1
00:00:00,000 --> 00:00:02,060
you

2
00:00:30,000 --> 00:00:32,060
you

3
00:00:37,560 --> 00:00:42,520
Council you're live in the courtroom and the hearing is about to begin please

4
00:00:42,520 --> 00:00:46,240
remember to state your name for the record when you speak and every time you

5
00:00:46,240 --> 00:00:50,960
speak please stay muted if you're not speaking to the judge so the judge can

6
00:00:50,960 --> 00:00:55,840
concentrate on the parties that are presenting at the time thank you good

7
00:00:55,840 --> 00:00:59,360
afternoon everyone this is Judge Stickles we're on the record in the case

8
00:00:59,360 --> 00:01:06,400
of prime court technologies case number 23 111 61 this is a first day hearing

9
00:01:06,400 --> 00:01:17,560
I'll turn the virtual podium over to propose counsel to the debtors good

10
00:01:17,560 --> 00:01:20,880
afternoon your honor may it please the court Maris Candiston of McDermott Will

11
00:01:20,880 --> 00:01:25,440
and Emory on behalf of prime court technologies Inc and its subsidiaries as

12
00:01:25,440 --> 00:01:29,720
debtors and debtors in possession I would like to thank the court for

13
00:01:29,720 --> 00:01:33,240
accommodating us this afternoon and would also like to extend thanks to

14
00:01:33,240 --> 00:01:38,520
chambers for working with us and being so responsive and courteous and last

15
00:01:38,520 --> 00:01:43,680
but not least I would like to extend thanks to mr. Cudia who you know very

16
00:01:43,680 --> 00:01:48,320
quickly worked to provide us comments to our first day pleadings and you know

17
00:01:48,320 --> 00:01:53,640
works with us to resolve his concerns over the past day and I'm pleased to

18
00:01:53,640 --> 00:01:58,280
report that except for in with respect to one motion we were able to resolve

19
00:01:58,280 --> 00:02:05,640
the US trustees concerns with respect to the first day pleadings okay and your

20
00:02:05,640 --> 00:02:10,200
honor I just wanted to let you know that we've uploaded our proposed orders and

21
00:02:10,200 --> 00:02:15,280
before doing that we we made two changes one was to remove the word exclusive

22
00:02:15,280 --> 00:02:19,400
from the jurisdictional paragraphs in the order and the other change was to

23
00:02:19,400 --> 00:02:24,040
add the second day hearing which chambers provided us with September 19th

24
00:02:24,040 --> 00:02:31,000
at 10 a.m. okay great thank you in the virtual courtroom with me today are my

25
00:02:31,000 --> 00:02:35,800
partners Darren Asman Greg Steinman and Joseph Evans each of them you've

26
00:02:35,800 --> 00:02:40,120
admitted prohac fiçés thank you for that and if it would please the court

27
00:02:40,120 --> 00:02:43,040
before we walk through today's agenda I would propose turning the virtual

28
00:02:43,040 --> 00:02:48,000
podium over to mr. Asman to provide the court with some high-level background of

29
00:02:48,000 --> 00:02:52,880
the debtors business the circumstances leading to these cases and what our

30
00:02:52,880 --> 00:02:58,720
plans are in chapter 11 okay great thank you good afternoon mr. Asman hi your

31
00:02:58,720 --> 00:03:02,840
honor good afternoon this is Darren Asman from McJermett Will and Emory

32
00:03:02,840 --> 00:03:06,760
proposed counsel to the debtors it's a pleasure to be before you for the first

33
00:03:06,760 --> 00:03:14,440
time welcome your honor before I begin I'd like to quickly introduce to you the

34
00:03:14,440 --> 00:03:17,320
debtors other professionals and representatives who are on the line

35
00:03:17,320 --> 00:03:22,960
here today on the zoom from M3 which is the debtors financial advisor we have

36
00:03:22,960 --> 00:03:29,600
Rob Winning Bill Murphy and Colteen from Galaxy which is the there is proposed

37
00:03:29,600 --> 00:03:35,760
investment banker we have Michael Ash and Albert Chow from the company we have

38
00:03:35,760 --> 00:03:40,520
the debtors interim CEO and first state declarant George Hall as well as Matt

39
00:03:40,520 --> 00:03:44,880
Perella the company's general counsel and finally your honor we have the

40
00:03:44,880 --> 00:03:48,640
three-member special restructuring committee which is comprised of John

41
00:03:48,640 --> 00:03:55,440
Gidrey John Wilcox and Mike wise as miss Candice been said I want to also thank

42
00:03:55,440 --> 00:03:59,080
your honor for scheduling this hearing on short notice and also for your

43
00:03:59,080 --> 00:04:05,120
patience while we got our first days on file unless your honor has any questions

44
00:04:05,120 --> 00:04:10,080
I'd like to move into evidence mr. Law's declaration your honor that was filed

45
00:04:10,080 --> 00:04:15,480
at docket number 14 we are only seeking admission of that declaration today for

46
00:04:15,480 --> 00:04:20,640
the first day motions that are on and as I mentioned for mr. Law is with us on

47
00:04:20,640 --> 00:04:26,920
zoom okay mr. law please appear on camera

48
00:04:27,360 --> 00:04:32,080
thank you mr. law does anyone object to the admission into evidence of the

49
00:04:32,080 --> 00:04:38,360
declaration of mr. law at docket number 14 in support of the first day motions

50
00:04:38,360 --> 00:04:44,160
yeah your honor Mike Nester appearing on behalf of Polaris Ventures just subject

51
00:04:44,160 --> 00:04:52,960
to cross-examination potentially okay okay is there any answer any are there

52
00:04:52,960 --> 00:04:56,400
with the sec right feedback

53
00:05:00,760 --> 00:05:07,180
your honor it's not the courtroom's audio it's mr. Nester's I believe I have

