Bankruptcy

Alameda Research to sell interest in Sequoia Capital to Abu Dhabi for $45M

FTX’s sister company, Alameda Research, agreed to sell its interest in Sequoia Capital to Abu Dhabi’s sovereign wealth fund for $45 million.

The latest update in the FTX bankruptcy case comes as a new deal was struck between the defunct cryptocurrency exchange and a company owned by the government of Abu Dhabi.

A court document from the United States Bankruptcy Court for the District of Delaware on March 8 revealed that Alameda Research, the investment arm of FTX, will sell its remaining interest in venture capital firm Sequoia Capital to the Abu Dhabi sovereign wealth fund.

According to the document, FTX “decided to enter into the Agreement with Purchaser based on its superior offer and ability to execute the Sale Transaction within a short time frame.” This comes after interest in purchasing the shares from four different parties.

Al Nawwar Investments RSC Limited, the buyer of Alameda’s share, is owned by the government of Abu Dhabi — the capital city of the United Arab Emirates. The document states that the buyer is already invested in Sequoia.

The deal, worth $45 million, has the potential to be closed by March 31. However, it is subject to approval by the Delaware bankruptcy judge John Dorsey.

The attempt to sell off its remaining interest in Sequoia Capital is a part of FTX’s attempts to liquidate its investments to pay off its debt to creditors.

Dorsey has been involved in aspects of the legal cases concerning FTX. After its initial bankruptcy filing, Dorsey granted the former exchange permission to sell some of its assets.

Those assets included the derivatives platform LedgerX, the stock-clearing platform Embed and the company’s regional branches, FTX Japan and FTX Europe.

In January 2023, it was reported that FTX recovered over $5 billion in cash and liquid crypto assets.

In a related case, on March 8, court documents revealed that Dorsey approved that Voyager Digital will set aside $445 million after Alameda Research sued the company on the basis of loan repayments.

SEC snubbed as Voyager wins court approval for sale to Binance.US

The ruling allows the crypto lender a path out of its bankruptcy, but it still has to undertake some due diligence with Binance US before the sale is final.

Bankrupt cryptocurrency lender Voyager Digital has won court approval to sell over $1 billion of its assets to Binance.US.

The approval was granted by United States Bankruptcy Judge Michael Wiles on Mar. 7, which came after four days of arguments presented by Voyager and the United States Securities Exchange Commission.

Wiles said he would give the trading platform permission to close the Binance.US sale and issue repayment tokens to impacted Voyager customers, which would give them back approximately 73% of what they’re owed.

Wiles rejected a series of arguments by the SEC that the redistribution of the funds from Voyager to Binance.US would violate U.S. securities laws, according to a Mar. 7 report from Bloomberg:

“I cannot put the entire case into indeterminate deep freeze while regulators figure out whether they believe there are problems with the transaction and plan.”

Peter M. Aronoff, a lawyer with the Department of Justice, said at the hearing it’s considering appealing Wiles’ decision.

The judge’s decision comes just over a week after 97% of 61,300 Voyager account holders were found to favor the current Binance.US restructuring plan, according to a Feb. 28 filing.

The approval comes a day after Judge Wiles stated that no U.S. agency, including the SEC, would be allowed to punish Voyager executives in relation to the issuance of a potential bankruptcy token.

The trading platform will now take a few weeks to decide whether to complete the Binance.US sale or liquidate on its own and turn over the proceeds to Voyager account holders.

This will depend on how troubling Voyager views the ongoing investigations that Binance.US is entangled in with federal authorities.

Voyager’s lead investment banker, Brian Tichenor, said in a March 3 court hearing if the approved restructuring plan is executed, customers would receive about $100 million more than if Voyager liquidated on its own

Customer payouts will also be influenced by Voyager’s bankruptcy court dispute with FTX’s sister company Alameda Research, which is demanding that Voyager hands over what was originally lent out. Voyager has agreed to reserve $445 million in case it loses that dispute.

The price of Voyager’s token, VGX, shot up 32.9% from $0.37 to $0.50 in the four hours of the news before cooling off to $0.46 at the time of writing, according to CoinGecko data.

