FTX Creditors File Class Action Lawsuit Against Kroll for Mishandling Claims

FTX creditors have initiated a class action lawsuit against Kroll Restructuring Administration, the firm appointed to manage claims for the bankrupt cryptocurrency exchange. This legal action, filed on August 20 by Hall Attorneys based in the United States, accuses Kroll of handling claims for FTX, BlockFi, and Genesis customers in a manner that not only caused financial harm but also compromised sensitive information, exposing it to potential cybercriminals.

Allegations of Data Mismanagement and Security Risks

The lawsuit highlights that Kroll was well aware of the security vulnerabilities associated with its email communications. After an incident in August 2023, where an unauthorized party accessed a Kroll employee’s mobile number, the firm suffered a data breach that exposed creditor data, including names, addresses, email contacts, and some account balances related to FTX. Despite these warnings, Kroll reportedly continued to send out critical notices primarily via email, thereby increasing the risk of scams and phishing attacks targeting claimants.

Sunil Kavuri, a notable FTX creditor, has voiced concerns about the frequency of phishing emails targeting users of the defunct exchange. He noted receiving a fraudulent email that contained his full name just hours before discussing the issue publicly.

Impact on Claim Verification and Security

Not only does the lawsuit accuse Kroll of undermining the security of creditor data, but it also claims that the firm’s approach has led to significant operational issues, including delays in verification processes, lockouts, and, in some situations, the loss of claims by FTX creditors.

Nicholas Hall, the lead attorney on this case, encouraged all FTX creditors to engage in the legal proceedings, emphasizing the inclusivity of both U.S. and Bahamian customer-creditors.

“All creditors are encouraged to participate; it’s for both US and Bahamas customer-creditors,” Hall stated.

Calls for Compensation and Reform

The plaintiffs are seeking financial compensation for the various harms suffered, particularly related to phishing attacks, delayed claims, and expunged filings. Hall mentioned that eligible class members might receive monetary relief, which could amount to up to $750 or actual damages for those affected in California, although this may vary depending on the class and residency.

In addition to financial compensation, the lawsuit demands practical reforms aimed at improving the claims process and data security. Proposed changes include:

  • Implementing multi-channel communication strategies involving both email and First-Class Mail.
  • Establishing status-change notifications with defined response periods.
  • Offering a manual option for tax form submission.
  • Enforcing stricter security controls for account modifications, such as sending verification codes by mail before permitting changes.

Furthermore, the lawsuit calls for the introduction of deliverability safeguards and regular independent audits to enhance data protection measures.

Conclusion

The case against Kroll represents a significant step for FTX creditors seeking justice and accountability. As the lawsuit unfolds, the outcome could have lasting implications for how claims are managed in the wake of financial disasters in the crypto space. Stakeholders are encouraged to stay informed and participate in the legal process as it develops.

This article originally appeared on CryptoSlate. For more updates on the lawsuit and further developments, stay tuned.