motion

FTX lawyers: Examiner could cost $100M and ‘provide no benefit’

FTX lawyers, joint provisional liquidators of FTX US and the Bahamas and a committee of creditors have all opposed the appointment of an independent examiner.

An investigation into FTX’s collapse by an examiner could cost the firm upwards of $100 million without providing any benefit to creditors or equity holders, argues lawyers representing the bankrupt crypto exchange. 

The arguments were part of a Jan. 25 objection to a motion from the United States Trustee in December, which called for the judge to appoint an independent examiner to ensure any investigations are transparent and their findings made public.

FTX lawyers argued that creditors would not benefit from an examiner investigation that duplicates investigations led by FTX’s CEO John J. Ray III, a committee of creditors, law enforcement agencies and Congress, adding:

“The appointment of an examiner, with a mandate to be determined, can be expected to cost these estates in the tens of millions of dollars. Indeed, if history is a guide, the cost could near or exceed $100 million.”

The creditors’ committee, also known as The Official Committee of Unsecured Creditors, submitted their own objection to the appointment of an independent examiner on Jan. 25, also citing the prohibitive costs involved and the investigations of various parties which are already underway.

In the original motion, the U.S. Trustee had noted if the court was concerned about the duplication of work, it could allow the examiner to access existing work, adding:

“An examiner may also allow for a faster and more cost-effective resolution of these cases by allowing Mr. Ray to focus on his primary duty of stabilizing the Debtors’ businesses while allowing the examiner to conduct the investigation.”

Joint provisional liquidators in the Bahamas and FTX US also opposed the appointment on Jan. 25, pointing to a section of the bankruptcy code that allows the judge to appoint an examiner “as is appropriate,” and arguing that the unnecessary costs and delays that would accompany the appointment of an examiner render it “inappropriate.”

Related: Breaking: BlockFi uncensored financials reportedly shows $1.2B FTX exposure

The appointment of an independent examiner has been a key topic throughout FTX’s bankruptcy trial.

On Dec. 9, a group of four U.S. senators which included Elizabeth Warren wrote an open letter to Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware, claiming that FTX counsel Sullivan & Cromwell had a conflict of interest in the case and casting doubt over the firm’s ability to provide findings that inspire confidence.

However, the judge ruled on Jan. 20 that there were no potential conflicts of interest sufficient to stop the law firm from continuing to act as FTX’s counsel.

The judge will decide whether to accept the appointment of an independent examiner in a court hearing on Feb. 6.

Independent examiners are often appointed by bankruptcy courts to investigate details of complex cases brought before them, and have been appointed in other high-profile bankruptcy cases such as Lehman Brothers during the subprime mortgage crisis and the crypto exchange Celsius.

Core Scientific shuts down 37K mining rigs it was hosting for Celsius

Core Scientific estimates that canceling the agreement with Celsius will provide $2 million in revenue per month as long as Bitcoin stays around $16,700.

Bankrupt cryptocurrency lender Celsius Network has agreed to let Bitcoin (BTC) miner Core Scientific shut off more than 37,000 mining rigs it had been hosting for Celsius during the miner’s bankruptcy proceedings.

Core Scientific filed a revised proposed order on Jan. 3 that incorporated “revisions acceptable to Celsius” stating “all Celsius rigs will be powered down effective January 3, 2023 and will not be restarted during the transition period.”

On Oct. 19, Core Scientific accused Celsius of failing to pay its power bills, later citing the non-payment as a major factor in the liquidity issues that led to the Bitcoin miner filing for Chapter 11 bankruptcy on Dec. 21.

On Dec. 28, Core Scientific filed a motion seeking approval to reject Celsius’ contracts, claiming the firm’s failure to pay its power bills constituted a material breach of contract.

According to the court filings, the termination of the agreement would apparently allow Core Scientific to generate a revenue of $2 million per month from the space currently occupied by Celsius’ mining rigs.

The hosting deal’s terms allowed Core Scientific to pass on some of the power costs to Celsius, and those costs have considerably increased since Russia’s invasion of Ukraine.

According to the rejection motion, covering the increased power fees cost Core Scientific almost $7.8 million as of Dec. 28 and the miner noted it “cannot afford to continue shouldering the burden of Celsius’ unpaid power costs.”