Price change of Voyager’s token, VGX over the last 24 hours. Source: CoinGecko.

CoinFLEX restructuring approved in Seychelles as rebranding reportedly continues

Seychelles courts have approved a plan that would give 65% of the company to creditors and 15% to employees as CoinFLEX is said to transition into the Open Exchange.

Crypto investment platform CoinFLEX has received approval for its restructuring plan from the courts in Seychelles, the company announced in a blog post on March 7.

The courts are expected to publish the order the same week, the blog post adds. Trading in locked assets has been halted until 24 hours after the publication of the court order on the restructuring to allow time for asset holders to be informed.

CoinFLEX halted withdrawals in June after incurring $47 million in losses when an account went negative without being liquidated. CoinFLEX began allowing users to withdraw 10% of their holdings in July and laid off employees to reduce company costs. Nonetheless, it announced a restructuring plan on Sept. 21.

Under the restructuring plan, creditors would receive 65% of the company, and its employees would receive 15%. Series B investors would remain shareholders, but Series A investors would lose their equity.

Also on March 7, reports emerged on Twitter that:

“OPNX will acquire all assets of CoinFLEX including people, tech, and tokens.”

The Open Exchange (OPNX) was set up by Three Arrows Capital founders Su Zhu and Kyle Davies and CoinFLEX founders Mark Lamb and Sudhu Arumugam. It claimed to be “the world’s first public marketplace for crypto claims trading and derivatives” when its website launched on Feb. 9.

Kyle, founder of 3AC, said that OPNX will acquire all assets of CoinFLEX including people, tech, and tokens and FLEX will be their main token. FLEX is used to pay fees and 20% of revenue is used to buy and burn FLEX. There are currently 100 million FLEX tokens in circulation, of… https://t.co/jIfl7iIrNs

— Wu Blockchain (@WuBlockchain) March 7, 2023

CoinFLEX said in a Jan. 16 blog post that it would be rebranded into the new exchange:

“CoinFLEX creditors/Series B will be the largest class of shareholders, and we are also discussing other benefits. Any funds raised will be used to grow the company and its equity value for shareholders, including the CoinFLEX creditors.”

The Open Exchange reportedly trades bankruptcy claims and allows customers to use those claims as collateral on new loans. The tokenized claims will not be withdrawable.

US trustee appeals FTX bankruptcy judge’s ruling to deny appointment of independent examiner

The legal team for U.S. Trustee Andrew Vara petitioned to have the U.S. District Court consider an appeal for a ruling on an independent examiner in FTX’s bankruptcy case.

Lawyers for Andrew Vara, the United States Trustee representing the interests of the Department of Justice in crypto exchange FTX’s bankruptcy proceedings, has filed an appeal against a federal judge’s denial of a motion appointing an independent examiner in the case.

In a March 6 filing in U.S. Bankruptcy Court for the District of Delaware, the legal team petitioned to have the U.S. District Court consider an appeal of a February ruling from Judge John Dorsey. The federal judge said in a Feb. 15 hearing that he would deny a motion to appoint an examiner in the FTX bankruptcy case, saying it would be an “unnecessary burden” on the firm’s debtors and creditors.

At the time, Judge Dorsey said the costs of an examiner “would likely exceed one hundred million dollars” and “not be in the best interest of the creditors”. Both Vara as well as a group of four U.S. senators called on the court to appoint an independent examiner, citing the need for transparency and suggesting potential conflicts of interest. The judge called the letter from the lawmakers an “inappropriate ex parte communication” that he would not consider in his decision.

FTX debtors argue that, in the portion of the law that states that "the court shall order the appointment of an examiner … as is appropriate", "as is appropriate" should be interpreted also as "if it is appropriate".

I'm on the edge of my seat.#FTXhearing

— Molly White (@molly0xFFF) February 6, 2023

FTX’s bankruptcy proceedings have been ongoing since the company filed for Chapter 11 protection in November. The criminal case against Sam Bankman-Fried, whose trial is expected to begin in October, has recently been focused on the former CEO’s bail conditions — prosecutors have been seeking to limit or remove his ability to contact current and former FTX and Alameda employees.