54
00:05:07,180 --> 00:05:12,440
an echo problem your honor it usually it usually helps when I go on mute for so

55
00:05:12,440 --> 00:05:18,360
I'm gonna go back on you okay I was just saying myself is there anybody else

56
00:05:18,360 --> 00:05:22,960
appearing today who would expect to cross examine mr. law regarding the

57
00:05:22,960 --> 00:05:29,480
content of this declaration okay I hear none the declaration is admitted subject

58
00:05:29,480 --> 00:05:36,520
mr. Nester's ability to cross examine him thank you all right your honor thank

59
00:05:36,520 --> 00:05:40,400
you with that I'll like to provide a brief overview of the company and

60
00:05:40,400 --> 00:05:43,560
summarize some of the contents that we had already included in the first day

61
00:05:43,560 --> 00:05:49,400
declaration so your honor the debtors run a software technology company that

62
00:05:49,400 --> 00:05:53,200
offers essentially an all-in-one financial infrastructure platform in

63
00:05:53,200 --> 00:05:58,000
the cryptocurrency space there's quite a long list of offerings that the debtors

64
00:05:58,000 --> 00:06:02,120
provide so I won't go through them all but I do want to quickly touch on a few

65
00:06:02,120 --> 00:06:07,800
of them first and foremost the debtors offer custody services I think the

66
00:06:07,800 --> 00:06:11,600
simplest way to explain that service is that the debtors provide a platform

67
00:06:11,600 --> 00:06:16,440
customers to transfer their digital assets and fiat currency including

68
00:06:16,440 --> 00:06:21,000
foreign currencies second the debtors offer their customers the ability to

69
00:06:21,000 --> 00:06:25,400
transact with the debtors liquidity providers so for example a customer can

70
00:06:25,400 --> 00:06:31,160
convert Bitcoin to US dollars through the plot the prime platform third the

71
00:06:31,160 --> 00:06:36,020
debtors have built an enormous network of integrated banks that provide what

72
00:06:36,020 --> 00:06:40,120
are described as payment rails this is essentially your honor the

73
00:06:40,120 --> 00:06:45,320
infrastructure that is needed to move money like a CH transfers debit cards

74
00:06:45,320 --> 00:06:51,680
credit cards wire transfers importantly the debtors provide the bridge between

75
00:06:51,680 --> 00:06:56,160
traditional banking institutions on the one hand and customers in the

76
00:06:56,160 --> 00:07:01,760
cryptocurrency industry on the other and for the company also provides

77
00:07:01,760 --> 00:07:07,840
compliance and regulatory services for customers so services like AML KYC

78
00:07:07,840 --> 00:07:15,680
compliance licensing guidance audits and other similar activities your honor in

79
00:07:15,680 --> 00:07:20,520
order to provide some of these services to customers throughout the US the

80
00:07:20,520 --> 00:07:24,800
debtor of prime trust is a registered money service business with FinCEN and

81
00:07:24,800 --> 00:07:30,200
it also holds a Nevada Trust Charter as well as various state licenses such as

82
00:07:30,200 --> 00:07:34,120
money transmitter licenses that are required in certain states to conduct

83
00:07:34,120 --> 00:07:38,760
the business that they engage in at their peak the debtors were one of the

84
00:07:38,760 --> 00:07:42,400
most widely used companies in the cryptocurrency industry with close to

85
00:07:42,400 --> 00:07:47,280
four billion dollars in crypto and fiat assets under custody and over time the

86
00:07:47,280 --> 00:07:51,160
company has facilitated more than three hundred billion dollars of fiat currency

87
00:07:51,160 --> 00:07:56,640
movement through its system your honor moving on to the debtors organizational

88
00:07:56,640 --> 00:08:01,280
and capital structure there are four debtors here you have prime core which

89
00:08:01,280 --> 00:08:06,320
is the ultimate parent company prime trust which is a subsidiary of prime

90
00:08:06,320 --> 00:08:11,040
core and holds the Nevada Trust Charter and finally you have prime digital and

91
00:08:11,040 --> 00:08:16,840
prime IRA both of those are subsidiaries of prime trust there is a fifth entity

92
00:08:16,840 --> 00:08:22,000
that you might have seen in the or chart called prime New York Trust LLC that

93
00:08:22,000 --> 00:08:26,440
entity is not officially formed yet it has a pending application with the state

94
00:08:26,440 --> 00:08:32,400
of New York but they don't really exist and thus they're not a better your honor

95
00:08:32,400 --> 00:08:37,160
the debtors have no funded secure debt they have raised capital solely through

96
00:08:37,160 --> 00:08:42,400
a series a and series B raised both of which occurred in 2021 and in the

97
00:08:42,400 --> 00:08:49,240
aggregate the company raised around 175 million dollars to those raises honor

98
00:08:49,240 --> 00:08:53,880
there are a number of reasons why we are here today but probably the most notable

99
00:08:53,880 --> 00:08:59,880
reason is what we describe as the wallet event in mr. Law's declaration and I'd

100
00:08:59,880 --> 00:09:03,480
like to walk through it briefly because although it is a bit complicated from a

101
00:09:03,480 --> 00:09:10,080
technical perspective it is a critical piece of the case in 2019 the debtors

102
00:09:10,080 --> 00:09:15,400
migrated their crypto assets to a platform called fireblocks fireblocks

103
00:09:15,400 --> 00:09:20,840
is a very well known wallet management provider they manage digital wallets in

104
00:09:20,840 --> 00:09:25,840
making this switch to fireblocks the debtors intended to retire their older

105
00:09:25,840 --> 00:09:31,080
digital wallets which we refer to as the legacy laws now these wallets at issue