Related: Bitcoin miners see mixed successes in tackling debt-fueled overexpansion crisis

The cost of production has increased for miners while the price of Bitcoin has decreased, which has eaten into miners’ bottom line and contributed to the “hash price” — the revenue Bitcoin miners can earn per unit of hash rate — falling over 75% over 2022.

Bitcoin Hashprice Index. Source: Luxor Technologies

Miner’s lack of profitability combined with the costs associated with expansion efforts caused many Bitcoin miners to struggle toward the end of 2022 and share prices plummeted as a result.

Core Scientific has seen their share price fall by 99.15% over the course of the year, while Iris Energy and Riot Blockchain saw falls of 91.79% and 85.09%, respectively.

Bitcoin miners’ stock performance. Source: Luxor Technologies

FTX wants permission to sell FTX Japan and FTX Europe as well as LedgerX

The four businesses FTX wants to sell had only recently been acquired, and lawyers argue this simplifies the sale process.

Lawyers representing FTX are seeking permission from a U.S. bankruptcy court to sell off the firm’s Japanese and European branches, derivatives exchange LedgerX and stock-clearing platform Embed.

The lawyers note in their Dec. 15 filing that each of these businesses has been under pressure from regulators, which “merit[s] an expeditious sale process,” adding:

“The longer operations are suspended, the greater the risk to the value of the assets and the risk of a permanent revocation of licenses.”

FTX Japan is currently subject to business suspension and improvement orders, while FTX Europe has had its licenses and operations suspended.

They also point to the loss of customers and employees the businesses have experienced since FTX filed for bankruptcy on Nov. 11, and believe selling these businesses now would allow the resumption of operations and therefore maximize value to the FTX estate.

The lawyers said these businesses were recently acquired and have been operating relatively independently of FTX, which would make a potential sale process much less complex.

Assuming there is more than one potential bidder, the auctions for the businesses would start with Embed on Feb. 21, with the other three occurring the following month.

Proposed auction dates for the four businesses. Source: CourtListener

Related: FTX Bahamas co-CEO Ryan Salame blew the whistle on FTX and Sam Bankman-Fried

More than 110 parties are said to be interested in purchasing one or more of the 134 companies included in the bankruptcy proceedings, and FTX has already entered into 26 confidentiality agreements with counterparties interested in the businesses or assets of FTX.

LedgerX in particular has been hailed as a success story during the bankruptcy proceedings of FTX, with Commodity Futures Trading Commission Chairman Rostin Behnam noting that the firm had essentially been “walled off” from other companies within FTX Group, and “held more cash than all the other FTX debtor entities combined.”

FTX wants to sell off parts of its failed crypto empire before they lose too much value or have their licenses permanently revoked, arguing that the sales would be in the best interests of all stakeholders.

FTX resumes paying staff and contractors after weeks in limbo

The payments will exclude former FTX CEO Sam Bankman-Fried, and certain former execs including Gary Wang, Nishad Singh and Alameda’s Caroline Ellison.

Bankrupt crypto exchange FTX has announced it will be “resuming ordinary” cash payments, salaries and benefits to its remaining employees around the world.

The announcement came from new FTX CEO John Ray III on Nov. 28, as the insolvency professional looks to help FTX and its approximated 101 affiliated companies (FTX Debtors) navigate their way through the U.S. Bankruptcy Court in Delaware:

“With the Court’s approval of our First Day motions and the work being done on global cash management, I am pleased that the FTX group is resuming ordinary course cash payments of salaries and benefits to our remaining employees around the world.”

“FTX also is making cash payments to selected non-U.S. vendors and service providers where necessary to preserve business operations, subject to the limits approved by the Bankruptcy Court,” he added.

The announcement comes around 10 days after FTX debtors filed a motion to pay prepetition compensation and benefits to employees and contractors in the Delaware bankruptcy court on Nov. 19, which excludes payments to former FTX CEO and founder Sam Bankman-Fried, along with Gary Wang, Nishad Singh and Caroline Ellison.

The latest announcement will mean that the remaining employees and contractors of FTX will be receiving nearly three weeks’ worth of pay, which was presumably halted after the company filed for bankruptcy on Nov. 11.

Ray acknowledged the financial hardship imposed on FTX employees and foreign contractors with the payment delay and thanked them for their support:

“We recognize the hardship imposed by the temporary interruption in these payments and thank all of our valuable employees and partners for their support.”

