you
all right
everyone thank you please be seated
afternoon
your honor and may it please the court
Adam Landis from Landis Rath and Cobb on behalf of the FTX Trading Limited Family Debtors
has everyone signed in? I've got more people here. I've only got five people on my list of people here
we have another list?
yes
okay go ahead Mr. Landis
thank you your honor
we're here today for our omnibus hearing and you'll note from the agenda that items one through eight have been continued
items nine through fourteen have been resolved leaving us with two matters going forward the first is a chapter 11 case update
and the second is our settlement procedures motion which has been objected to by the United States trustee
I'm going to yield the podium to Mr. Glexin who will take it away with number 15
okay
good afternoon your honor
afternoon
for the record Brian Glexin Sullivan and Cromwell for the debtors
and we do want to thank the court for entering a number of orders on resolved matters prior to today's hearing
we did want to provide the court and stakeholders an update on the case since we spent a little bit of time before we last appeared for an omnibus hearing before your honor
your honor the debtors continue to make significant progress every day moving these historic chapter 11 cases forward on every front
led by Mr. Ray the debtors and their team of professionals remain leisure focused
on one maximizing the value of these estates for creditors through asset recovery efforts prosecuting legal claims
and two distributing that value to creditors through a confirmed plan of reorganization
and your honor notwithstanding some recent rhetoric from the committee these cases have seen the debtors build consensus
and resolve most issues constructively and efficiently which has resulted in most of the work taking place outside of the purview of this courtroom and your honor
I therefore want to take a few minutes to provide an overview for stakeholders and the court of the significant developments in both of these areas over the past few months
and what is coming next
we do have a few demonstrative slides to aid the discussion if we could bring those up
your honor this slide is an update of a lot of these slides are kind of an update of slides we've shown previously
but this slide shows the continued progress of the debtors asset recovery efforts along with those assets known at this point to be recovered and currently held by the United States government
at current asset pricing which reflects some volatility in the cryptocurrency markets the debtors today have approximately 7 billion of assets that are marshalled and available for distribution from the estates
including approximately 2.7 billion cash assets
some of the recent significant events since we've last been before your honor are included in this slide and to highlight a few
your honor in June we filed the second interim report of Mr. Ray to the board detailing the extent to which the FTX group from its inception
commingled customer deposits and corporate funds and how Mr. Bankman Fried and the other founders misused those funds at will for speculative trading investments the purchases of luxury properties and political and other donations for personal gain
the debtors recently filed their 2022 federal tax returns for all of the FTX debtors and herculean tasks given the starting state of the information on the petition date and the information that was necessary to file those returns and that's a significant milestone given the claims that have been asserted by the IRS in these cases
the debtors have continued to successfully rationalize its workforce exit contracts and leases we've launched an online customer portal for filing customer claims in connection with the upcoming customer bar date which as your honor knows is set for September 29
thousands of new claims are being submitted daily through the portal the portal allows customers to also review their balances as of the petition date and their historical transaction history
the debtors are currently pursuing a sale process for the FTX.com exchange which is ongoing and for which there is significant interest we know this is an important issue for the creditors committee and many creditors of these states
the debtors have been able to return over $150 million of customer segregated funds at FTX Japan pursuant to local law and on July 31st the debtors filed their draft framework plan of reorganization which I will talk more about in a few moments
on this slide your honor we go through there are a few show some of the detail about the debtors continued progress on major areas of the case in this column first column there's numbers here around asset management the debtors continued work in this area
the board of directors continues to monitor exposures to the fluctuation of cryptocurrency markets and we spent significant time with the committee on a plan for managing and monetizing the debtors cryptocurrency holdings
the second column here highlights very significant progress that debtors have been able to make in recent months through their investigation process and turning that work product into actionable litigation claims to highlight a few
we have stated before your honor that we will hold accountable those individuals responsible for FTX's collapse and we will pursue recovery of funds improperly transferred away from the debtors pre-petition
and we have started to do that if funds are not returned voluntarily we will pursue them through litigation the debtors filed a 48 count action against Mr. Bankman Fried and other insiders for breach of fiduciary duty and to avoid various transfers
the debtors have also filed significant fraudulent transfer actions and related claims claims relating to the K-5 investment to recover over $700 million claims relating to the purchase of embed financial to the months prior to bankruptcy
to recover approximately $300 million a $300 million action relating to FTX Europe a $75 million action relating to an investment in Latona
the debtors also last week filed a motion that will be heard at the September omnibus hearing seeking approval of an important settlement with the Genesis debtors and their affiliates that will return significant value to the estate and avoids litigating difficult issues involving dueling debtors given their Chapter 11 cases pending in New York
the debtors continue to analyze the multitude of potential preference claims and expect to soon file a number of large preference actions to return value back to these estates
the litigation recovery efforts will continue in parallel with the plan confirmation process and our asset recovery work
there's also been significant M&A and venture book activity over the past few months highlighted by the Ledger X sale and monetizing interest in Sequoia Heritage
that work continues as well with many more investments still to be monetized
that brings us to the next slide your honor which is slide five and this depicts our plan timeline
as the debtors continue to bring in value we are working very hard to get that value into the hands of creditors as soon as possible
back in April your honor Mr. Dederick provided an update to the court in which he detailed an aspirational plan confirmation timeline that looks extremely similar to the one that's set forth on this slide
the non-customer claims bar date occurred on July 31st and the customer and government claims bar date is coming up on September 29th
importantly the debtors filed their draft plan of reorganization on July 31st as targeted the framework for that draft plan and term sheet was discussed at length
over the course of months with the committee's professionals and also with counsel to credit groups such as the ad hoc committee of non-U.S. creditors
the debtors and their professionals shared mountains of data and analysis with the committee's professionals and held dozens of calls and meetings in which legal and economic issues were discussed
and those discussions informed the draft plan term sheet that was filed in July
as we have said previously the primary purpose of filing the draft plan was to provide a transparent basis for negotiations among diverse stakeholders of which the committee is one but certainly not the only one
the plan term sheet identified several open issues that the debtors know they need feedback on from that diverse group of stakeholders
if you look at slide six we show here these are items that were noted in the filing we made on July 31st and include many key issues still to be negotiated
including the amount of property to be allocated to exchange shortfall claims against the general pool of assets
the decision in manner in which the FTX.com exchange is sold or reorganized
the post effective date claims transfer process
governance issues with respect to offshore exchange, venture trust and other entities contemplated in the plan
these are important issues your honor
many of which are inter creditor issues to which different creditors and creditor groups have different views
that is precisely why the debtors solicited feedback from those groups broadly and that process your honor is working
we are receiving that feedback the level of engagement from the committee, customer groups and other stakeholders is high and largely constructive
if we go back to the timeline on slide five here the next step your honor from today in our plan process is meetings that we have scheduled with the UCC
the ad hoc committee and other stakeholders that are currently scheduled for early September in these cases
those initial hands on all hands meetings currently scheduled for September 11th and 12th are very important to permit the sharing of positions
identify issues and begin in earnest the process of negotiating the plan of your organization both with the debtors and among stakeholders
your honor that is the job of the debtors to lead those negotiations and to build consensus around the plan and we believe we will be able to do that
on slide seven we have shown here as detailed an agenda we expect to have a comprehensive discussion over these multi-day meetings
on a wide range of topics with stakeholders some of whom have not been at the table until recently
if we go back to the timeline on slide five
September obviously your honor will be an important month as noted the deadline to file customer claims is September 29th
mediation with the Bahamas JPLs is moving forward and is expected to occur in September
the rest of this timeline includes an amended plan and disclosure statement to be filed by the end of the year
with disclosure statement hearing in early 2024 and a plan confirmation hearing no later than the second quarter of 2024
Mr. Gluskin I'm going to pause you for a moment here do we know what's going on with the zoom here
can we get these people off
and can you give me hosting rights too thank you okay I'm sorry Mr. Gluskin go ahead no problem your honor thank you I don't know if you can see it out there but someone put a whiteboard up on the zoom call
usually can only with the slides I actually can't this time but your honor we remain on track for the schedule that's depicted here on this slide
and those dates significantly in our view we have not needed to push them back at all from what we unveiled in the case timeline in April
we are of course always looking for ways to further expedite matters but we believe this timeline remains necessary and appropriate at this point
the other last point I want to note on this timeline which is noted here that I want to briefly address is the mediation of customer claims and other plan issues
which of course is the subject of a motion filed by the committee to compel immediate plan mediation that's not before the court today
we obviously reserve the debtors reserve their rights with respect to that motion
but this timeline does reflect that in our timeline we do contemplate mediation occurring likely in October as necessary
and while the committee's motion is as I say is not being heard today I must note that the debtors of course are supportive of plan mediation as part of this process if necessary
but only after the issues are crystallized and it is clear that the parties cannot resolve them through a good faith negotiation without the assistance of a mediator
premature mediation doesn't do anybody any good and in the debtors view only would waste resources and a recipe for failure
the debtors of course have discussed in the connection with this schedule and the upcoming meetings mediation with the UCC professionals
and those representing the ad hoc committee as well as the class action plaintiffs in these cases
in fact the debtors have made a proposal for how to structure mediation in phases and are the ones who proposed expanding the scope of Judge Fitzgerald's mandate to address plan disputes beyond those involving only FTX digital markets
the committee's filing of the motion in recent rhetoric is unfortunate particularly given that the committee's professionals have supported our timeline until last week
the debtors have worked tirelessly to develop and achieve consensus with the committee and all stakeholders throughout these cases and will continue to do so
the fact is at this point the committee has not made any practical proposal to move up this timeline as depicted here on slide 5
although we of course remain open to discussions if they have such suggestions
in the meantime the debtors look forward to continue engagement with all stakeholders and providing the court a further update on the plan process at the next omnibus hearing scheduled for September 13th
thank you your honor, it's all I have by way of update, happy to answer any questions that the court may have
no questions at this time, Mr. Hanson do you want to have an opportunity to respond?