106
00:09:31,080 --> 00:09:36,240
are wallets that the debtors customers would transfer crypto to when they were

107
00:09:36,240 --> 00:09:40,040
interacting with some way with the company in some way with the company

108
00:09:40,040 --> 00:09:44,320
around a year and a half after that migration occurred the debtors

109
00:09:44,320 --> 00:09:49,800
inadvertently provided customers with the digital address for one of the old

110
00:09:49,800 --> 00:09:57,080
legacy wallets and during 2021 certain customers transferred crypto to one

111
00:09:57,080 --> 00:10:02,240
wallet in particular that we refer to as the 98 that's law we call it the 98

112
00:10:02,240 --> 00:10:07,440
apologies because that's the last three digits of the digital address at the end

113
00:10:07,440 --> 00:10:11,880
of 2021 which again was the year when some customers transferred assets to

114
00:10:11,880 --> 00:10:17,040
the 98 98 f-ballot at the end of that year a customer made a very large

115
00:10:17,040 --> 00:10:22,480
withdrawal request and order to fulfill that request the company needed access

116
00:10:22,480 --> 00:10:28,280
to the 98 f-wallet and it was at that time in December 2021 that the company

117
00:10:28,280 --> 00:10:33,040
realized they didn't actually have what was needed to access the 98 f-wallet

118
00:10:33,040 --> 00:10:37,720
we've included a far more detailed description of the technical problem

119
00:10:37,720 --> 00:10:42,160
that we have and why we can't access that wallet but in short the company

120
00:10:42,160 --> 00:10:45,760
does not currently have access to that wallet which has around 40 million

121
00:10:45,760 --> 00:10:51,720
dollars worth of crypto sitting in the debtors reported these wallets used to

122
00:10:51,720 --> 00:10:55,760
the various state regulators including the regulator in Nevada which is known

123
00:10:55,760 --> 00:11:01,280
as bid or FID this then set off a sequence of events that set the company

124
00:11:01,280 --> 00:11:05,680
down the path to where we are today including what amounted to a run on the

125
00:11:05,680 --> 00:11:12,400
bank with customers withdrawing crypto in fiat on June 21st around two months

126
00:11:12,400 --> 00:11:16,560
ago the Nevada bid issued a cease and desist order the company which

127
00:11:16,560 --> 00:11:21,200
effectively prevented the company from continuing its operations within a week

128
00:11:21,200 --> 00:11:25,680
after that the company consented to the imposition of a receivership and around

129
00:11:25,680 --> 00:11:30,080
a month ago John Guidry was installed by the Nevada State Court as the interim

130
00:11:30,080 --> 00:11:36,000
receiver earlier this month the receivership order was amended to a

131
00:11:36,000 --> 00:11:38,560
point what is now the special restructuring committee that I

132
00:11:38,560 --> 00:11:41,760
mentioned earlier and the special restructuring committee is vested with

133
00:11:41,760 --> 00:11:46,000
all rights to manage all aspects of the debtors during these chapter 11 cases

134
00:11:46,000 --> 00:11:52,840
again that committee is comprised of John Guidry John Wilcox and Mike Wise Mr.

135
00:11:52,840 --> 00:11:56,440
Guidry was most recently the president of the Bank of Nevada for around a

136
00:11:56,440 --> 00:12:01,880
decade until he retired last year Mr. Wilcox has around 35 years of experience

137
00:12:01,880 --> 00:12:06,640
in banking and Mr. Wise is a seasoned restructuring professional who regularly

138
00:12:06,640 --> 00:12:12,720
serves in fiduciary roles such as CRO and independent directors none of these

139
00:12:12,720 --> 00:12:17,280
individuals your honor have any other or prior relationship to crime they are all

140
00:12:17,280 --> 00:12:23,560
independent so your honor that's where we are at right now let me tell you a

141
00:12:23,560 --> 00:12:27,280
little bit about where we are going there are really three primary work

142
00:12:27,280 --> 00:12:32,000
streams ahead of us first is the sale process the company as I mentioned

143
00:12:32,000 --> 00:12:36,480
earlier has already hired a banker galaxy there was a pre-petition process

144
00:12:36,480 --> 00:12:40,560
run by a different banker next week we hope to file a good procedures motion

145
00:12:40,560 --> 00:12:45,920
but that process is already well underway second your honor is the 98th

146
00:12:45,920 --> 00:12:50,600
wall recovery what would you what would you be intending to sell well the

147
00:12:50,600 --> 00:12:57,160
debtors intend to sell or the crown jewel of this company is really then

148
00:12:57,160 --> 00:13:03,160
about a trust charter that charter among other things allows the company to

149
00:13:03,160 --> 00:13:08,560
operate and money transmitter business in approximately 30 states without

150
00:13:08,560 --> 00:13:12,560
actually having to acquire licenses in those states typically if you want to

151
00:13:12,560 --> 00:13:15,520
engage in this type of business around the country you have to go to each

152
00:13:15,520 --> 00:13:19,920
state and obtain what is called a money transmitter license the value in this

153
00:13:19,920 --> 00:13:25,800
business is likely reorganizing around the Nevada Trust Charter with somebody

154
00:13:25,800 --> 00:13:31,520
is these the Nevada Trust Charter alone is very expensive and time-consuming to

155
00:13:31,520 --> 00:13:37,120
obtain but so are the money transmitter licenses and so primarily that is what

156
00:13:37,120 --> 00:13:41,080
being sold is the ability of somebody to step into the shoes and have these

157
00:13:41,080 --> 00:13:44,880
licenses this will obviously require some level of cooperation with the

158
00:13:44,880 --> 00:13:48,560
various regulatory authorities but that is what I would put at the top of list