The relief will include cash payments owed to workers at FTX Trading and 101 other affiliated companies since the Nov. 11 bankruptcy filing, in addition to the many vendors and service providers who still need to be paid out by FTX.

However, the resumption of payments won’t apply to all FTX subsidiaries and related companies.

In the Bahamas, where the crypto exchange is headquartered, only employees and contractors of the FTX Debtors will receive relief, but not those who worked for FTX Digital Markets, which is subject to a separate liquidation proceeding in the Bahamas.

It also won’t apply to Australia-based employees and contractors for FTX Australia and its subsidiary FTX Express, which are also subject to separate proceedings in Australia.

Related: US House committee sets Dec. 13 date for FTX hearing

On Nov. 22, FTX Trading announced it had been granted interim and final approvals for all of the “First Day” motions for matters related to its bankruptcy filing on Nov. 11.

At the time, Ray said he expected the motions to fast-track FTX Debtor’s efforts to reimburse other stakeholders affected by the trading platform’s collapse, such as FTX users and creditors, with the new CEO suggesting that a potential buyout of FTX’s assets could benefit stakeholders sooner rather than later.

However, some insolvency lawyers warn that the process could take years, or even decades, given the complexity and scope of FTX’s collapse.

Insolvency lawyer Stephen Earel, partner at Co Cordis in Australia, recently told Cointelegraph that it’ll take the courts several years, if not decades, to determine who owned what crypto assets before coming up with a plan to redistribute those funds.

FTX Trading alone owes its top 50 creditors $3.1 billion, according to a document submitted as part of its Chapter 11 bankruptcy proceedings.

Celsius files to reopen withdrawals for a minority of customers

Celsius has motioned for $50 million worth of the total $225 million held in the Custody Program and Withhold Accounts to be released to owners.

Beleaguered crypto lender Celsius Network has filed a motion with the United States Bankruptcy Court yesterday to allow customers with digital assets held in certain accounts to be withdrawn. 

There’s a catch, however, as the motion will only apply to Custody and Withold Accounts and for custodied assets worth $7,575 or less in value.

Celsius has structured their Custody and Withhold Accounts, which essentially serve as storage wallets, in a way that still enables users to maintain legal ownership of cryptocurrency.

This ownership, however, is not extended to assets held in accounts that offer annual crypto earnings or borrowing services (Earn and Borrow accounts).

The community response to the motion has been mixed, with creditors happy that Celsius Network has conceded funds held in its “Custody Program and Withhold Accounts likely do constitute property of their estates.”

However, as tweeted by BnkToTheFuture.com CEO Simon Dixon — the community believes the amount Celsius wants to release is far short of what is equitable.

As Dixon points out, only $50 million of the $210 million held by 58,300 users in custody accounts is set to be released, with all funds above $7,575 which were transferred from the Earn Program and Borrow Program into Custody and Withhold accounts not included within the released amount.

The $7,575 amount is referred to as the “statutory cap” and Celsius is unable to avoid transferring amounts less than this total upon creditor requests as per section 547(c)(9) of the Bankruptcy Code. 

The filing also mentions that an additional $15.33 million is held in Withhold Accounts by approximately 5,000 customers as of Monday

To attain that $50 million figure, Celsius lawyers have distinguished between “Pure Custody/Withhold Assets” and “Transferred Custody/Withhold Assets,” with “Pure” assets those which were not transferred from the Earn or Borrow Programs. This division of funds has not been well received by community members.

In response to a Friday Twitter post from Celsius, countless community members have made it known that they want nothing short of all their funds back.

Celsius states that assets locked in the Earn and Borrow Programs are likely property of their estates, with transfers of these assets to Custody or Withhold accounts being described as “a transfer of the Debtors’ property to customers.”

Within the filing, Celsius states that the “relief sought in this Motion may not be supported by every customer or stakeholder, and that it may not go as far as some Custody Program customer and Withhold Account holders may wish.”

It suggests the motion is merely a “first step forward, and not the last word on, efforts to return assets to customers.”

Related: Celsius bankruptcy proceedings show complexities amid declining hope of recovery

The motion comes just one day after an ad hoc group of 64 custodial account holders filed a complaint alleging that title to custody assets “always remains with the user” as per the accounts’ terms of use, with the group seeking to recover more than $22.5 million worth of assets.

A hearing on the motion is scheduled to be held on Oct. 6, and as it stands, users have had their assets locked up on the platform for more than two months.