DOJ seeks to narrow Sam Bankman-Fried’s bail terms, use only flip phones

The proposal restricts Sam Bankman-Fried communication to a flip phone or other non-smartphone device with no internet access.

The United States Department of Justice has proposed new bail conditions for former FTX CEO Sam Bankman-Fried (SBF), a court filing made late March 3 shows.

According to the proposal submitted to District Judge Lewis Kaplan of the Southern District of New York, Bankman-Fried should be prohibited from using smartphones, tablets, computers and any type of video game platforms or devices that allow chat and voice communication. The proposal restricts his communication to “a flip phone or other non-smartphone with either no internet capabilities or internet capabilities disabled.”

The document by attorney Damian Williams “on behalf of parties” also requests that the temporary bail conditions recently imposed should be made permanent. The plan is believed to have been negotiated with his defense team, which requested to submit a proposal by March 3.

The temporary terms include no contact or communication with current or former employees of FTX or Alameda Research, except in the presence of counsel, along with a prohibition of using any encrypted or ephemeral call or messaging application, as well as a VPN.

Bankman-Fried’s access to websites would also be restricted to a whitelist of pre-approved pages, which includes YouTube, Wikipedia, Etherscan, NFL, DoorDash, Netflix, and government websites, among others. Under the proposed terms, the former FTX CEO will be allowed to visit news websites as well, including Cointelegraph.

Further, Bankman-Fried’s laptop would be monitored by a security software that will log his online activity. In addition, the proposal notes that:

“Fifth, the defendant will not object to the installation of court-authorized pen registers on his phone number, Gmail account, and internet service. Those pen register orders will be sought by the Government and maintained by the Federal Bureau of Investigation.”

Bankman-Fried’s $250 million bail has been under scrutiny since Feb. 9, after he was found to have contacted potential witnesses on his case. He was also temporarily banned from using a VPN after prosecutors accused him of using it on two occasions, on Jan. 29 and Feb. 12.

The court unsealed a superseding indictment against Bankman-Fried on Feb. 22 containing 12 criminal counts, including eight conspiracy charges related to fraud as well as four charges of wire fraud and securities fraud.

DOJ seeks to narrow Sam Bankman-Fried’s bail terms, use only flip phones

The proposal restricts Sam Bankman-Fried’s communication to a flip phone or another non-smartphone device without internet access.

The United States Department of Justice has proposed new bail conditions for former FTX CEO Sam Bankman-Fried (SBF), a court filing on March 3 shows.

According to the proposal submitted to Lewis Kaplan, the U.S. district judge serving on the United States District Court for the Southern District of New York, Bankman-Fried should be prohibited from using smartphones, tablets, computers and any video game platforms or devices that allow chat and voice communication. The proposal restricts his communication to “a flip phone or other non-smartphone with either no internet capabilities or internet capabilities disabled.“

The document by attorney Damian Williams “on behalf of parties” also requests that the temporary bail conditions recently imposed should be made permanent. The plan is believed to have been negotiated with SBF’s defense team, which was requested to submit a proposal by March 3.

Bankman-Fried’s access to websites would also be restricted to a whitelist of pre-approved pages, which includes YouTube, Wikipedia, Etherscan, NFL, DoorDash, Netflix and government websites — among others. Under the proposed terms, the former FTX CEO will also be allowed to visit news websites, including Cointelegraph.

Furthermore, security softwar to log his online activity. In addition, the proposal notes that:

“Fifth, the defendant will not object to the installation of court-authorized pen registers on his phone number, Gmail account, and internet service. Those pen register orders will be sought by the Government and maintained by the Federal Bureau of Investigation.“

The court unsealed a superseding indictment against Bankman-Fried on Feb. 22 containing 12 criminal counts, including eight conspiracy charges related to fraud, and four wire and securities fraud charges.

Silvergate closes exchange network, releases $9.9M to BlockFi

The bank is discontinuing its crypto payment network, claiming the termination is a risk-based decision.

