn its motion under pressure from various parties.

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

In response to FTX's motion for a recourse trust, Attorney Tian Xiaowan of Beijing DeHeng Law Firm, acting on behalf of the creditors in China, issued a detailed legal opinion refuting each of FTX's alleged "justifications" for the recourse trust. This legal opinion was filed with the U.S. Bankruptcy Court on July 15, 2025. The core arguments of the legal opinion are as follows:

1. Current cryptocurrency regulations in China are neither legally binding nor constitute laws that can be enforced against foreign entities.

Currently, China has not formulated any unified legislation specifically for cryptocurrencies; only four normative documents regulate cryptocurrencies. The FTX Recourse Trust believes that China's cryptocurrency regulatory policies may hold FTX and its affiliates legally liable, primarily based on the "Notice on Further Preventing and Handling Risks of Virtual Currency Trading and Speculation" (the "Notice") jointly issued by the People's Bank of China and other departments. This Notice explicitly states that virtual currency-related business activities constitute illegal financial activities. However, the "Notice" is an "administrative normative document," not a "legislative document" (law, administrative regulation, local regulation, departmental rule). It is a policy statement intended to guide the behavior of domestic financial institutions and prevent domestic financial speculation risks, and does not possess the legal force of compulsory judicial binding force.

Therefore, using "notification" as a legal basis for potentially subjecting foreign entities to criminal liability is a serious misunderstanding and exaggeration.

2. FTX 's recourse trust misinterpreted the purpose of the "notification" .

The purpose of the "Notice" is to "prevent and address speculative risks in virtual currency transactions, safeguard national security and social stability, and curb their disruption of economic and financial order, as well as the breeding of illegal and criminal activities such as gambling, illegal fundraising, fraud, pyramid schemes, and money laundering." The Notice prohibits fraudulent, speculative, and unlicensed business practices; it does not intend to deprive investors of their legitimate property rights or prohibit them from receiving 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.

• Chinese investors holding and trading cryptocurrencies on overseas exchanges does not violate Chinese laws or regulations.

FTX's motion implicitly suggests that all cryptocurrency activities by Chinese citizens are illegal, arguing that enabling Chinese citizens to acquire crypto assets would incur legal liability. However, analysis of two relevant clauses in the "notice" reveals that Chinese citizens are not prohibited from holding or trading foreign exchange cryptocurrencies:

"(II) Virtual currency-related business activities are illegal financial activities. Activities related to virtual currency, such as exchanging legal tender for virtual currency, exchanging virtual currencies among themselves, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and virtual currency derivatives trading, are suspected of being illegal token sales, unauthorized public offerings of securities, illegal futures trading, illegal fundraising, and other illegal financial activities. All such activities are strictly prohibited and will be resolutely shut down according to law. Those who commit crimes by engaging in related illegal financial activities will be held criminally liable according to law."

The core of this regulation is to ban all business activities related to virtual currencies within China, such as exchanges, ICOs, OTC transactions, and bank financial support. Therefore, after the "Notice" was issued, a large number of exchanges and practitioners in China were liquidated, deregistered, or transferred overseas. However, it does not involve restrictions on Chinese individual investors investing in overseas cryptocurrency exchanges.

"(iv) There are legal risks involved in participating in virtual currency investment and trading activities. Any legal person, non-legal person organization or natural person who invests in virtual currencies and related derivatives in violation of public order and good morals shall have their related civil legal acts invalid and shall bear the losses arising therefrom; if they are suspected of disrupting financial order or endangering financial security, they shall be investigated and dealt with by the relevant departments in accordance with the law."

The provision stipulates that if an investment in virtual currencies and related derivatives within China violates public order and good morals, the relevant civil legal acts shall be invalid. However, "violation of public order and good morals" is a vague legal standard, and Chinese courts are particularly cautious in applying this standard and will not automatically invalidate all civil acts involving cryptocurrency investment.

The scope of this "Notice" is limited to commercial activities conducted within China and applies only to transactions between Chinese investors and domestic cryptocurrency service providers. It does not apply to transactions on overseas cryptocurrency exchanges. Therefore, this notice has no effective jurisdiction over investment activities occurring overseas and cannot effectively regulate or revoke the validity of such activities.

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

The "Notice" states that "overseas virtual currency exchanges providing services to residents within my country via the internet also constitute illegal financial activities," and that the "related personnel within China" will be held accountable. This clause is likely the biggest concern for the FTX Recourse Trust and its payment service provider (DSP). While we are not advocating that foreign cryptocurrency exchanges are completely exempt from potential Chinese legal constraints, it must be clear that, based on the actual enforcement of Chinese law, the FTX Recourse Trust and its DSP do not actually face any risk of civil or criminal liability when distributing assets to Chinese creditors.

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

Secondly, the focus of this clause is not on overseas exchanges, but rather on the entities within China that assist in their operation. Only individuals working for overseas exchanges within China, and entities providing marketing, payment, or technical services within China, are potentially subject to criminal liability. This clause does not include any specific standards, penalties, or enforcement mechanisms targeting the overseas exchanges themselves.

To date, there is no publicly available record of any foreign cryptocurrency exchange being sanctioned by Chinese courts or regulators solely for allowing Chinese residents to use its services, or any such entity being subject to civil, administrative, or criminal penalties in China for accepting Chinese users or transactions.

4. The FTX Recourse Trust is not liable under Chinese law for making payments in US dollars or stablecoins to Chinese creditors (through payment service provider DSP).

FTX Recourse Trust's concern that it might be held liable for violating Chinese law by making payments in US dollars or stablecoins to Chinese creditors is unfounded.

• Does the act of Chinese investors holding US dollars or stablecoins through overseas cryptocurrency transactions violate Chinese law?

Chinese investors may have violated China's foreign exchange controls by initially converting RMB into foreign currency or cryptocurrency and investing it on the FTX platform. However, the responsibility for this violation rests with the individual Chinese investors, who may be subject to administrative penalties from China's foreign exchange management authorities. This responsibility does not extend to FTX or the FTX Recourse Trust. The FTX Recourse Trust's payments are essentially the settlement of a confirmed debt under US law; its operations occur entirely outside of China and do not constitute the provision of currency exchange services within China, therefore it is not subject to China's foreign exchange control regulations. There is no precedent under Chinese law for holding foreign entities legally liable for such activities.

• FTX Recourse Trust's payments in USD or USD stablecoins via DSP do not violate China's foreign exchange controls.

Article 4 of the "Regulations of the People's Republic of China on Foreign Exchange Control" stipulates that: These Regulations apply to foreign exchange receipts and payments and foreign exchange business activities of domestic entities and individuals, as well as foreign exchange receipts and payments and foreign exchange business activities conducted by overseas entities and individuals within the territory of the People's Republic of China.

It is clear that this regulation does not apply to foreign entities operating entirely outside of China, including those conducting cross-border settlements with Chinese citizens. Therefore, it is not illegal for the FTX Recourse Trust to pay USD or stablecoins to Chinese creditors through DSP.

5. If Chinese law were to apply in this case, what would the outcome be?

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

The focus of Chinese judicial authorities has always been on protecting investors and recovering losses to the greatest extent possible. There has never been a precedent of depriving investors of their right to compensation as victims during the liquidation process simply because they participated in restricted investment activities. From this perspective, FTX's recourse trust's refusal to compensate Chinese creditors runs counter to the legal intent of "protecting people's property" upheld by Chinese judicial authorities.

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