159
00:13:48,560 --> 00:13:53,160
of what is somebody is quote-unquote buying but with it comes a lot more it's

160
00:13:53,160 --> 00:13:57,360
the infrastructure that has been built here the payment rails that I mentioned

161
00:13:57,360 --> 00:14:01,320
earlier the relationship is that this company has built with everyone in the

162
00:14:01,320 --> 00:14:06,040
crypto ecosystem to do all those things that I mentioned earlier setting up a

163
00:14:06,040 --> 00:14:10,280
company putting aside the regulatory constraints on setting up a company to

164
00:14:10,280 --> 00:14:14,720
do all these things just putting all these things together operationally is

165
00:14:14,720 --> 00:14:18,120
an incredibly expensive and time-consuming endeavor and there

166
00:14:18,120 --> 00:14:22,600
really aren't many competitors in this space right now and so that's that's

167
00:14:22,600 --> 00:14:25,240
essentially what we're looking to sell your honor I hope that's helpful no

168
00:14:25,240 --> 00:14:30,560
that's helpful thank you so your honor truck to the second workstream for this

169
00:14:30,560 --> 00:14:36,720
case it's the 98f wallet recovery effort that is also well underway to locate

170
00:14:36,720 --> 00:14:42,040
either the hardware devices or the seed phrases that are missing and this

171
00:14:42,040 --> 00:14:45,400
includes discovery that we will be taking of former employees and

172
00:14:45,400 --> 00:14:49,600
management who are no longer with the company your honor we have already sent

173
00:14:49,600 --> 00:14:53,160
letters out to a number of individuals requesting their voluntary compliance

174
00:14:53,160 --> 00:14:57,220
with 2004 a number of them have consented and we're still waiting to

175
00:14:57,220 --> 00:15:01,780
hear from others but my guess is that we will end up filing 2004 motions early

176
00:15:01,780 --> 00:15:05,480
next week for those who are not willing to comply but that process is already

177
00:15:05,480 --> 00:15:12,200
well underway third year on her is investigating and pursuing claims

178
00:15:12,200 --> 00:15:17,200
including avoidance actions just for context there was around 900 million

179
00:15:17,200 --> 00:15:21,320
dollars worth of transfers out of the state that occurred during the 90 day

180
00:15:21,320 --> 00:15:25,480
preference period so those are certainly actions that we're going to be

181
00:15:25,480 --> 00:15:29,560
investigating along with other types of claims that you would officially

182
00:15:29,560 --> 00:15:35,440
investigate in a chapter 11 case given the circumstances your honor that's all

183
00:15:35,440 --> 00:15:41,800
I have unless you have any questions I'd like to turn to the agenda before I turn

184
00:15:41,800 --> 00:15:45,600
things over to mr. Steinman and ms. Candice Dean to present the first days

185
00:15:45,600 --> 00:15:49,840
I'd like to suggest to the court that we take up the pleading filed by Polaris

186
00:15:49,840 --> 00:15:54,760
ventures a couple of hours ago at docket number 30 it's seemingly an objection to

187
00:15:54,760 --> 00:15:58,680
all of our first days at least I think it is candidly I'm not really sure what

188
00:15:58,680 --> 00:16:03,600
they are asking it seems like they maybe are trying to convert today's hearing to

189
00:16:03,600 --> 00:16:08,880
an interim interim hearing as opposed to what is done in every other case which

190
00:16:08,880 --> 00:16:12,960
is an interim hearing followed by a second day hearing but in any event if

191
00:16:12,960 --> 00:16:17,280
your honor agrees with tackling that now maybe we can hear that objection and

192
00:16:17,280 --> 00:16:20,320
then I can serve some additional thoughts in response but I defer to your

193
00:16:20,320 --> 00:16:26,920
honor and how you'd like to proceed thank you your honor Mike bester for the

194
00:16:26,920 --> 00:16:36,960
record am I echoing no no thank you thank you oh wait you are that's okay

195
00:16:37,720 --> 00:16:45,800
can you hear me okay thank you honor so we were upset Polaris ventures owed in

196
00:16:45,800 --> 00:16:50,960
excess of 30 million dollars in this case and my clients concern here is that

197
00:16:50,960 --> 00:16:56,200
the debtor right now as admitted by counsel is a steward for unsecured

198
00:16:56,200 --> 00:17:03,040
creditors the cashier is is for unsecured creditors what we have here and it would

199
00:17:03,040 --> 00:17:08,240
have in a normal case is they would have filed their first days on the day they

200
00:17:08,240 --> 00:17:14,040
filed on August on August 14 you would have had a hearing left

201
00:17:14,040 --> 00:17:22,600
what happened they filed their pleadings yesterday afternoon we're here on a

202
00:17:22,600 --> 00:17:28,040
Friday afternoon several days after the you know do the math 11 days after the

203
00:17:28,040 --> 00:17:36,920
filing at a first day hearing and our concern is that first of all that is on

204
00:17:36,920 --> 00:17:40,720
your goal but second thinking a second day here in which I just heard for the

205
00:17:40,720 --> 00:17:45,800
first time on on September 19 so what they're seeking to do here is run this

206
00:17:45,800 --> 00:17:52,720
case for more than five weeks without any input or opportunities for creditors

207
00:17:52,720 --> 00:17:59,520
who are really are entitled to the cash that's in the estate any opportunity to

208
00:17:59,520 --> 00:18:04,800
weigh in for five weeks so

209
00:18:07,880 --> 00:18:13,680
your honor I think everyone's having trouble hearing mr. Nestor if that's if

210
00:18:13,680 --> 00:18:23,200
that's what you're all in court is that it you're coming in and out like I've

211
00:18:23,200 --> 00:18:28,360
never is that is this better yes I've never had any trouble hearing you until