thank you your honor, Chris Hanson with Paul Hastings on behalf of the official committee of unsecured creditors
your honor first the creditors committee wants the court to understand that it does appreciate the efforts of the debtors and their professionals to move the cases forward
to advance things like the schedules, the bar date, the plan term sheet and the numerous other items Mr. Gleckson just referred to
there are many areas in which the committee and the debtors have been collaborating especially at the professional level
that said your honor, I am compelled to respond to a few things today
first there have been a number of unfounded attacks by the debtors on the integrity of the committee members themselves
it's unfortunate, the debtors have repeatedly made reference to committee member conflicts of interest arising from their status as market makers
and the debtors have treated the committee members with a misplaced mistrust since the beginning of the cases
using in our view the poor excuses of potential information leaks and self-interest
to deprive committee members of the access to information that they need to carry out their fiduciary duties and help the debtors in areas where they lack experience
and the level of expertise that the committee members themselves have
the debtors however cannot point to an instance of leaked confidential information by committee members or any real self-interest in the actions of those members
I would urge the court to ignore these attacks as a thinly veiled attempt to divert the court's attention
from the fact that the debtors are not truly engaging with the committee members as you asked them to do after the first exclusivity extension
and that the committee members need in order to do the jobs
I'd also ask the court to ignore this new mantra that we're hearing
that it is the ad hoc committee, not the creditors committee that contains the real customers in these cases
as the court knows the official committee was appointed by the state's trustee as a statutory representative for all unsecured creditors in the cases
the goal was to have a diverse collection of parties that were representative of the millions of different types of customers and creditors
of the debtors which is precisely what the official committee has
and while the committee, official committee appreciates the ad hoc committee role in these cases
it's important to note that the parties on the ad hoc committee who in their latest 2019 hold almost half of their aggregate claims are investment funds
who bought the customer claims in the secondary market, not customers whose assets were stolen by FTX
to be sure, the committee does include a number of members who were original customers and who were victimized by the fraud
it's important to also understand, Your Honor, that the aggregate claims held by the ad hoc committee are in the $850 million range
and the claims held by the official committee members themselves are around $700 million
contrary to the debtors assertion that the ad hoc committee holds a multiple of the claims of the official committee members
and it's not really important anyway because the official committee has its statutory role
it's also important to view the statements regarding the ad hoc committee's import through a few different lenses, Your Honor
one of which is, and I'm sure you'll see it soon to be filed, an agreement between the debtors and the ad hoc committee that has existed since late April or early May
to seek reimbursement of the fees for the professionals of the ad hoc committee
to the extent that they engaged in good faith negotiations on a plan and held their customer litigation in advance
moving to the cases themselves, Your Honor, they are extremely expensive
they've now moved to a pace of almost $50 million a month in fees with literally hundreds of lawyers, financial advisors, and bankers working on them practically full time
the debtors really have no revenue producing operations and only minimal investment returns
so every dollar spent in the case is essentially a dollar that creditors don't receive
at approximately $1.5 million a day in expenses, every day counts
for its part, the committee has been doing its job despite the challenges in the relationship between its members and the debtors
in an effort to capitalize on the debtors vast digital currency holdings and to try to generate some income to offset the fees of the case
as Mr. Gluckstein pointed out, the committee members and professionals put together a painstaking risk management plan for the hedging and monetization of the debtors' coins
and worked with the debtors and pushed them very hard to advance that process
the committee delivered that initial coin proposal in April, it's August and the debtors are now filing the motion to undertake that process
unfortunately right at the point where the digital currency markets are seeing a broad sell off
and the advisor being selected by the debtors to assist them in the process was vetted by and recommended to the debtors by the committee
members themselves, over the debtors' alternative choices which we believed had less relevant experience and whose services would have been far more expensive
the committee also pushed the debtors to invest in short term treasuries to obtain a higher interest rate than it proceeds through its accounts at Western Alliance
the committee started this effort in March when the debtors were receiving minimal interest on their cash
the debtors responded and renegotiated their banking arrangements and now disclose that they are receiving approximately 4% interest on their investments
which is a growth number and it's certainly far better but it is still a point and a half less than the average yield on short term treasury notes at this point in time
and the committee still hopes that the debtors can find a way to diversify their investments and increase the yield on their large cash holdings
to try to offset fees in the case. The committee also pushed the debtors to launch the FTX 2.0 process and to move it quickly to avoid the fast moving efforts
of other market participants like Coinbase and Gemini to fill the void that was left by the collapse of FTX.com
while that process is underway, it has not moved as quickly as the debtors or the committee prefer and to date the committee has been troubled by the
non-disclosure to the committee members of the names of the interested parties and the details of the proposals that they've submitted
while we're working with the debtors to try to put more process protections in place, mind you your honor, process protections that we don't believe are necessary
than the robust confidentiality protections in the committee bylaws to which the debtors are expressed third party beneficiaries
we hope that the normal type of access provided to committee members in most chapter 11 cases will follow so that the committee members can directly participate in the process
and help create more value for the estate. Again your honor, I really have to stress that this concern that the members of the committee might have some self interest
in connection with that sale process is not accurate at all and it should never be used to try to prevent the committee members from being helpful in that process
we all have a common goal of trying to get the best result. The committee has also evaluated the debtors efforts to sell assets and supported them at times
and pushed back at them at times where it believes that value was left on the table or it was not the right time to sell. For example, as you know your honor
the committee objected to the Sequoia heritage sale and we wound up through negotiations saving the estate approximately $1.35 million in penalties on the sale
and improving the net proceeds thereof by about 7.5%. It's a drop in the bucket but it was something. Similarly, the committee did not believe that the debtors
should sell one of their crown jewel assets which was their investment in the AI company named Anthropic and the committee appreciates that the debtors agreed to
ultimately step back from that sales process in the wake of additional investments in the market in Anthropic at higher valuations and the markets continued investment
in the market. The committee is now the primary competitor OpenAI, the owner of Chat GPT at truly dizzy valuations. Here importantly your honor is where a fundamental
difference in perspective between the committee and the debtors arises. The debtors have the view with respect to our venture book that the customers never consented to their
deposits being used to acquire assets and so those assets should be monetized quickly and at the best price available even sometimes at below the purchase price in order to create more
cash to ultimately distribute to creditors. The creditors committee believes that we are where we are and that assets have inherent value whether people originally wanted to invest in them
or not and that we're looking at an estate that's comprised of those assets and that this case is ultimately about driving up the ultimate creditor recoveries such that if an asset is worth more, if it is held for a longer
duration, it should be. Anthropic again is a good example. FTX investment therein could be worth a multiple of its original investment and lead to better creditor recoveries over time. The IEX
transaction is another good example and a good example of committee and debtor collaboration where their combined efforts led to a better negotiated outcome and IEX initially wanted. The committee has also
worked with the debtors in connection with a number of actions that the debtors have commenced seeking to grow the estate's value. Specifically, the committee has worked with the debtors collaboratively on their investigation of pre-petitioned
professionals and banks serving multiple joint 2004 motions, joining the meet and confers and allowing the debtors to take the lead where appropriate to avoid duplicative efforts and additional fees and the
UCC has been lockstep with the debtors in their attempt to deal with the Bahamian JPL's unfounded attempts to wrest control of FTX.com property. Indeed, until mid-July and depending upon the team, until today, the UCC advisors have had a
constructive dialogue with the debtors litigation team on the various investigations and causes of action brought to date. The committee also took, as you know, Your Honor, the Liebering Ore in connection with the ceiling of customer information where it believes in the
virtue of its position and is glad that the court agreed. To give you a little bit of a window into how the committee operates, Your Honor, it meets each week and the committee members and professionals review all open work streams in the case. They make decisions collectively and carefully about how to proceed on the venture assets, the numerous litigation issues, the current 2.0 sale process, the planned discussions and issues, the management of tokens and the investment of the debtor's cash, among others. The committee also has a number of subcommittees in place to deal with
certain of those larger issues and they meet on an even more frequent pace. The committee professionals also participated in planned discussions with the debtors and the ad hoc committee in May and in June and July with the debtors. But as the court is aware, the committee members were not permitted by the debtors to take part in those discussions, nor were any negotiations had at a principal level, even though I personally asked the debtors repeatedly to do so during the month of July. The point there, Your Honor, was,
we believed that we can't lose time. We recognize that the debtors have a timeline. I think we all want that timeline to be shortened because of how expensive these cases are. And our view was, if the plan structure, which we believed was fairly set at the beginning of July or towards the end of June, was so set, we could bring in the actual committee members. They could meet with the debtors' principals and we could try to advance what's now supposed to be happening in mid-September into July and possibly July.
We also asked if there was a possibility to have meetings towards the end of August or even Labor Day week because again, Your Honor, every day counts with the amount of fee
burn that we have in this case. Our view is that the debtors and every party in interest in this case simply have to do better because the cost of waiting harms creditor recoveries. Our motion to mediate, which we'll hear at a different time, Your Honor, I just wanted to give a little background on the
cause, is a plea to speed things up as part of your diagnostic process and we see eye to eye with every individual there as what agreed to be done in May, which will pair budgets with mass account można and
p Opposing the debtors ultimately cutting debt every share and paying to buy. For the indebted parties who do not have strong rising credit rates are could I promise to have a
have a
You can't support us
other important tasks and we agree they're important, we don't believe that any of them
are true gating items to resolving the plan and advancing the process where issues can
be dealt with along the way to confirmation.
We're also fairly frustrated from the committee perspective with one of the reasons that has
been cited for the delay, Your Honor.
One of the reasons is that the ad hoc committee and the class action plaintiffs need more
time to get up to speed and that the debtor said that the timeline was always longer.
Our view is that timelines don't need to drive outcomes.
We all know the general rule of time management.
If you say something will take a day, it takes a day.
If you say it'll take six weeks, it'll take six weeks unless you do everything you can
to try to beat that timeline.
And neither the ad hoc committee nor the class plaintiffs are newcomers to these cases.
In fact, each filed their adversary proceedings essentially at the inception of these cases.
The ad hoc committee also participated in a plan negotiations in May and the ad hoc
council and certain of its members have been under non-disclosure agreements with the debtors
for months.
And the debtors have also had immensely populated virtual data rooms available for parties who
are subject to an NDA.
So the committee honestly doesn't understand the need to delay to provide more information
to the ad hoc committees and the class action parties.
Returning to our mediation request, Your Honor, from a status perspective, the reason we want
a mediator there is to help speed things up.
We believe Judge Fitzgerald is very experienced and even if not in a formal mediation session,
she should be at and participate in any of the meetings that the parties have with each
other so that if mediation actually needs to happen, which we believe it does, the debtors
don't, you'll rule on that.
If that needs to happen, Your Honor, there's no lead time.
It's already ready to go.
And hopefully Judge Fitzgerald being there will help the parties move things along more
quickly.
In the end, Your Honor, the committee wants to see the cases move faster to conclusion.
We want to save money and we want to increase credit or recoveries.
We believe that all parties in interest want that.
And we want a collaborative, transparent, and inclusive process between the debtors
and the committee members at the principal level.
It is really not a hard ask and it is one that is the norm in most cases.
Thank you for taking the time to hear the committee's update, Your Honor.
I'm happy to answer any questions if you have any.
None at this time.
Anyone else want to be heard?
May it please the court, Erin Broderth of Otherset Sutherland, on behalf of the ad
hoc committee of non-U.S. customers of FTX.com.
I'd like to begin with an acknowledgement of the invaluable contributions that both
the debtors and the official committee have made to get us to where we are today.
The filing of the draft plan at the end of July did mark a pivotal turning point in
these cases into the plan negotiation phase.
And the work undertaken by both the committee and the debtors to lay the foundation cannot
be overstated.
While there is certainly significant work left to be done to get to a confirmable and
hopefully consensual plan by year end, the ad hoc committee believes that we are generally
at the right starting place.
With an initial plan construct on the table and the appropriate stakeholders now having
a seat to negotiate.
The official committee has stressed that the debtors should not pursue a unilateral plan
approach.
And we wholeheartedly agree.
However, we also wholeheartedly agree with the debtors that the draft plan presents anything
but a unilateral approach.
It is an initial construct, which notably no stakeholder group, including the official
committee, has had opposition to.
The debtors purposely left a number of key inputs open to invite stakeholder feedback,
and they have expressly committed to amending the plan to accommodate for the feedback that
was received.