Crypto bank Silvergate announced on March 3 that it is discontinuing its digital assets’ payment network, claiming the termination is a “risk-based decision.“ The move comes after the bank’s stock fell over 59% in the past five days due to fears of a potential bankruptcy.

A disclaimer on Silvergate’s website stated:

“Effective immediately Silvergate Bank has made a risk-based decision to discontinue the Silvergate Exchange Network (SEN). All other deposit-related services remain operational.”

A second decision on the same day from United States Judge Michael Kaplan said Silvergate had to return $9.8 million deposited by BlockFi. As per documents posted on the website of BlockFi’s restructuring adviser, the court ordered the bank to immediately release the funds following an agreement between the two companies in November 2022.

*Screenshot from Silvergate’s website on March 4, 2023. Source: Silvergate*

BlockFi is one of the crypto firms affected by the FTX collapse in November 2022, as is Silvergate. The crypto bank had liquidity issues due to the crypto bear market before being hit by significant outflows in the fourth quarter of 2022, leading to a $1 billion net loss .

Silvergate reportedly borrowed $3.6 billion from the U.S. Federal Home Loan Banks System, a consortium of 11 regional banks across the United States that provide funds to other banks and lenders to mitigate the effects of a surge in withdrawals.

In a report published by the U.S. Securities and Exchange Commission, the digital asset bank highlighted the heavy outflows of deposits and outlined steps to maintain cash liquidity, including wholesale funding and selling debt securities. The crypto bank faces class-action lawsuits over its relationship with FTX and Alameda Research.

Fears that a liquidity crisis could result in bankruptcy protection spiked this week after Silvergate postponed filing its annual 10-K financial report. Within 24 hours of the announcement, crypto firms Coinbase, Circle, Bitstamp, Galaxy Digital and Paxos announced they would scale back their partnerships with the bank in some capacity. MicroStrategy and Tether joined several firms in publicly denying any meaningful exposure to the bank.

*Silvergate Capital market summary Feb. 27–March 3, 2023. Source: Google Finance*

As Cointelegraph previously reported, Silvergate stock was the second-most-shorted stock in the United States in February, with over 72.5% of its shares shorted.

Silvergate did not immediately respond to Cointelegraph request for comment.

FTX presentation shows ‘massive shortfall’ in firm’s assets

FTX and FTX US together have billions in deficits in their exchange wallets and fiat accounts, uncovered in a “huge effort” according to the exchange’s CEO.

Bankrupt cryptocurrency exchange FTX has revealed a “massive shortfall” in its digital asset and fiat currency holdings, with billions worth of customer funds missing from both the exchange and its United States-based arm, FTX US.

On March 2, the exchange released a presentation showing FTX had $2.2 billion in exchange wallets and fiat accounts, of which $694 million consisted of the most liquid “Category A Assets” that include cash, stablecoins, Bitcoin (BTC) and Ether (ETH) priced at the latest spot prices.

Only $191 million of total assets were located in the wallets of the accounts associated with FTX US, in addition to $28 million of customer receivables and $155 million of related party receivables.

*The balances of FTX’s wallets and accounts at the time of its bankruptcy show an $8.6 billion deficit. Source: FTX*

FTX wallets showed a $9.3 billion net borrowing by the exchange’s sister trading firm, Alameda Research, and a $107 million net payable to Alameda from FTX US.

FTX recorded surpluses across its less liquid “Category B Assets,” which includes its own FTX Token (FTT) but the holdings are insignificant compared to the deficits on its other held assets.

In total FTX recorded an $8.6 billion deficit across all wallets and accounts while FTX US recorded a deficit of $116 million.

John J. Ray III, the chief restructuring officer and CEO of FTX, said in a March 2 that statement the presentation is the second in a “series” as FTX continues to “uncover the facts of this situation,” adding:

“It has taken a huge effort to get this far. The exchanges’ assets were highly commingled, and their books and records are incomplete and, in many cases, totally absent.”

On Feb 28, former FTX engineering director Nishad Singh pleaded guilty to charges of wire fraud along with wire and commodities fraud conspiracy.