212
00:18:28,360 --> 00:18:40,600
today is this better or no yes thank you so your honor here's where we stand the

213
00:18:40,600 --> 00:18:47,000
case was filed 11 days ago the first days weren't filed until yesterday so is

214
00:18:47,000 --> 00:18:50,040
it is it strange to have a first day hearing that after you file the

215
00:18:50,040 --> 00:18:56,360
pleadings no is it strange and and not normal to have the first day hearing you

216
00:18:56,360 --> 00:19:01,960
know 11 or 12 days after you file the case yes so our request is really very

217
00:19:01,960 --> 00:19:07,200
simple the only disbursements that we believe that should be made from this

218
00:19:07,200 --> 00:19:14,520
estate are those that are absolutely necessary to avoid irreparable harm and

219
00:19:14,520 --> 00:19:17,920
we believe and mr. Kutiya maybe can weigh in with respect to when a

220
00:19:17,920 --> 00:19:22,240
formation meeting would be held but we believe that he's close to forming a

221
00:19:22,240 --> 00:19:26,760
committee and all we're asking your honor is to come back can you guys hear

222
00:19:26,760 --> 00:19:31,840
me or no yes yeah it's just to come back the end of next week after our

223
00:19:31,840 --> 00:19:36,720
committees instead of coming back three weeks from now or more is to come back

224
00:19:36,720 --> 00:19:40,280
next week the end of next week have a committee weighing on the pleadings to

225
00:19:40,280 --> 00:19:45,960
relieve the operations and have a voice in the case sometime sooner than five

226
00:19:45,960 --> 00:19:51,680
plus weeks into the case so that's that's what we're asking for judge and

227
00:19:51,680 --> 00:19:55,840
it is an interim interim hearing but the interim interim hearing is not the fault

228
00:19:55,840 --> 00:19:59,640
of unsecured creditors it's the fact that and I'm not describing any blame

229
00:19:59,640 --> 00:20:03,600
but it's the fact that the debtor didn't file with pleadings until you know 12

230
00:20:03,600 --> 00:20:09,680
days after the petition date so we're here we are where we are but ordinarily

231
00:20:09,680 --> 00:20:13,080
the second day here would be next week and the obscure creditors be able to

232
00:20:13,080 --> 00:20:17,400
weigh in and we'd have an opportunity to be heard what the debtors seeking to do

233
00:20:17,400 --> 00:20:20,800
is go five plus weeks into the case spent more than six million dollars

234
00:20:20,800 --> 00:20:24,720
without any input from obscure creditors and I don't know why they

235
00:20:24,720 --> 00:20:30,320
wouldn't agree to that and that that's our if that if the debtor will limit

236
00:20:30,320 --> 00:20:35,840
and let your honor know specifically what needs to be spent now and confirm

237
00:20:35,840 --> 00:20:41,040
that nothing pre-petition has been spent to date and will agree to come back a

238
00:20:41,040 --> 00:20:49,240
week from now then our objections resolve your honor the relief we are

239
00:20:49,240 --> 00:20:52,840
speaking today is nothing more than a traditional relief sought in every

240
00:20:52,840 --> 00:20:58,440
chapter 11 case that shows up in your court yes it costs money to run a

241
00:20:58,440 --> 00:21:01,520
chapter 11 case but that is within the business judgment of the debtors to

242
00:21:01,520 --> 00:21:06,120
decide as I mentioned earlier there is a special or structuring committee

243
00:21:06,120 --> 00:21:10,560
comprised of completely independent professionals that have no incentive

244
00:21:10,560 --> 00:21:15,280
other than to maximize value for creditors in this case in every chapter

245
00:21:15,280 --> 00:21:19,320
11 case you can say that the available funds for creditors in the short term

246
00:21:19,320 --> 00:21:24,360
goes down as administrative expenses accrue this case is no different this

247
00:21:24,360 --> 00:21:28,400
objection is really an attempt by one creditor to substitute its business

248
00:21:28,400 --> 00:21:32,760
judgment for the debtors and they haven't introduced any other evidence to

249
00:21:32,760 --> 00:21:36,760
support their objection there will be a second day hearing at which the

250
00:21:36,760 --> 00:21:41,480
committee can raise issues of final orders over if the committee or frankly

251
00:21:41,480 --> 00:21:46,080
any creditor has a more pressing issue in three days in a week they can come to

252
00:21:46,080 --> 00:21:49,560
this court for emergency relief to modify any of the orders that are for

253
00:21:49,560 --> 00:21:55,240
today your honor more substantively the amount of pre-petition payments that we

254
00:21:55,240 --> 00:21:59,040
are asking approval for today is relatively small I can walk through it

255
00:21:59,040 --> 00:22:03,920
if you'd like and we can certainly go line by line for every motion I think

256
00:22:03,920 --> 00:22:07,080
it's something like less than two I would like to know that because I think

257
00:22:07,080 --> 00:22:13,200
that the budget that's been presented that suggests for example two point

258
00:22:13,200 --> 00:22:17,440
three million going to debtors professionals in the first five weeks and

259
00:22:17,440 --> 00:22:22,720
120,000 going to a committee in the first five weeks I'm not sure how that

260
00:22:22,720 --> 00:22:29,720
plays what with what is actually reasonable and necessary for an interim

261
00:22:29,720 --> 00:22:33,880
period and I also want to hear from mr. Kudia when he thinks the committee is

262
00:22:33,880 --> 00:22:37,680
going to get appointed in this case so if I can hear from mr. Kudia first and

263
00:22:37,680 --> 00:22:41,400
then I'll come back to the debtors and you can walk through what's actually

264
00:22:41,400 --> 00:22:47,000
needed because that would probably help mr. Nestor as well good afternoon your