Indeed, the plan term sheet listed a number of key open items to be negotiated with stakeholders,
including the official committee.
And that list includes each point of contention raised by the official committee in opposition
to the draft plan.
In short, we think the debtors have made abundantly clear that the draft plan is a start to an
evolving process, and negotiations will continue.
Instead the real issue seems to be that the official committee does not trust the debtors
to actually take its input into account in an efficient and timely manner, given the
history of negotiations that have occurred to date between the official committee and
the debtors.
We respect that the official committee has had a much more involved and longer track
record with the debtors than has been afforded to the ad hoc committee to date.
We're really not in a position to take sides with respect to what has transpired in the
past.
We can represent, however, that over the last several weeks we have had very productive
discussions with both the debtors and the official committee regarding open items in
the draft plan, as well as predicates to getting to a plan confirmation.
The official committee has every right to voice its frustrations and demand improvements
to the process going forward.
But we'd like to now move forward with the right parties in the room and to proceed on
a path of constructive dialogue to narrow the issues in dispute with some compromise
in creativity and all the necessary take holders given an opportunity to participate, rather
than have discussions hijacked to force a premature resolution of what are respectfully
fairly limited issues of contention that the official committee has raised with respect
to the draft plan.
We think it's really important to emphasize that the ad hoc committee is a necessary party
to these plan negotiations.
We have over 40 members holding claims of nearly $900 million against the debtors on
account of the misappropriation of customer assets from the FTX.com exchange.
It's also worth noting that prior to the court's redaction ruling, we had over $2 billion in
claims represented by the ad hoc committee and many forced to resign for fear of disclosure.
Our members also represent a diverse cross section of the FTX.com customer base, from
crypto industry pioneers to novice investors, from those that have no Chapter 11 familiarity
to large investment institutions with deeper structuring expertise.
We speak for both small and large claim holders.
While Mr. Hanson is correct that we have a handful of secondary purchasers, all the rest
are original holders.
Our smallest holder has under $100,000 in claims.
While each member of the official committee is an FTX.com customer, they nonetheless have
fiduciary duties to all of the debtors' unsecured creditors, which obviously have differing
and conflicting interests in some respects.
As the independent voice of FTX.com customers, we are driven exclusively to maximize the
value for FTX.com customers in recognition of their unique legal rights.
We believe that the ad hoc committee and the official committee are generally aligned.
However, as an estate fiduciary, the official committee is simply unable to advocate for
the FTX.com customers on the key threshold legal issue in these cases of whether the
FTX.com exchange assets, including the billions of identifiable value that was misappropriated
from the exchange, belong to the estates, or whether the asset should be deemed held
in trust for the distribution only to FTX.com customers.
Indeed, despite its extremely active role in these cases, the official committee has
yet to address the elephant in the room because it cannot do so on behalf of FTX.com customers
as an estate fiduciary representing all general unsecured creditors.
While there are a multitude of issues that must be resolved to get to confirmation, we
do believe there's also a logical sequencing.
Specifically it makes sense to us for the Bohemian Joint liquidators' jurisdictional
claims to be addressed first, the customer ownership issues raised by the ad hoc committee
and the class action group to be resolved in the context of a settlement under a plan,
and then to tackle the remaining items in dispute, including those raised by the official
committee.
I'd also like to note that as for the claim that we should not wait for the input of other
stakeholders, including the ad hoc committee, because we've had months of robust discussions
and amount of information provided to us, respectfully the committee can't have it both
ways.
They've complained about the lack of negotiations with the debtors.
They've complained about the lack of information given, and the ad hoc committee has been given
significantly less than the official committee.
But again, we want to look forward to collaborating with all stakeholders and ensuring that the
plan negotiation process is fair, transparent, and inclusive, and to move full steam ahead
to reach confirmation as soon as possible.
Thank you.
Anyone else?
All right.
Well, it's obvious that there's some tension between the parties here.
But it's difficult for me sitting here only seeing the surface of issues as to what's
really going on behind the scenes.
I don't understand the issue of the conflict that the debtors believe some of the committee
members have.
I'm not sure I understand the conflict.
I think I understand the conflict, but I'd like more explanation of the conflict between
the committee's ability to raise issues about FTX.com and the customer issue, whether the
assets held that were in FTX.com belong to the customers or they belong to the estate.
But I think there definitely needs to be a sharing of information here.
We have NDAs in place, I assume, by everybody, correct?
I mean, everybody are under an NDA.
There are consequences for violating an NDA.
So I expect unless the debtors can tell me why that certain information is not being
shared with the committee because of a concern about a conflict of interest, I would need
to know more about that and understand why the debtor believes they can't share that
information.
On the question of, and I understand there's a huge burn rate here.
I get that.
It's a big case, complex case.
I would suspect that a lot of the burn rate at this point has to do with the marshalling
of assets and the bringing of litigation against various parties.
I'm not sure that the plan negotiations will lessen that burn rate.
I mean, there's still going to have to be litigation.
There's still going to have to be a marshalling of assets.
Obviously everybody wants to see the plan go forward as quickly as possible because
that will help reduce the burn rate to some extent.
And to do that on a consensual basis obviously is the best way to go instead of having to
litigate those issues and spend more money.
So the issue of the mediation is not in front of me.
I understood from the debtor's response to the, maybe I'm wrong.
Correct me if I'm wrong.
The debtor's response to the motion to mediate was that the debtors aren't necessarily opposed
to it.
I think the timeline is right at this point.
Your Honor, correct.
As I noted in my remarks as we, and we did file a response in response to the motion
to shorten, we embraced mediation, the concept of mediation.
We certainly agree.
The disagreement is simply one of timing.
The committee filed what they deemed to be an emergency motion asking, and in the order
or the proposed order that you submitted to your honor in respect to that motion, they
asked for mediation sessions with a date to be filled in in August, or the 23rd.
Our position has been that we want to have debtor-led plan negotiations with stakeholders
around the table to crystallize the issues.
The committee has a good sense and they've articulated their issues with the plan.
Other stakeholders have had less of an opportunity to do so.
We think issues need to be narrowed, and we think that will facilitate a resolution and
a consensual plan.
We are optimistic, Your Honor, that we will get to a consensual plan in this case.
That's my personal view.
But we need the opportunity to do that, and our position is just simply that we need to
have the opportunity over the course of the next few weeks to have the meetings that are
already scheduled on calendar, identify, discuss narrow issues, go through the agenda that
I outlined on the slide that Mr. Ray has put out to parties, and allow us to function as
the debtor to try to get as far as we can on a plan.
Plan mediation is an important tool.
As I said in my earlier remarks, we suggest that given the fact that these are all plan-related
issues that Judge Fitzgerald expand her mandate, the committee agreed with that suggestion.
So this is simply an issue at this point, Your Honor, as to whether the court should
order mediation immediately versus the parties moving to mediation after a short negotiation
period over the next four to six weeks.
That's all we're talking about here, and I don't think anything Mr. Hanson said this
afternoon differs from that.
And so from the debtor's perspective, all we're asking to do is to continue with the
process we're on.
We are making progress, and despite some of these issues, and I'll address the information
in a moment, Your Honor, based on Your Honor's comments, we are making significant progress.
Despite there being a little bit of airing of the grievances here this afternoon, we're
making tremendous progress in these cases, including, as Mr. Hanson acknowledged, on
the plan and on the framework plan we filed at the end of July.
I understand the committee would like the process to move faster.
We all would like the process to move faster, but we believe the correct process is in place.
So Your Honor is 100% correct.
The only question presented by the motion and the briefing that's already been put in
and more to come on the mediation motion is simply a question of whether we are going
to immediately commence plan mediation or whether we're going to do it on the timeline
that we set out after we've had an opportunity to have discussions with the public.
I wanted to address Your Honor's comments on the information, but-
Yeah.
Is that a withholding information from the committee?
Your Honor, I'm happy to have further conversations with Mr. Hanson.
The only information that I think was the subject of the discussion, and he said in
his comments today, the sale process for the fate of the FTX.com exchange that is still
in relatively early phase has, as I said earlier, significant interest from third parties.
There's information that's starting to come in on that process to Pirella and the other
debtor advisors.
We have asked for an actual NDA to be signed in connection with the receipt of that information.
That process is, if not, I think is actually complete at this point, but I could be mistaken.
If not, it's very close.
Then information on that particular issue will be shared.
There's certainly been no general withholding of information from the committee of any kind.
I think Mr. Hanson alluded to in his comments, there's a data room that's available that
has mountains of information.
Under previous discussions that we've had earlier in the case, where we worked through
a number of issues with the committee, Mr. Wray directed all kinds of documents that
had been held on a professional's basis to be available to the committee.
I think what the comments today are on a very narrow issue that I believe is actually resolved
at this point, but I don't want to speak for Mr. Hanson.
But certainly from the debtor's perspective, we are not withholding information in any
way.
Mr. Hanson.
Thank you, again, Chris Hanson with Paul Hastings on behalf of the official committee.
In the main, Mr. Gluckstein's right, this is on the dot com exchange sale process.
So to give the court a little bit of color, the debtor went out with kind of an RFP process,
trying to get proposals in with respect to that asset.
And from the committee's perspective, the identities of those parties, the terms of
their indications of interest should be available for the committee members' evaluation.
It's very hard to do your fiduciary duty when you don't have access to that information,
and only the professionals do.
That's why.
So what we started to talk about with the debtors was we spell our bylaws under which
you released all of this previously designated PEO information, contained very strict confidentiality
provisions, and they actually make the debtors a third-party beneficiary.
And the debtor said, well, we want you to sign an NDA nonetheless.
And really the reason for the NDA, when you boil it all down, is because they want to
insert a no-contact provision in the NDA, which essentially says, listen, you committee
members are not permitted to have direct contact with any party.
That's not about 2.0.
Any party who demonstrates a written indication of interest with respect to a material asset
of the estate is just not appropriate.
Our response was, how about we ask you if we can speak with them?
If the bidder says yes, you guys can chaperone.
It's totally fine.
To date, the answer to that has been no.
Beyond that, we also wanted to talk a little bit about the process.
There's going to be a clearing of an initial round of parties into a next round, ultimately,
hopefully into a stocking horse, and then an auction process.
In our experience, and personally in my own experience, both representing debtors and
creditors committees, as well as lenders and ad hoc committees, we usually get access to
that process, to the parties in that process.
We have a better fundamental understanding of how the decisions are being made, and we
get to have input on those, especially from a committee perspective, because it's important.
The committee members, again, they have fiduciary duty.
They also have unique knowledge within the space.
The answer we got there, too, was no.
We started to try to work on a protocol of, let's try to describe how this might work.
Candidly, Mr. Dietrich and I said, let's just tear that up.
If you want us to sign a non-disclosure agreement, we'll try to get the committee members to
sign that.
Again, we don't think it's necessary, but if that's the process you want, we'll do it.
We've got to get the information flowing, and then take it step by step.
Obviously, our concern is, because the initial answers were no, and mind you, we're not at
that phase yet.
We're not at the phase of selecting a stocking horse.
We're not at the phase of basically talking and figuring out who's clearing from first
round to second round, but that's going to come up, and it's really important for the
committee members themselves to participate in that.