Singh’s plea follows a number of Bankman-Fried’s close associates reportedly agreeing to cooperate with U.S. prosecutors in recent months.

Binance.US restructuring plan favored by 97% of Voyager customers

An overwhelming majority of Voyager account holders want Binance.US to buy out the firm’s assets.

A move by Binance.US to acquire assets belonging to the bankrupt crypto lending firm Voyager Digital has been favored by 97% of Voyager’s customers.

A Feb. 28 court filing shows an overwhelming majority of Voyager Digital account holders are in favor of the buyout from the United States-based arm of the crypto exchange Binance.

Bankruptcy management firm Stretto conducted the balloting of Voyager customers, polling 61,300 account holders with claims against the embattled crypto lender.

Of that total, 59,183 voted in favor of the Binance.US restructuring plan, with just 3%, or 2,117 voters, rejecting it.

*Account holder claims voting results: Source: Stretto*

The voters were divided into four classes, including account holder claims and three categories of those with “general unsecured claims.” The latter groups also voted in favor of the proposal.

In December, Binance.US disclosed an agreement to buy Voyager’s assets for $1.02 billion. According to the press release at the time, the Binance.US bid “aims to return crypto to customers in kind, in accordance with court-approved disbursements and platform capabilities.”

However, there has been a lot of pushback and numerous objections to the proposal by the American division of the world’s largest crypto exchange.

The Texas State Securities Board and the state’s Department of Banking objected, claiming the restructuring plan contains “inadequate” disclosures. Some of these included not informing unsecured creditors that they may only get 24% to 26% recovery rather than the 51% they would receive under Chapter 7 bankruptcy.

The U.S. Securities and Exchange Commission also objected to the move in a Feb. 22 court filing, claiming that the Binance.US acquisition of Voyager assets could breach securities law.

On that same day, the Federal Trade Commission started an investigation into Voyager Digital for its “deceptive and unfair marketing of cryptocurrency to the public.”

DCG losses top $1B on the back of 3AC collapse in 2022

The crypto conglomerate reported that falling crypto prices and the fallout from Three Arrows Capital’s loan default to Genesis affected its results.

Cryptocurrency venture capital conglomerate Digital Currency Group (DCG) has reported losses of over $1 billion in 2022 due largely to the contagion relating to the collapse of the crypto hedge fund Three Arrows Capital (3AC).

DCG reportedly lost $1.1 billion last year, according to its Q4 2022 investor report, and said the results “reflect the impact of the Three Arrows Capital default upon Genesis” along with the “negative impact” from falling crypto prices.

Genesis is the lending arm of DCG and the firm filed for Chapter 11 bankruptcy in late January. Genesis is 3AC’s largest creditor, as the company loaned the now-bankrupt hedge fund $2.36 billion. 3AC filed for bankruptcy in July 2022.

DCG’s fourth-quarter losses came to $24 million, while revenues came in at $143 million.

Full-year 2022 revenues for DCG came in at $719 million. The firm held total assets of $5.3 billion with cash and liquid holdings of $262 million and investments — such as shares in its Grayscale trusts — amounted to $670 million.

The remaining assets were held by divisions of its asset management subsidiary Grayscale and DCG’s Bitcoin (BTC) mining business Foundry Digital.

Its equity valuation came in at $2.2 billion with a price per share of $27.93, which the report said was “generally consistent with the sector’s 75%-85% decline in equity values over the same period.”

DCG declared on Nov. 1, 2021, that its valuation was more than $10 billion, following the sale of $700 million worth of shares to companies like Alphabet Inc., Google’s parent company.

However, the company said it “hit a milestone” with the restructuring of Genesis.

The agreement proposed earlier in February would see DCG contribute its equity share in Genesis’ trading entity and bring all Genesis entities under the same holding company and see its trading entity sold off.

DCG would also exchange an existing $1.1 billion promissory note due in 2032 for convertible preferred stock. Its existing 2023 term loans with an aggregate value of $526 million would also be refinanced and made payable to creditors.

A Genesis creditor said the plan “has a recovery rate of approximately $0.80 per dollar deposited, with a path to $1.00” for those owed money by the firm.