265
00:22:47,000 --> 00:22:54,280
honor Joseph Kudia for the United States trustee yes the committee formation has

266
00:22:54,280 --> 00:22:59,280
been ongoing we did solicit the top 50 creditors and we have we have already

267
00:22:59,280 --> 00:23:05,680
started that there was a substantial number of bounce backs of emails so the

268
00:23:05,680 --> 00:23:10,520
response date has slipped past our original date of Wednesday this past

269
00:23:10,520 --> 00:23:16,160
Wednesday at this point my best estimate of for committee formation is Monday

270
00:23:16,160 --> 00:23:20,120
possibly slipped to Tuesday but I'm going to try everything I can to get it

271
00:23:20,120 --> 00:23:30,720
formed on Monday and it is Monday the 28th okay thank you so if I can hear for

272
00:23:30,720 --> 00:23:38,480
the debtors can you tell us what is absolutely necessary with respect and we

273
00:23:38,480 --> 00:23:43,800
can either go through each motion or I mean here's my concern if you have a

274
00:23:43,800 --> 00:23:52,040
committee that's for Monday or Tuesday I'm not sure what frankly I only have

275
00:23:52,040 --> 00:23:58,400
availability on Wednesday or Thursday so I'm not sure what is going to be able to

276
00:23:58,400 --> 00:24:03,560
be accomplished in those two days and I'm not available at all the following

277
00:24:03,560 --> 00:24:09,660
week so it would make sense to me that the debtors communicate with the

278
00:24:09,660 --> 00:24:14,200
committee once it's formed and if the committee once come in for an emergency

279
00:24:14,200 --> 00:24:19,840
hearing I would entertain that absolutely and we'd be happy to do that

280
00:24:19,840 --> 00:24:26,200
as well before we decide how we want to go through the line items I think that

281
00:24:26,200 --> 00:24:30,880
mr. Nestor is asking for something far more than that I think he's asking for

282
00:24:30,880 --> 00:24:35,160
no disbursements post petition to be made even if in the ordinary course of

283
00:24:35,160 --> 00:24:38,880
business but as your honor knows there's no authority needed to continue to make

284
00:24:38,880 --> 00:24:42,920
post-prediction payments in the ordinary course of business so I think mr.

285
00:24:42,920 --> 00:24:46,920
Nestor's objection unless you'd like to correct my understanding which is fine

286
00:24:46,920 --> 00:24:52,280
is that he doesn't want a dollar flowing out even for ordinary course expenses

287
00:24:52,280 --> 00:24:57,520
like monthly licensing fees to host the wallets that hold crypto that is going

288
00:24:57,520 --> 00:25:01,640
to be distributed to customers in this case so again I don't I don't think that

289
00:25:01,640 --> 00:25:06,120
even requires court approval it's ordinary course so maybe mr. Nestor can

290
00:25:06,120 --> 00:25:10,960
clarify if he's only questioning pre petition payments which is certainly

291
00:25:10,960 --> 00:25:14,000
welcome to and we think what we will walk the court through them and he's

292
00:25:14,000 --> 00:25:17,820
welcome to probe those or if he's asking for much more broader relief for the

293
00:25:17,820 --> 00:25:22,960
court to prevent the debtors from the ordinary course payables post-pedition

294
00:25:22,960 --> 00:25:27,120
thank you and I obviously never said that I never said I was it I said I was

295
00:25:27,120 --> 00:25:32,720
what we said was those payments that absolutely had to be made pending

296
00:25:32,720 --> 00:25:36,920
formation of a committee and another hearing before this court and your honor

297
00:25:36,920 --> 00:25:42,240
pointed out that the same issues that I had no it's it you know first of all no

298
00:25:42,240 --> 00:25:46,200
retention applications have even been filed in this case so in the budget you

299
00:25:46,200 --> 00:25:52,600
have you know professional fees of for the debtors professionals one two three

300
00:25:52,600 --> 00:25:57,880
four two to three million dollars over the first six weeks 1.5 million through

301
00:25:57,880 --> 00:26:02,680
next week you have ordinary course professionals no motions been filed no

302
00:26:02,680 --> 00:26:04,960
we don't even know if there are professionals at this point and the

303
00:26:04,960 --> 00:26:08,360
timeline hasn't even run obviously because they haven't been filed on an

304
00:26:08,360 --> 00:26:12,800
objection period let alone declarations and whatnot so we're not we're not our

305
00:26:12,800 --> 00:26:17,280
statement doesn't relate to those things that are necessary to operate the

306
00:26:17,280 --> 00:26:20,240
company through and you and they'll make the record as to what's necessary

307
00:26:20,240 --> 00:26:24,560
that's their burden not mine but there are things I don't know what's happening

308
00:26:24,560 --> 00:26:28,160
with the better professional but is it being escrowed if it's just an accrual

309
00:26:28,160 --> 00:26:33,920
subject to further order of the court no problem if they're taking it out of the

310
00:26:33,920 --> 00:26:37,760
estate and putting it into an escrow account or something like that then I

311
00:26:37,760 --> 00:26:42,080
think we have a problem so that's it your honor I never said that it was that

312
00:26:42,080 --> 00:26:47,320
it was a an issue of no dollars go out of the estate it's it's only ensuring

313
00:26:47,320 --> 00:26:51,400
that that which has to be paid is paid

314
00:26:51,400 --> 00:27:01,680
and I think that's um I think part of this is there's a budget but I don't

315
00:27:01,680 --> 00:27:08,280
know how this budget is prepared I don't know if this is an accrual or these are

316
00:27:08,280 --> 00:27:13,280
estimates but they're not the money is not being escrowed or if all you're

317
00:27:13,280 --> 00:27:22,760
seeing and seeking in the interim period is what's set forth in the motions your