That's one example, but again, it's not just with respect to 2.0.
This no-contact provision is far broader than that.
It's any indication of interest by a party with respect to a material asset of the debtor's
regardless of what that is.
Again, the understanding there is, let's try to work that out.
When we inquired as to what is the heightened concern here, you have the standard concerns
which exist in every situation, which are been chilling, and it's the debtor's process
that they need to control, but obviously the committee has a duty, so there's always a
natural tension.
We were getting a pretty heavy undertone of maybe you have a self-interest in the process.
You have market makers.
The debtor's statement said you have market makers on your committee.
I guess that that was a statement to say the market makers are going to try to talk to
the parties bidding in 2.0 to see if they can be a market maker on their exchange in
the future if they're successful.
That's not going to happen.
The members of this committee have a job to do as committee members.
They understand that.
They recognize what they have to do.
We think that all of these basically guardrails that are trying to be put up to basically
say what the committee can and cannot do are unfair.
They make it hard for us to be able to do our fiduciary duty because, again, we're
just professionals.
We have to take our guidance from our members.
It creates a very complex situation, Judge.
There have been some other instances where we have said, can we share this with the committee
members?
The initial reaction was no.
It's been really hard to get through that, and we've gotten further along.
You'll see a motion from the debtors.
I don't want to say any names, but with respect to coin management and who they've selected,
sure, I assume at appropriate times on a public basis without sharing any private information,
I think our members would like to have access to those parties to be able to ensure that
they understand what the committee members' views are because they're in that world.
The collective professional set here really isn't in that world.
So that's that.
I just wanted to address quickly the conflict that Ms. Broderick brought up.
We don't see that at all.
We don't believe that the official committee has any conflict of interest in analyzing
and making recommendations with respect to essentially how you split up the plan proceeds
between dot-com customers, U.S. customers, other parties.
The debtors and we have been hard at work on those issues constantly.
And candidly, Ms. Broderick said we have yet to make any recommendations.
We have, and we've been in dialogue with the debtors.
It's one of our big issues that we think that we can get through pretty quickly and that
we can advance the plan.
That's a flavor, Your Honor.
I know we're digging pretty deep here today, but I want to make sure you have a flavor
for what's going on.
Where are the committee members on the idea of signing an additional NDA?
We as professionals have worked hard with the debtors' professionals to try to negotiate
an acceptable form.
We don't love this no-contact provision that's in it.
I think we've recommended to the committee members that they should go ahead and sign
it just so that we get it behind us.
If this is really, really critically important to the debtors, our view is, well, let's clear
that issue and let's get to the real meat here, which is get us the bidder names, get
us the terms of the bids, and then let's talk about what happens in round two.
For example, one of the protocol provisions was you don't get access to any of the bidders
until we pick a stocking horse or we're about to pick a stocking horse, and then you get
basically to submit questions in advance, and then you can have one call with that stocking
horse, so they answer those questions in advance.
It's not an earnings call.
It's a fluid process.
This is what our clients have to do.
Our view was, I'm not going to agree to that, but let's all step back, try to build trust
and confidence with each other, and see how this process goes.
What we said to the debtors, and they understand this, is if as we start to move through this
process, we're not getting the access, we'll either go to the mediator if she's available
and is part of this process, because remember, we asked in the motion to expend if we need
to the mediation help to the 2.0 process, and then also if we have to, we'd come back
before your honor.
It's going to start moving fast at some point, so of course, it's an imperfect thing to go
to a mediator or come to a court.
The other thing I'd say on the mediation front, Judge, I agree with Mr. Goldstein.
It's a question of timing for us, and our fear is just that as everything gets staged,
the timeline drags out.
We had thought, honestly, that the disclosure statement was going to be something that,
at least in the timeline that was announced before, that we would be doing that before
the end of the year.
I saw on today's timeline that that's now a January event.
We recognize that obviously there's a lot of notice that goes into a disclosure statement
like this, but we just had the customer bar date, and before that, the non-customer bar
date.
I think those processes weren't perfect.
It's not anybody's fault.
The portal had some issues, but those get fixed regularly.
That moved pretty quickly, so we think there's no reason to delay that, but coming back to
the mediation point, I've been involved in a lot of mediations, your honor.
Some of them are very formal, where the mediator wants to hear from one side, they want to
hear from another side.
There's a shuttle diplomacy process that plays out.
I've also been in plenty of more fluid mediations, where the mediator attends meetings between
parties, listens to the parties as they discuss issues so that the mediator understands what
everybody's concerns are, and then the parties use that mediator as a potential sounding
board if they feel that they're at a position where they're stuck.
We do feel that we're a little bit stuck, because again, we asked to meet with the debtors
for the entirety of July.
At first, the requests were ignored, and at the end, the debtors told us, I think it was
probably two or three days before they filed their plan, we can meet on a Saturday.
I think our response to that was, we're not going to check that box, it's fine.
You can file the plan term sheet, and we'll try and talk right away, but can we please
meet in August?
Nothing happened for the entirety of August.
Now we're having our first meetings in mid-September.
It's not early September, it's the 11th and 12th, and we're flying people in from all
over the world for that.
I think our quest on the side of the mediation is, get Judge Fitzgerald up to speed on these
plan issues.
Let her attend these meetings.
I get it.
We're at the end of August now, it's hard to get anything on the calendar for next week
or the Labor Day week, it would have been great if we could, but have her attend and
have her be a part of the process so that she can learn and be there, and so what we
don't have to do, it's not that big of an additional expense.
So what we don't have to do is wind up talking amongst ourselves, potentially reaching an
impasse, then educating the mediator, writing position statements, setting ourselves up
for that shuttle diplomacy process that then somehow otherwise delays the plan timeline.
That would be a travesty with the amount of money that's being spent here, and I agree
with Your Honor.
I don't mean to imply that money is being spent on things that are not important.
It is, but it's not going to stop, and the only thing that we feel that'll really slow
it down or end it effectively is getting to confirmation more quickly and getting to the
effective date more quickly, because then when we get to the post-reorder state, there's
obviously a lot less of courtroom issues, multitude of professionals, et cetera.
Well, let me ask both parties about the information issue.
Are you close to resolving that issue, or is that something that you need me to resolve,
or is it something that the mediator could get involved in and resolve as you collect
steam?
Well, Your Honor, I would say before Mr. Collection speaks, I think we're close.
I mean, we, I sent over a couple of comments to the debtor last night on the NDA.
They were not controversial.
I think they're going to be okay with them, and we would recommend that our members sign
them, and the debtors have already committed to then giving the members the information
at the initial stage.
It's really what comes next, and I think, to be honest, Judge, we're going to try not
to bother you.
I think we've all committed to work with each other to try to get through that process.
It's just that I wanted you to have a flavor for that protocol, because if we do run into
a situation which is, no, you can't talk to a bitter period, not even with us being around,
we don't think this is appropriate, and so we're going to be right back in front of you
or the mediator.
My request would be, let us see if we can work it out, understand.
Now you have a bit more of a flavor for what we think we're going to face, and I hope we
don't face it.
But, Mr. Gwaston, I'm sorry.
Let me ask one more question, though, Mr. Hanson.
This is not information that you think you need to have for the plan negotiation process,
is that right, or is it?
No, Your Honor.
On the plan negotiation process, I think we're good.
We, from a creditors' committee perspective, are kind of in violent agreement on a lot of
what's in the plan with the debtors.
We worked very hard together on that.
There's a few issues that we've highlighted in our pleading.
One is this split between customers, non-customers.
Let's just call it that.
It's more complex than that, but we'll call it that.
The other one is the use of a recovery rights sober or some type of tokenized distribution
in connection with the plan.
And then the other one is post reorganization governance, which everybody wants to put at
the end of the timeline, but it's an important issue for everyone.
And that's who compromises the board of directors, who's the actual liquidating trustee, who's
in charge of the venture book, the coins that are left over, things like that, the litigation.
That's a pretty integral part of the process.
We have our views.
We don't want to air them here.
It's not appropriate.
We should talk about them with the debtors.
But those are the main issues that we had, Your Honor.
So no, I think from an information perspective, we have what we need at a committee member
level for the plan.
The dot com exchange sale process, it plays into the plan.
It's another key asset.
And participating in that process on behalf of committee members independently is important
for them to be able to carry out the fiduciary duty.
But it's also important for them so that they can really candidly talk to bidders and understand
their view of what a post reorg exchange looks like so that they can understand better these
issues about recovery tokens and other things.
So they do overlap a bit as well.
So I'm happy to give the parties then the opportunity to work out the issues on the
information sharing side.
So then the only really, and it's not before me today, is the mediation of the plan and
whether to get Judge Fitzgerald involved now or to wait to see if the parties can work
things out.
Not prejudging anything at this point, but I see a couple of problems with getting Judge
Fitzgerald involved now.
One, is it really an official mediation?
If it's not an official mediation, is it covered by the mediation privilege that would be covered
by our local rules?
That would be one concern that I have.
And two, if the parties can work it out on their own, I would rather see that happen
than get Judge Fitzgerald involved now as opposed to maybe a month from now.
But we'll deal with that when we get to the motion, your motion to speed up the mediation
process.
But those are kind of my initial thoughts to think about as we get to that point.
I appreciate that, Your Honor.
I don't want to belabor Brian Gluckstein for the debtors, but just to be clear, and I understand
Mr. Hanson wanted to give the court a flavor of this, and this is taking place obviously
on the record.
As we understand it, the NDA on the exchange sale process, despite the back and forth and
negotiations that happened, is complete.
And so the information will proceed to be shared.
This issue, we did ask for a formal NDA with respect to this process.
Highly sensitive sale information.
We've been relying on the bylaws for other issues.
These are the committee members, no doubt are discharging their fiduciary duties, but
they are unrestricted cryptocurrency traders.
That is a fact.
They have not agreed to restrict themselves for purposes of trading.
And so an NDA that has appropriate use restrictions and the like, we thought was critical before
people are talking to prospective buyers of assets, customer lists, et cetera.
So we asked for that.
We've obviously had a disagreement, as Your Honor has now heard this afternoon over the
contents of that.
I believe that's resolved.
So I don't believe that this issue will continue to be one.
Obviously, to the extent we are unable to resolve these issues, the committee, I have
no doubt, will come back to Your Honor.
But I believe that Your Honor's involvement or mediator's involvement in the information
sharing issues will not be necessary.
Okay.
Thank you.
All right.
So with that, let's move on to the second agenda item for today.
Thank you, Your Honor.
So moving to the-
Your Honor, would it be possible-
Oh, Mr. Accusing.
Yes.
Would it be possible to take a five-minute break?
I'm sorry to request it.
Sure.
No problem.
Let's take a 10-minute recess.
We'll reconvene at 2.15.
Okay.
Come on.
Great.
I'll try to look at my email.
Hey, I'm Tim Brown.
Okay.
So all these guys are able to get visas to come in, right?
What does he say?
How does the KYC process work?
I don't know. This is a TSA.
Yeah, I think so.
They all come with a name.
It's fun to see.
Okay.
So, I'm going to go ahead and start with the
process.
Okay.
All right.
Thank you, Your Honor.