318
00:27:22,760 --> 00:27:27,160
honor all we're seeking today is what's set forth in the motions the budget this

319
00:27:27,160 --> 00:27:32,760
is an odd case it's not entirely unusual but for crypto cases it's actually quite

320
00:27:32,760 --> 00:27:36,800
usual they don't have funded debt so typically in every other case where you

321
00:27:36,800 --> 00:27:40,280
have some funded debt you'll you'll often see the budget attached to a cash

322
00:27:40,280 --> 00:27:45,560
collateral or dip or the right we wanted to be transparent to show our creditors

323
00:27:45,560 --> 00:27:51,080
our constituencies your honor everyone what the budget is looking like for this

324
00:27:51,080 --> 00:27:55,200
case we're not asking for approval to pay any professional fees today of

325
00:27:55,200 --> 00:27:58,440
course not there are retention applications that need to be filed there

326
00:27:58,440 --> 00:28:01,880
are monthly fee statements that need to be filed I don't think there's any

327
00:28:01,880 --> 00:28:06,600
question that all we're asking for here is one to pay certain pre-petition

328
00:28:06,600 --> 00:28:09,960
payments which will walk through and two to continue operating the ordinary

329
00:28:09,960 --> 00:28:13,560
course of business and which includes making certain payments that are in the

330
00:28:13,560 --> 00:28:16,860
ordinary course of business so I think what I'm hearing from mr. Nestor is that

331
00:28:16,860 --> 00:28:21,960
he'd like for us to walk through line items of pre-petition payments and he's

332
00:28:21,960 --> 00:28:25,880
not contesting the state's ability to pay anything close petition that's in

333
00:28:25,880 --> 00:28:29,200
the ordinary course and that we're we came prepared to do that today so we're

334
00:28:29,200 --> 00:28:31,320
happy to do it

335
00:28:31,320 --> 00:28:40,120
thank you your honor David force ranks all the neutral LLP at the behalf of

336
00:28:40,120 --> 00:28:45,400
Cato money one of the top 30 creditors in this case your honor I'm afraid we

337
00:28:45,400 --> 00:28:49,640
haven't yet put a prohoc application on file or obtain local council not the

338
00:28:49,640 --> 00:28:54,800
last man please be heard on matters for today yes thank you very much your honor

339
00:28:54,800 --> 00:29:00,200
your honor I wanted to chime in to provide perhaps a little bit sports to

340
00:29:00,200 --> 00:29:04,880
mr. Dester as well as mr. Asim and we certainly think that this company

341
00:29:04,880 --> 00:29:10,200
should be in bankruptcy if any company could benefit from the automatic stay it

342
00:29:10,200 --> 00:29:16,000
might be this one however there are very limited funds available and as mr.

343
00:29:16,000 --> 00:29:20,600
Nestor noted the funds the budget is extremely aggressive it's not at all

344
00:29:20,600 --> 00:29:24,680
clear talking about operations in the ordinary course what actual operations

345
00:29:24,680 --> 00:29:32,000
are going on today so certainly we support payment of rent rental fees

346
00:29:32,000 --> 00:29:36,440
necessary to maintain equipment and even pre petition wages to the extent that

347
00:29:36,440 --> 00:29:39,680
that would be helpful to the sales effort and we support that the debtor

348
00:29:39,680 --> 00:29:43,160
should have an opportunity to attempt to sell its assets is going to serve

349
00:29:43,160 --> 00:29:47,480
however to the extent that this ice cube has already melted perhaps creditors

350
00:29:47,480 --> 00:29:51,800
would be better off in some other type of structure and that's something that

351
00:29:51,800 --> 00:29:55,600
the committee if and when it's formed especially early next week would be best

352
00:29:55,600 --> 00:30:00,120
able to chime in on whether that's the investigation or not but I know that

353
00:30:00,120 --> 00:30:04,120
this investigation seems to have commenced by the debtors more than a

354
00:30:04,120 --> 00:30:09,080
year ago there's nothing maybe there's stuff going on behind the scenes but

355
00:30:09,080 --> 00:30:12,000
certainly there's little reason to assume that the next couple of weeks

356
00:30:12,000 --> 00:30:17,400
will be crucial for the committee the bottom line I guess is we've managed to

357
00:30:17,400 --> 00:30:23,960
keep the situation as is for 10 days up to this point to the extent that minimal

358
00:30:23,960 --> 00:30:28,640
cash expenditures would suffice to allow the debtor to maintain in this state of

359
00:30:28,640 --> 00:30:33,080
limbo a committee can be formed way in certainly that's something cattle would

360
00:30:33,080 --> 00:30:39,720
support thank you thank you okay mr. Asman with that I think you should

361
00:30:39,720 --> 00:30:44,720
proceed through your motions obviously subject to anyone's right to object as

362
00:30:44,720 --> 00:30:50,080
you proceed okay thank you your honor I'm gonna turn things over to my partner

363
00:30:50,080 --> 00:30:57,640
Greg Steinman good afternoon your honor good afternoon Greg Simon Greg Simon and

364
00:30:57,640 --> 00:31:00,120
we thermal will and I'm re on behalf of the debtors thank you for letting me

365
00:31:00,120 --> 00:31:04,680
appear prohok B J miss Candice and and I are going to be handling the first day

366
00:31:04,680 --> 00:31:08,480
motions but the matters that we're handling aren't in consecutive order in

367
00:31:08,480 --> 00:31:11,600
the agenda it's all right with your honor I think it'd be more efficient for

368
00:31:11,600 --> 00:31:15,000
me to handle all the motions I'm handling and then turn the podium over

369
00:31:15,000 --> 00:31:19,040
to miss Candice and so that we don't we're not switching off okay that's fine