Again, for the record, Brian Glexteen, solvent and Cromwell
model.
Thank you.
Again, for the record, Brian Glexteen, solvent and Cromwell
for the debtors.
The only other matter on today's agenda is item 16 on the
agenda, which is the debtors motion for an order authorizing
and approving procedures for settling claims and causes of
action.
Before I get into the motion, Your Honor, the debtors did
file a declaration of Edward Mosley at docket number 2215-1,
which is exhibit A to the reply papers we filed over the
last couple of days.
I would like to request that Mr. Mosley is here in the courtroom
today and available for cross-examination.
I would like to request that Mr. Mosley's declaration be
admitted to evidence.
Any objection?
Is it admitted without objection?
Anyone wish to cross, Mr. Mosley?
Your Honor, Juliet Sarkisian for the U.S.
Trustee.
No, we do not have any cross-examination.
Thank you.
Your Honor, the debtors through this motion are seeking an
order approving and establishing omnibus settlement
procedures, which would permit the debtors to resolve the
large volume of smaller claims, primarily the debtors'
avoidance claims in the requisite settlement amounts.
But any claims are eligible.
And this would allow the debtors to resolve this high
volume of claims quickly, efficiently, cost-effectively,
up to the settlement value cap.
The alternative, Your Honor, is the need to prepare and file
a claim for a settlement.
The debtors' claim is to be a settlement that is not
subject to any settlement.
The debtors' claim is to be a settlement that is not subject
to any settlement.
The debtors' claim is to be a settlement that is not subject
to any settlement.
The alternative, Your Honor, is the need to prepare and file
individual motions pursuant to Rule 1919A, send notice to
creditors, seek approval from this Court for each and every
settlement, irrespective of the size of the settlement and
the value being returned to the estates.
The estates.
These procedures reflect discussion and input from the
creditors' committee and the ad hoc committee who we
consulted with prior to filing this motion.
As Mr. Mosley said, the debtors' claim is to be a
settlement that is not subject to any settlement.
The debtors' claim is to be a settlement that is not subject
to any settlement.
As Mr. Mosley states in his declaration, the debtors expect
the total number of avoidance claims, including
preferences, recovery of asset transfers, political and
charitable donations, to ultimately number in the
thousands.
This is not surprising, given the facts and circumstances
of these Chapter 11 cases.
Mr. Mosley states his view that the administration of
the debtors' estates will be facilitated and value
maximized at these settlements, as the
settlement is to be a settlement that is not subject to
any settlement.
The debtors' claim is to be a settlement that is not subject
to any settlement.
and value maximize that these settlement procedures are implemented.
The only objection to the motion was the one filed by the U.S. trustee, which we submit
should be overruled.
Bankruptcy Rule 1919b expressly provides that the court may authorize the debtor to settle
classes of claims without a further hearing or notice.
Furthermore, Rule 2002a3, as your honor knows, expressly grants the court discretion to waive
any notice of a hearing on approval of a settlement.
The U.S. trustee ignores the clear authority for the court to grant this relief that is
present in the rules.
The U.S. trustee also ignores this objection that these types of orders are often granted
when case circumstances warrant them, even up to substantial settlement values in appropriate
circumstances, and we cite some examples in our papers of cases where limits of settlement
value go into the multiple millions of dollars.
And your honor, that makes sense.
Here the debtors have proposed procedures that permit settlements without individual
settlement motions only after notice to the official committee and the ad hoc committee
of creditors.
Each will have the opportunity to independently ask questions and test the proposed settlements
before the debtors proceed with any settlement.
We've agreed after discussions with the official committee, which is actually somewhat unusual
in these procedures adopted by courts in this district, that we will provide notice for
every settlement, regardless of how small.
There's no ability for the debtors to settle claims completely on its own.
So the idea that we would take a claim that has substantial value and settle it for some
low amount and nobody would ever know about it, besides that being a breach of our fiduciary
duties, which would never happen, is not possible here.
Every settlement will be noticed to the committee and to the ad hoc committee, and only if they
don't have any concerns will we be able to proceed without the administrative expense
and burden of noticing all other creditors and filing an individualized motion under
Bill 9019A.
These procedures provide an opportunity for the debtors to significantly streamline what
would be uncontroversial settlements and bring that value quickly into the estates.
We did carefully review the U.S. trustee's concerns, and after doing so, the debtors
determined to make certain modifications that are reflected in the revised settlement procedures
contained in the revised order filed at docket 2215-2 that was filed in connection with the
debtors' reply papers.
Your Honor, those changes include reducing the cap on the settled value of claims, qualifying
under these procedures to a maximum of $7 million, adding the U.S. trustee as a notice
party with the expectation that the U.S. trustee will only interpose objections going forward
based on merits of the claims and not the notice issues that are raised in the objection
today, and specify that the debtors will file for purposes of providing additional transparency
into what has been happening with respect to settlements.
We will file monthly reports disclosing claim counterparties and the amounts of settlements
that were consummated in the prior month pursuant to these settlement procedures.
Nonetheless, we understand the U.S. trustee is pursuing their objection, suggesting that
no settlement procedures of this sort are appropriate without the need, without notice
being sent out to a broad set of creditors, and much more detailed disclosure on each
individual claim that's being settled.
We would submit, Your Honor, that that's not required under the rules, and certainly under
the facts and circumstances of this case, we believe would vitiate the utility for these
procedures.
So absent any questions from the Court, I'm happy to see the podium for Mr. Case.
No questions.
Thank you.
Good afternoon, Your Honor.
Gabriel Sassen from Paul Hastings on behalf of the Committee.
I just rise to support the motion, as Mr. Gluckstein pointed out.
We did negotiate and review the motion and the procedures before they were filed.
We're happy with the terms of the motion and the procedures as they were filed, and even
happier with the revised version that they were filed with the reply.
We think that the procedures will promote efficiency, transparency, and minimize the
costs in connection with settling these matters.
And with that, again, just any questions or any further questions from Your Honor, we
would support the motion.
Okay.
Thank you.
No questions.
Anyone else before I go to the Trustee?
Ms. Sarkisian.
Good afternoon, Your Honor.
Juliet Sarkisian on behalf of the U.S. Trustee.
Your Honor, the debtor's motion seeks to settle procedures to settle claims held by
the debtor's estates.
This does not apply to claims against the debtors.
So these are estate claims, but they're seeking to settle with no notice to any parties, and
now they, at my request, have added the U.S. Trustee.
The proposed revisions have made some minor improvements, but they have not addressed
the main points of the U.S. Trustee's objection.
The debtors do not cite to one reported decision or even an unreported written opinion that
approved this type of procedure.
They have cited a number of orders in this court as well as other courts where they say
the settlement procedures are like those proposed by the debtor here, but looking at the ones
from Delaware, the procedures are not remotely similar to the ones the debtors are proposing
here and in fact support the notice and objection procedures that the U.S. Trustee is requesting
if in fact Your Honor does entertain allowing some type of settlement procedures to go forward.
I will provide more detail on those cases shortly.
A big part of the U.S. Trustee's objection is the definition of what kind of claims are
going to be subject to this process.
There is a definition, small estate claims.
Those are the kinds of claims that they say will be subject.
The definition of that in the motion, and that has not been changed as far as I can
see in any of the revised papers, is, quote, certain existing and future affirmative litigation
claims and causes of action of the debtor and their estates that are relatively small
value compared to the debtor's total asset base, close quote.
So what was not explained is what relatively small value compared to the debtor's total
asset base means.
What is the debtor's total asset base?
What's the number the debtors are using for that?
That was not disclosed.
What relatively small means was not disclosed.
Mr. Mosley's declaration describes the claims that will be subject to this procedure as,
quote, smaller in size, close quote, without saying as compared to what.
The motion also does not disclose how the value of a claim will be calculated in order
to determine if it's of small value and who will be doing such calculation.
It says claims seven million or less, right?
I'll see, Your Honor.
That's the thing.
It's not claims that are valued at seven million or less.
The seven million is how much is being paid in settlement.
So regardless of what the claim could be, a hundred million dollar claim, if it's being
settled for seven million dollars or less, then these procedures would apply to it.
But the motion says the claim also has to qualify as a, quote, small estate claim.
But there's no information to figure out what that definition means.
So really what we're left with, Your Honor, is saying some claim that the estate has,
as long as it's settled for seven million or less, which is highly problematic.
Because again, it doesn't say what the claim is valued at.
That's one problem.
We need to know what the claim is valued at.
That's extremely important.
It's more important, frankly, than how much is being paid to settle it.
I shouldn't say more important.
Those are two pieces that are very, very important.
And then what that leads into is you need to know the ratio.
What is the ratio of the amount being paid in settlement to what the claim is valued
at?
And of course, if you have those two numbers, you can figure out the ratio yourself.
But who values the claim?
How are you going to do that?
I mean, litigation claim, you can have, you know, pro se claimant who says the debtors
owe me a hundred billion dollars and they settled it for a hundred dollars.
No, Your Honor, these are not claims against the estate.
These are claims the estate holds.
This process procedure is only for estate claims against third parties.
You're right.
Correct.
So the debtors should, I mean, if they're going to settle the claim, one would hope
they have some idea what the value of the claim is that they're settling.
So either they will have filed an adversary proceeding, in which case, again, one would
expect they would have some dollar amount that they're seeking.
Certainly, if it's an avoidance claim, they would say, how much are they seeking to avoid?
But if it's not that kind of a claim, again, one would hope with all of the professionals
that the debtor has that before they're settling a claim, they have some estimate of what the
value of the claim is.
Otherwise, how can you settle the claim if you don't know what the value is?
So and in fact, I mean, the motion doesn't even indicate that they're going to disclose
to the committees what the value of the claim is, only what they're getting in settlement
for it.
So maybe the committee would come back and say, well, in order to evaluate the settlement
value, we need to know how much the claim is.
But that's something that's going on behind closed doors, effectively.
It is very clear that nothing will be filed on the record as to the value of the claims
that are being settled.
What the debtors have proposed now in response to US trustee's objection is that they would
file something once a month on the record saying, you know, we settle claims against
these parties and for each one how much they received in settlement.
This will be done after the fact, after the settlement is effectively done and over with.
That doesn't give anybody an opportunity to object if they have a problem with it.
It also doesn't tell them what is the nature of the claim being settled and what's the
value of the claim being settled.
I thought the procedures did provide for an opportunity for the notice parties to object
to the settlement before it's actually consummated.
Your Honor, that is only the committee, the official committee and the ad hoc committee,
nobody else.
But they added you to it as well.
And they've added the US trustee.
Now you're added to it.
There are many other parties in interest in these cases.
Well, there's nine million.
Are they going to give notice to nine million people every time they want to settle a claim?
No, Your Honor, but if it was filed on ECF, if it was filed in the court docket, then
that gives parties notice.
Anybody who's getting ECF notice will receive notice.
Claimant, individual claimants aren't going to get ECF notice.
If they file 2002 requests, they're going to get ECF notice.
So that's the case.
I went to the Delaware cases and I had someone pull the orders.
One of them, Building Materials case, we couldn't find because the date that was listed for
the order was actually a date that was prior to the case being filed.
But the other four from Delaware I will address.
One of them is one of your honors cases, J&J Sales.
This is an order relating to a motion by Chapter 7 Trustee Miller to settle avoidance actions.
I'm not completely clear from the order but it appears it uses the term avoidance actions.
Presumably these are actions that have been filed so there would at least be some notice
as to what the nature of the claims are.
The first category which would not require any notice to anybody for the Trustee to settle
are claims with a value, gross transfers.
So that would be the equivalent of the maximum value of the claims of less than $250,000.
That's not the amount being paid in settlement, that's the value of the claim.
Then once the value of the avoidance action goes between $250,000 and $500,000, your honors
order required the Trustee to file a notice of settlement with the court giving parties
an interest 10 days to object and if somebody objected it would come before your honor and
then if the gross transfer, any gross transfer in excess of $500,000 would require a 90-19
motion.
Similarly, in CR Holdings also cited by the debtors, an order from August 2019 by Judge
Silverstein, this was a motion by the debtor for settlement procedures.
It allows settlements of avoidance actions with gross transfers again so that would be
the maximum value of $75,000 or less could be done without any further notice or approval
of the court.
If it was between $75,000 and $250,000 of gross transfers, they had to require, they
had to file a notice and give parties an interest 10 days opportunity to object.
If nobody objected, then it would automatically be approved.
And then if it's over $250,000, they had to file a 90-19 motion.
Then we have Fresh and Easy.
With Fresh and Easy, it was the committee that was seeking to settle avoidance actions.
This is an order of Judge Shannon and there, if the gross amount of the avoidance action
was less than $35,000, that's what a small claim is, $35,000, no further court approval
was needed.
If it was between $35,000 and $200,000, again, not the settlement payment but the value of
the claim, in that case, they had to file the notice of settlement procedures from the
motion.
I pulled it.
It was similar to these other cases.
They had to file a notice on the docket and give parties an interest 10 days to object.
If it went over $200,000, they had to file a 90-19 motion.
The last one from Delaware that they cited was FTD Companies from 2019 by Judge Silverstein.
It stated to apply to both causes of action, claims against the debtor as well as causes
of action brought by the debtor, but all the wording of the order talks about allowed and
disallowed claims.
It talks about a claimant, clearly somebody other than the debtor.
I think that it really was meant to deal with claims against the debtor being settled.
Even if it applies both ways, again, the numbers, if a claim was $500,000 or less but the claim
was being allowed at only 15%, then there was no further requirement.
When you started to get into larger numbers, then they had to serve the 2002 list with
a settlement notice.
All parties and interests, not just the committee, not just somebody, all parties and interests
had a right to object.
They also specified on the settlement notice what had to go in there.
It included, again, they talk about proof of claim because this seemed to apply mostly
to claims against the estate, but what was the original asserted amount of the proof
of claim?
What's the proposed amount and priority of the settlement?
Having more information than what's being proposed here.
Then again, if it went above a certain amount, they would have to file 90-19 motions.
By the way, a debtor can file 90-19 motions.
They don't have to do a separate one for every single settlement.
If you had multiple settlements within a period of time, one could file a 90-19 motion covering
multiple settlements as long as they gave the relevant information.
That is certainly something the debtors could do here.
However, again, because of the nature of this case, and of course we remember that this
is a case that Mr. Ray said came in as a dumpster fire.
There are certainly issues.
I mean, the claims that the estate holds, not just against the top insiders, but anyone,
professionals, other employees that might have done something or not done something
they should have done that caused in any way the dumpster fire that this case was.
If the debtor is settling those claims, that should not be behind a firewall.
That should be public and not after the fact, after it's settled and done and nobody can
object to it other than the committee and the ad hoc committee.
As the debtors said when they were talking about negotiating the plan, there's a lot
of stakeholders in this case.
It's not just the committee and the ad hoc committee.
Especially when you're talking about numbers as big as a settlement of 7 million and who
knows how high the value of the claim is because that hasn't been disclosed in this motion.
We don't know what that top number is, if there is any top number.
All we know is as long as the settlement amount is 7 million or less, nobody other than the
two committees is going to know about it until after it's over and done and nobody can object.
In this case, given the type of claims that the debtors have, the US trustee does not
believe that that is appropriate.
It's again very different than what we're seeing in the cases that the debtors cited
from this jurisdiction.
None of those say, hey, anything goes.
There's a certain point that they, again, these are small numbers we're talking about,
35,000, 50,000, 75,000.
That's the value of the claim, not how much is being paid in the settlement.
Those are the ones that can be settled without any further notice.
Once you go above those, you have to file the notice, you have to give 10 days objection
and if nobody objects, it's automatically approved.
It doesn't require your honor necessarily to have to sign orders.
It would be automatic, but if somebody objects, then if it cannot be resolved with the debtors
and the committee, then it would be before your honor, which is how it should be.
These are potentially very valuable claims of the estate and parties have a right to
know what the value of the claim being settled and what the claim is about, especially with
respect to those that there's no adversary proceeding.
At least if you have an adversary proceeding filed, one could look at the adversary proceeding
and say, okay, I can see what's being asked and who it's against and what the nature is.
But if they're settling claims before an adversary is filed, which I understand is the intention
that it would include those subsequent as well, then there's no information in the public
record to tell whether the settlement is a reasonable one or not.
And your honor, I would also like to briefly, there are some exclusions that the debtors
put in that would not be covered by the settlement procedures.
But it does not include every category that the US trustee believes it should.
They do cover insiders, so that would cover directors and officers.
One problem with that is sometimes there's not complete agreement on what qualifies as
an officer, and the most obvious example is vice presidents, despite the Foothill decision
from this court many years ago.
It says that if you have an officer title, including VP, you are an insider unless and
until proven otherwise, most debtors I found take the position that VPs are not officers.
But in part from that, there are employees potentially, if debtors have claims against
other employees that do not have officer titles, they may be significant.
And they are of interest.
We know that things happened in this, and we know that people not only did things they
shouldn't have done, but some people did not do things they should have done.
And so US trustee believes that all employees, all claims against employees should be accepted
out of the settlement procedure, regardless of what the amount is, as well as of course,
directors and officers.
And also consultants should be added.
They say professionals, that includes consultants.
That's wonderful, but it's not completely clear.
By the way, Your Honor, the ratio element, I think, is the most important when it comes
to determining whether settlement procedures are appropriate.
All of the cases, again, there hasn't been any decision that they cited that's on point,
and I looked in the Third Circuit, there's not a lot of written decisions on 19B.
However, the debtors cite to Collier's paragraph 9019.03 for certain proposition.
But what they did not cite to is where Collier says that when seeking to settle numerous
preference actions, quote, the court could enter into an order authorizing the trustee
to settle or compromise any action without further hearing, as long as the settlement
or compromise amount is not less than a certain percentage of the recovery sought in the complaint,
close quote.
And I think that's the key factor.
And that factor was also discussed in the case that we cited to New Era Philanthropy,
which is an Eastern District PA case.
So in sum, Your Honor, the US trustee believes that the debtors do have options here instead
of these types of truncated procedures, like I mentioned, doing 9019 motions that cover
settlements of multiple claims.
But if Your Honor is entertaining, allowing some type of settlement procedures, the US
trustee believes that there has to be a limit on the value of the claim being settled, not
just what's being paid, but the value of what's being settled.
And I think that it's up to the debtors to provide that.
But I don't believe it should be more than $10 million.
$10 million is a lot of money.
With respect to the amount being paid in settlement, I think that's less critical than the value
of the claim and the ratio between the value of the claim and the amount being paid.
But certainly $7 million is a pretty large amount.
Again, that's for the amount being paid.
But there has to be that ratio in there.
And I think at the very least, the ratio of what is being paid to the value of the claim,
how the debtors value their claim, should not be less than 50% to be subject to these.
If it's less than 50%, then they need to file a motion to explain why they are accepting
less than 50%.
In addition, the notice of the settlements should be filed on the docket, and ECF notice
will go out in that matter.
That is official notice.
Anyone who signed up for ECF notice will get that notice.
I have no objection to the notice being served on others, but that I think is the minimum.
And it does not require a lot of work of the debtors to file a notice.
And there should be an objection done.
It can be filed at the same time they give the information to the committee and the ad
hoc committee.
There should be the same objection deadline.
And it should also include not just the name of the party that they're settling with and
the amount being paid in settlement, which is what's being proposed by the debtors, but
also the value of the claim and the nature of the claim.
What is it?
Is it an avoidance claim?
Is it breach of contract?
What's the nature?
And what does the debtor value it at?
And the exclusions should be, as I just said, extended so that it also includes all employees
and consultants, whether or not they're insiders.
Your Honor, unless Your Honor has any further questions, that concludes my argument.
Okay.
No questions.
Thank you.
Your Honor, Brian Glockstein again for the debtors.
I just want to give the debtors a few points in rebuttal.
The debtors made certain changes to the procedures after carefully reviewing the objections from
the U.S. trustee.
Ms. Sarkasian would like to further redline the order, but her real statement was telling
and was reviewed.
The office of the U.S. trustee's view is that the facts of this case are such that we shouldn't
have these sorts of procedures because it's FTX, it's high profile, there's a lot of
parties in interest.
The fact that there's a lot of parties in interest and there are a lot of claims, that
the volume of claims is massive in this case, screams out for these procedures.
We spent significant time this afternoon in context of the earlier colloquy discussing
the concerns of the creditors about case burn and expenditure in these cases.
It makes no sense, Your Honor, for us to need to come forward respectfully with a motion
for every single claim irrespective of value, given that we have thousands upon thousands
of potential preference claims that need to be resolved in this case.
We have tried to strike the appropriate balance.
As I stated earlier, after constructive discussions with the official committee with respect to
these procedures, we are giving notice to the notice parties of every single settlement,
irrespective from first dollar.
If we're settling with somebody for five dollars, they're getting notice of it.
We've eliminated, which many, if not all of the orders that Mr. Arkesian referred to,
have a category of claims where the debtors and their business judgement could settle
claims because it's simply not worth the administrative cost.
The committee is here, they're seated.
The ad hoc committee is here and the U.S. trustee is going to get notice.
If the U.S. trustee is concerned about a particularized settlement, or if the committee is concerned
about the size of the claim versus the settlement or the ratio, as Mr. Arkesian was talking
about it, we can have those discussions.
If there's a bona fide dispute, they can file an objection and all that does is then have
us come forward with a 90-19 motion if it can't be resolved.
What's the notice going to include?
Your Honor, we did not legislate in the procedures specific requirements because these settlements
are not one size fits all.
We had this discussion with the committee.
We obviously are going to have to provide information about the claim.
But as Your Honor correctly observed, not every claim, this is not simply we have a
number necessarily, we might have a preference claim, we know the amount, here's the amount
of the preference.
But there are avoidance claims, there are fraudulent transfer claims, there are claims
that are on liquid data claims.
And certainly we have a view, we'll have a view as the debtor of value of claims.
But there is-
Will that be included in the notice?
I expect it will be.
I expect the committee is going to ask about what the claim is, what it's worth.
I'm reluctant to just say it will be in the quote, notice that we give to them every time
because again, I don't believe this is one size fits all.
And I don't believe this idea of the ratio as it was being described of what the claim
upside value would be.
Because again, in a litigation claim, you have views of claims might be worth, your
risk discounted, you think about what a claim is worth and then you enter into potentially
a settlement.
This idea of the ratio, I respectfully disagree with Ms. Arcadian.
This is not the defining factor here.
If we bring forward a 1919 motion, the question is going to be whether it's a reasonable settlement
within the range of reasonableness within the debtors business judgment.
And so if the facts of a particularized claim in our judgment are appropriate to settle
it, that's the size of the claim that's appropriate.
And again, the fact that we're giving notice to the committees and now to the US trust
aid of every single settlement is going to allow those questions to be diligent.
Some of these, a lot of these settlements, we believe are not going to be not only not
controversial, but are not going to warrant significant time.
We have people reaching out to us all the time that received political donations, charitable
contributions, they want to return funds.
They might not have all of the funds that were donated or conveyed.
We explore those circumstances.
We want to talk about a settlement.
It doesn't, it's just not sensible to have to come forward with a motion or a detailed
notice at the outset of the process.
We then have to serve those partners.
Well, I don't think she's saying you have to do a motion.
I think what she is saying is in the notice that you send and she wants it sent put on
the docket so that ECF notice goes out to anybody who signed up for ECF notice, that
the notice that you send out says the debtors are settling this claim, whatever it is, preference
claim, adversary proceeding, whatever it might be.
We valued the claim at X amount and we decided to settle it for Y amount.
Then if there's no objection to that, then it automatically is approved.
You don't even need to come to me.
You don't have to file a motion.
You're just putting the notice on the docket.
This goes out.
The object is going to be entered.
I think that's what she's asking for, which isn't unreasonable.
Your honor, if we, well, I mean, you're going to send the notice anyway, you're going to
prepare the notice.
So you got to send the notice to the committee, the ad hoc committee, the US trustee.
You just file the same notice on the docket to give ECF notice.
Certainly, this costs associated with needing to serve that notice to the 2002 list of everybody
who's asked for notice to be served.
So I don't think she's saying that.
She's saying only those who've asked for ECF notice.
I mean, I suppose if that's around his preference, we could do that.
We would need a waiver of the service requirement to just file it on the docket in that regard.
You know, look, there's circumstances where I could see that leading to, you know, in
some circumstances, potentially quite more questions than answers.
Again, the committee is here and is going to have access to the underlying information
to evaluate these settlements.
And this question of whether or not this is a quote small claim on the facts of this case,
Mr. Mosley testified that it was.
Mr. Mosley has numbers of why this is small compared to the claims.
Obviously, Ms. Farkeesian chose not to cross examine him.
So his testimony is unrefuted.
I don't have any doubt that in the context of this case, you know, a $7 million settlement
is a small.
But you have to have you have to have some understanding of what you believe the claim
is worth before you can settle it.
Right.
I mean, you're not going to sell something unless you say, well, we pegged it at this
amount, so we're going to sell it for something less than that.
Or we're going to sell it for that amount because we think we got a really strong case.
So you have that.
I mean, the idea that you would have to include what the case what the debtor believed the
value of the claim was.
And then what the debtors settling the claim for doesn't seem to be much of a stretch
or much work because you got to do that anyway.
That's correct, Your Honor, although I can certainly see circumstances where there are
some claims where the debtors saying we think this claim is worth X.
In a lot of these cases, it's not going to be potentially with unliquidated litigation
claims.
It's going to be a range of outcomes.
Right.
If you pursue litigation, as your honor knows.
Right.
Of course, we have a claim.
We believe it's a bona fide claim.
If we win on these five arguments, it might be worth X.
It could be worth a lot less than X.
And we have to make a judgment as to what an appropriate settlement is.
I mean, the debtor can all you got to do is say we don't the debtor believes the claim
was worth no more than X.
And we're selling it for Y.
Certainly, Your Honor, if your honor's preference is to proceed that way, we can we can certainly
include that that part of the process.
We do think I think that makes sense.
That's what I think.
And Miss Sarkeesian, let me just make sure I understand your position.
Am I correct that you're not asking that the 2002 list be received notice?
You're saying just put it on the docket so that those who receive ECF notice receive
the ECF notice.
Well, Your Honor, it's my understanding that as for anybody who is getting ECF notice is
signed up for that, I think it's that is official service under the local rules.
Right.
So I don't object to that being a service.
I understand there might, I guess, potentially be people in the 2002 list that are not signed
up to get ECF notice.
I don't know if that's the case.
I would imagine if that is the case, it's pretty minimal.
Would I prefer them to be served as well?
Yes, of course I would.
But if we're trying to compromise, then I think that's a fair compromise.
Yeah, I think we're trying to to give fair notice, but also limit the expense here.
So I don't want the debtors to have to send out tens of thousands of notices every time
they settle the claim for $100.
So I think I think the order should include that ECF notice is sufficient and waive any
notice to parties who have not signed up for ECF notice.
Your Honor, just to address briefly a couple of other points with respect to the scope
of the order, we do have language in paragraph three that was further clarified that make
clear the types of claims that are excluded from this and that would not be eligible to
be settled in these procedures, which certainly include claims against insiders, claims against
professionals or any post petition claim of any kind.
You know, Mr. Kazian is continuing to ask for all employees.
We do think that hampers the process, particularly now if we're going to be filing this notice.
If there are employees, for example, who have smaller preference claims or the like, I don't
see why a general non-officer, non-insider should, you know, should be uneligible to
be part of this process through the procedures that have been outlined.
So we think the scope of the order as revised is appropriate.
Dentists didn't have that many employees, did they?
This is certainly not a company where we have thousands of employees.
I mean, there were, you know, there are a few hundred employees at the time, petition
date.
And so there are, you know, there are some employees and it, but this is a situation
where much of the compensation that was provided to even employees was in the form of cryptocurrency
and was held on exchange.
So the fact that employees have claims against the debtor, the fact that employee might have
withdrawn cryptocurrency within a preference period, for example.
And so there are claims that, you know, are not Mr. Bankman Fried and officers and claims
that we don't feel need to be treated any differently just because somebody was an employee
of the company if they don't meet the standard of being an insider or an officer.
And certainly if, you know, these are the types of discussions I'm sure we will have
with the committee, the ad hoc committee, to the extent there are any questions about
an individual.
All right.
Well, let me ask this question.
I'm trying to figure out how to phrase this.
Never mind.
I mean, given the small number of employees, oh, here's what I was going to ask.
Ms. Sarkisian, is it the U.S. trustee's position that there is some number below which no notice
would be necessary to settle the claim, as some of the ones you pointed out in the cases
that you cited today?
Yes, Your Honor.
I mean, if we're talking about, again, a number that's the value of the claim, not how much
is being paid in settlement, but the value of the claim, you know, in the other cases
I was looking at, the numbers were, you know, 35,000, 50,000, you know, so maybe 50,000
and below.
The value of the claim, not how much is being paid in settlement, because that's a totally
different issue.
But right now, there is no number as far as, for these procedures, there is no figure that
is the figure of the value of the claim.
Right now, the value of the claim could be anything and be subject to these procedures.
Well, I don't necessarily have a problem with that, because if the debtors are going to
give notice that says, we valued the claim at $100 million and we're settling it for
$7 million, that's going to raise a lot of red flags, and people are going to start asking
questions, and there will probably be objections.
Yes, Your Honor.
I mean, that would be helpful.
But in terms of, I guess, well, one thing I would say in terms of there being a settlement
at a dollar amount below which nobody would be noticed, like even the two committees,
I mean...
No, I think the committees would still be noticed.
Okay.
And the U.S. trustees.
Just not going out to the ECF notice.
Yeah.
Because I don't want, you know, these small claims, and there might be one creditor out
there who wants to object to everything, you know, and then it becomes a problem.
I understand, Your Honor.
I mean, again, but to me, that would be...
To tie it to the amount that's being paid in settlement, I don't think is useful.
So I think I would say, you know, if there are claims that are 70...
If the value of the claim that's held by the estate is $75,000 or less, and maybe that
would just go to the two committees and the U.S. trustee, I don't think I'd have a problem
with that.
Okay.
But I think that's the amount being paid in settlement, because I don't think that's the
most important figure.
Okay.
Thank you, Your Honor.
I don't know if you heard that conversation I had with Ms. Accusion.
I did.
I'm trying to...
Yes, Your Honor.
But I think...
Look, and we're trying to come up with...
Your Honor, there's a couple of issues raised here, right?
And so Your Honor's asking the question now, whether there's some number by which we don't
have to give notice.
The introduction of the schedule that we've now talked about doing, right, raises issues
for us from the perspective of the bid and the ask.
When we now say this is the value of the claim, isn't the debt, right?
We are now telling the world that we settled some particular claim at X percent of what
we have claimed the value is worth, right?
Where a lot of times in settlement motions, you try not to...
Particularly if they're kind of weepy types of claims, we try to make clear it's not quite
as black and white, right?
So we're now putting a schedule out there that says we're settling this type of claim
in the litigation with particularly defendants at X percentage that's exactly what Ms. Accusion
wants the world to see.
So that's the litigation perspective that's challenging, and so that does in my mind at
least to the question you were just asking, re-raises the question, does there at least
need to be some level we can either settle at or at least not have to put this notice
out to the world under some particular amount of money so that we're not compounding the
problem on these settlements.
So I understand the desire and I agree with your honor that from an informational standpoint
and our ability to provide the information, we're gonna have to have the discussions with
the committee, we're gonna have to have the discussion with the ad hocs and with the US
trustee, but noticing everybody of all of these settlements now at first dollar, which
is what we had agreed to do when this process was not gonna be playing out on the court
docket, does raise this additional issue of potentially hindering the ability of us to
maximize the value of one claim versus another in similarly situated claims.
Well, there's a good point that if you have similar claims and you're settling one, then
other claimants will say, well, you settled that one for X amount, why are you settling
mine for more?
Or why do you want more from me?
It does raise a problem, Ms. Accusion.
Your honor, could I, would you like me to go to the podium?
Either way, whatever you're comfortable with.
Well, your honor, I know that issue comes up, I think in a lot of chapter seven cases
with trustees filing motions to settle and I've had situations in which they're disclosing
how much they're getting in settlement, but not how much the claim was.
Now, you can pull the, in those situations, you can pull the avoidance actions and actually
look and see yourself.
And I've heard that, it's like, well, you know, you, in order to determine whether something
is reasonable, you have to have both numbers.
Otherwise, all you know is how much somebody's paying in settlement and you don't know what
the claim was valued at.
You have no information and creditors don't have the information.
So, and you also have the fact that there are many defenses to even just say preference
actions, right?
You know, we settled this one for less money because there was new value or whatever.
There's various defenses.
So just because they're all avoidance actions doesn't mean that they're all the same.
And there's going to be, I'm sure there will be some preference actions in these cases,
but the other types of avoidance actions, fraudulent transfers and the like, I think
are not cookie cutter types of things like preference actions can sometimes be, you know,
with trade vendors, for example.
So, but even in those cases, I mean, you have to balance the right of the creditors and
the public to know what's going on in the cases with litigation strategy.
And you know, because these, we don't know what these claims are.
I mean, honestly, when we're saying it's that there are similar claims, I don't know that
there's similar claims.
I don't know what the claims are at all.
You can't tell from the motion other than there'll be some avoidance, there'll be some
non-avoidance.
That's all I know.
So I don't know if they're similar.
I don't know if they're the same class.
I have no idea.
Maybe the debtors do.
But even with even similar claims, again, there's different defenses.
There's different issues.
There's different facts.
So the mere fact that the debtors settled one avoidance claim for this amount or this
percentage and another for different is meaningless.
And again, does that mean there's no disclosure just because, well, you know, maybe that gives
somebody an argument, you settle these other claims?
And honestly, Your Honor, even with what they're proposing, they propose to file after the
fact a list of the settlements and the amounts received, not the value of the claim, but
the amounts received.
Well, if they're settling claims that were actually subject to an avoidance action, if
you were a defendant in an avoidance action, you could take that, you could go and pull
the complaint and see the amount sought, and you can make the calculation yourself and
then argue, well, you took 10 cents on the dollar on this one, so I shouldn't pay more
than that.
So that's always going to be a possibility, even with what they propose.
But what they propose is notice after the fact when creditors can't object.
So I don't think it's a significant enough element, the possibility that some avoidance
defendants might have some argument looking at what the debtors accepted in other cases.
I don't think that's enough to change where I think Your Honor was leaning towards having
a notice that gives an objection time and that indicates what the claim is valued at
by the debtors as well as what they're receiving and gives notice at least through ECF.
I don't think that's a reason to change that.
Your Honor, if I may, again, Brian Glefstein, the issue, and I don't want to get into every
possible hypothetical, but Mr. Arcadian is positing that, well, even under our procedure
proposal, people would be able to reverse the engineering of things.
But it's a little bit different.
The extent that there's an avoidance claim on file, there's a complaint, there are pleadings,
there are documents, there's context to the claim.
The problem with what is now being discussed at any, at first dollar every level is we're
putting out a chart that just says here's the claim amount, here's the settlement amount.
People can just do math.
There's no context to any of it.
And so yes, we were intending to put out for disclosure purposes in our proposed procedures
a settlement amount of all the month settlements after the fact so people could see that the
estate took in X dollars in the month of August.
And it is true.
Mr. Arcadian is correct.
There is not, under the procedures that we proposed, there is not an opportunity for
every single creditor in the case to come forward and object to the settlements at these
values.
The notice parties have the ability to do that.
They will have access, they have access to information that's not public and that is
not on the dock.
If the committee and the debtors don't see eye to eye on the value of a settlement in
relation to the amount of the claim as we had proposed it, we would have to come forward
with a 90-19 motion.
And so I think this is, I think that Mr. Arcadian is understating the issue here because of
the fact that, and what your honor asked about as a possible solution here, is going to have
us filing each time we have a settlement a notice that says, notice against Joe Smith,
we have a claim for a million dollars and we settled it for $800,000.
And that's just going to be out there and people are going to know without any context.
So I do think to the extent that your honor is leaning in that direction, yes, we can
do it, but I think then there should be some exemption, at least up to some amount at a
minimum, where we can get these truly smaller claims resolved in consultation with the notice
parties without having to notice every creditor on the docket who has access to ECF.
I do think that that, you know, at every single dollar level does propose an issue.
What level, excuse me, what level would you propose?
You knew I was going to ask that.
I did.
Of course, we're all kind of now, you know, adjusting this a little bit on the fly.
But I mean, it seems, it certainly seems to me, your honor, if the concern is around the
claim amount, the concern that's being expressed by the U.S. trustee is claim amount to the
extent that your honor shares that concern of claim amount versus settlement amount,
which, you know, I don't want to rehash all this.
We do cite cases where settlement value as opposed to claim amount is absolutely looked
at, but to the extent it's claim amount, then we could put a cap on the claim amount that
we're settling for whatever value we settle it at potentially under these procedures.
But I think we have to have some ability to take claims that are, you know, in the debtor's
judgment that we would be disclosing that claim amount up to, you know, some amount.
I don't know, $5 million.
And then we're settling it for something less than that that we can do without noticing
publicly on the docket.
Because I do think we have cases, and Mr. Acasio is saying, well, she doesn't know,
you know, all the claims we have.
We don't know all the claims we have either, but we know a lot of them now.
And some of the claims that have been filed publicly, we have filed avoidance actions
that are on the docket of this court that name numerous defendants, some of whom are
equity holders, received equity distributions, relatively modest amounts compared to some
of the larger issues in those avoidance actions.
You know, we have claims like that that have not been filed, right, where we're talking
to parties, where we have potentially the opportunity to bring money into the estate
and resolve those claims without the need to file an adversary proceeding.
That's beneficial to the estate.
That's reducing costs.
And again, you know, the committee is going to be at the table to vet any of these settlements
as will Mr. Acasio.
He is going to get notice of these settlements and can ask questions.
So you know, if the concern is claim value versus settlement value, I think we, I would
submit then we should consider putting a number that kind of is a cap on the claim amount
at some number that we could do without filing the public notice.
Because I think that would at least allow us to facilitate some of these settlements
that frankly we might otherwise have to make a judgment.
Do we want to enter into the settlement under these procedures and disclose this ratio or
do we're just going to file a motion because we want to get more context to the claim?
And we might have to do that.
I agree with that.
I think there has to be some, some amount, claim amount where the debtors can settle
without having to do it publicly on the docket.
Question is, what's that number?
That's the difficult part.
How do you put a number on it?
Ms. Sarkeesian said 75,000.
That's way too low in the context of this case.
I'm open to suggestions.
Well, Your Honor, I mean, again, we're talking about kind of face, if we're talking about
face value of claims, I'll call face value debtors perceive value of claims.
I think to be meaningful here, you know, this is, this is a case that has a lot more zeros
than other cases.
Right.
And so I think at a minimum we need, you know, at least the ability to settle claims that
we have valued at, you know, I would think at least a few million dollars, $5 million,
$3 million, something that gives us a meaningful range to take those claims and resolve them
without having to do the public notice process.
I would like to have the opportunity to settle claims beyond that amount.
If we're talking about two tiers here, the larger claims up to the 7 million we proposed
of settlement value by doing the notice procedure that's been talked about.
I think it's critical that we have at least some bandwidth that goes, that has, you know,
it's certainly not $75,000.
I think it's got to be, it's got to start, you know, with a, with a millions on it to
really be meaningful.
We have a lot of those claims in the small one to three, less than $5 million claims
at range that need to get resolved here.
Right.
I, I agree with that.
I think it does need to be a much bigger number.
And I do think the idea of a two tier approach is appropriate.
So you can go, question is, do we put a cap on the claim amount as opposed to the settlement
amount on the larger claims that can be just noticed to, or they have to be on the docket.
So let's say I agree with you, 3 million or less can be done without notice on the docket,
just to the notice parties, the committee, ad hoc committee and the US trustee claims,
claim value over something.
And then the question is, what's that number going to be?
You want to have settlement amounts of 7 million.
I mean, perhaps, I mean, again, your honor, I think for that, we're going to make the
disclosure publicly.
Other people can come forward.
We're going to at that, at that level, if we're going to say settlements up to 7 million
in settlement value, I'd propose 20 million in, in claim value.
I mean, that's some, you know, that's obviously would be a settlement at something less than
50%.
I mean, there's a lot of facts and circumstances here, we could probably do something a little
bit less than that if you want to prefer it.
But that's the number that jumps into my head when there's going to be disclosure.
What about 15 million?
I think we could live with that, your honor.
So these are for both of the 3 million and the 15 million, you're talking about claim
amounts, the debtor's assessment of claim amount.
Correct.
Under 3 million, we could do it on notice to the notice parties.
Right.
Without on the docket, and then claim values up to 15 million that were settling for up
to 7, we could file the notice without filing an I.D.I.T. motion.
Correct.
I think that certainly would work from our perspective.
It gives us at least a framework to be able to start to resolve these claims, your honor.
And of course, if for some reason we find that we're in a range that's not working,
we can always come back.
Can always come back, yeah.
Can always come back.
Yeah, if we run into problems, I have no problem with revisiting the issue.
So, yes.
You are Gabe Sassen from Paul Hastings on behalf of the committee.
That framework that Mr. Gluckstein described is a good one.
Excellent, good.
So, the only remaining question is do we expand this, the exemptions to include all employees?
I don't think that's necessary.
I think we keep it at the officers and directors.
In my view, other than banks, I think everybody else would say a vice president is an officer
of a company.
Banks say they're not.
But I think everybody else does.
So, if it's a vice president, that's an officer of the company.
I don't know if they even had any vice presidents, but.
Yeah, this was not the word.
The word is formalistic in the titles in a way.
So, we obviously have made these assessments.
We have filed statements and schedules that include insiders and the like.
Okay, good.
All right.
Then I think that resolves everything, right?
Any?
Your honor, can I just ask a clarifying question on that last point?
Yes.
To the extent that there is a settlement with an employee that's not a director and officer,
I would ask that if it falls within the, so I guess it would be the $3 to $15 million value
range that they actually had to put it on the notice that's being filed, to please specify
that it is a current or former employee of the company.
Because what I see a lot in various documents is they'll say, you know, settlement with
Jim Jones.
I'm like, who's Jim Jones?
So if it's somebody who's actually an employee, just to give people more notice, this is a
former employee or a current employee.
Again, they would have to be within that range.
I mean, if it's less than $3 million, it's not going to go on that notice, or it's not
going to go on a public notice.
But if they do fall within the $3 to $5 million range that the public notice will be filed,
I would ask that they be identified.
And similarly, if there is a settlement with somebody else and it's just an individual,
to say, especially if there's not an action filed against the person, to say who that
person is.
Like, was it a consultant?
You know, was it a former professional?
Some type of information of that kind that I hope the debtors would be willing to do.
Your Honor, my reaction to that, and we'll take the court's guidance on that if the court
prefers it, my concern about that, I have no problem making that disclosure to Mr. Arcasian.
A notice on the docket, if we start identifying people as employees, that is, of course, outing
them as employees of the company.
And there's, you know, there is pushback against this company and its employees, whether people
are responsible or not.
So, you know, if we start characterizing, you know, the settlements, that's just, we're
adding another layer of disclosure into that notice.
I don't know that that's necessary.
And I have some concerns on the employee issue, but we'll take your course, the court's guidance
on that.
Yeah, I do have some concerns about identifying people on the docket as employees of this
company.
I mean, I have no specific evidence to support this, but I know in these types of cases,
and I think in this case in particular, there's a risk of a threat if someone is identified
as an employee.
So I would say not put that on the docket.
You can put it on the notice to the notice parties, but not on the docket itself.
That's fine, Your Honor.
Thank you.
Thank you, Your Honor.
Okay.
Does that resolve all these?
This was an interesting session.
It was probably a mediation session.
We appreciate the court's guidance on this.
This is actually, from the debtor's perspective, this type of a process is very important to
us so that we're able to start to resolve some of these claims that have been starting
to build up but have not warranted yet written forward motions.
So I think that's a good point.
I think that's a good point.