370
00:31:19,040 --> 00:31:26,040
just make sure you identify what's your yes your honor thank you the first

371
00:31:26,040 --> 00:31:29,280
motion I'll address is the joint administration motion which is number

372
00:31:29,280 --> 00:31:34,320
one on the agenda this is a procedural motion for administrative efficiency and

373
00:31:34,320 --> 00:31:36,800
we're asking that the cases be administered under prime court

374
00:31:36,800 --> 00:31:42,880
technologies Inc case number 2311161 unless your honor has any questions we

375
00:31:42,880 --> 00:31:47,360
respectfully request that the motion be granted does anyone wish to be heard

376
00:31:47,360 --> 00:31:53,960
with respect to the joint administration motion okay I hear no one I've reviewed

377
00:31:53,960 --> 00:31:58,160
the motion the relief salt is ministerial in nature and appropriate so I

378
00:31:58,160 --> 00:32:04,280
will enter the order I had one modification but I understand the word

379
00:32:04,280 --> 00:32:09,400
exclusive has been struck it stricken from before jurisdiction and uploaded is

380
00:32:09,400 --> 00:32:19,280
that correct yes your honor okay I'll enter the order the next motion your

381
00:32:19,280 --> 00:32:25,640
honor utilities motion which is the fourth item on the agenda through this

382
00:32:25,640 --> 00:32:32,120
motion sorry your honor through this motion that there's a seeking

383
00:32:32,120 --> 00:32:36,080
authority to prohibit utilities from altering or using or discontinuing

384
00:32:36,080 --> 00:32:39,840
services under certain circumstances and establishing procedures for

385
00:32:39,840 --> 00:32:44,520
determining adequate assurance of payment for future utility services the

386
00:32:44,520 --> 00:32:48,520
12-month running average for utilities for the debtors is around $200,000 per

387
00:32:48,520 --> 00:32:53,360
month as adequate assurance we propose depositing about half of the monthly

388
00:32:53,360 --> 00:32:57,640
spend into an a segregated account and the proposed order establishes

389
00:32:57,640 --> 00:33:02,000
procedures whereby utility companies can request additional adequate assurance

390
00:33:02,000 --> 00:33:05,960
and the debtors can negotiate with them if necessary we think these procedures

391
00:33:05,960 --> 00:33:10,000
will be helpful as we navigate through chapter 11 there were certain comments

392
00:33:10,000 --> 00:33:14,120
we received from the USTC's office which having incorporated into the orders

393
00:33:14,120 --> 00:33:17,240
that we submitted to your honor and unless you have any questions we

394
00:33:17,240 --> 00:33:21,200
request that that motion be granted as well let me ask the orders that are in

395
00:33:21,200 --> 00:33:26,920
the binder that was delivered to the court do they contain the United States

396
00:33:26,920 --> 00:33:35,880
trustees changes I yeah I believe that they do I think the only the ones that

397
00:33:35,880 --> 00:33:40,280
were submitted to the court have the the removal of exclusive jurisdiction I

398
00:33:40,280 --> 00:33:45,120
think that's the only chain okay does anyone wish to be heard with respect to

399
00:33:45,120 --> 00:33:47,960
utilities motion

400
00:33:47,960 --> 00:34:00,320
for Bittrex Inc we don't really have an objection I have a reservation of

401
00:34:00,320 --> 00:34:04,240
rights to make it applies to all the motions but I think since payments

402
00:34:04,240 --> 00:34:10,920
couldn't be made with this one it works just as well to say it now so just by

403
00:34:10,920 --> 00:34:15,600
way of a very brief background Bittrex Inc operated a US cryptocurrency

404
00:34:15,600 --> 00:34:21,560
exchange it's currently in possession in the case pending for this district so

405
00:34:21,560 --> 00:34:26,600
Bittrex Inc holds two counts at prime I've spoken with the address council and

406
00:34:26,600 --> 00:34:30,480
we understand that the funds and customer accounts are not going to use

407
00:34:30,480 --> 00:34:33,760
to make any interim payments without understanding we don't have any

408
00:34:33,760 --> 00:34:41,280
objections to the first day motions but we just want to reserve our rights in

409
00:34:41,280 --> 00:34:47,440
case this issue comes up again in these cases your honor real brief yeah your

410
00:34:47,440 --> 00:34:51,200
honor real briefly Darren Asman again proposed account to the debtors we have

411
00:34:51,200 --> 00:34:57,080
proposed language that we circulated this is not an issue that only council

412
00:34:57,080 --> 00:35:00,800
has raised other creditors councils have also council has also raised the same

413
00:35:00,800 --> 00:35:05,280
issue we circulated some language to some folks I don't know that I don't

414
00:35:05,280 --> 00:35:08,720
know if I've gotten it out to Quinn Emanuel yet but essentially on the cash

415
00:35:08,720 --> 00:35:14,080
management order we're going to include a provision that let me just pull it up

416
00:35:14,080 --> 00:35:17,400
so I can read it into the record and folks can and we're not at the cash

417
00:35:17,400 --> 00:35:21,760
management order yet but I agree it does apply to all of them really just a

418
00:35:21,760 --> 00:35:29,360
moment so now what's standing anything to the contrary in this order then this

419
00:35:29,360 --> 00:35:34,560
order cash management order the debtors shall not use funds from customer

420
00:35:34,560 --> 00:35:39,160
accounts customer accounts is a defined term to honor any pre-pedition obligations

421
00:35:39,160 --> 00:35:43,800
or pay for any post-pedition obligations absent further order of the court and

422
00:35:43,800 --> 00:35:46,680
then there's a second sentence for reservation of rights all parties reserved

423
00:35:46,680 --> 00:35:50,400
rights are reserved regarding whether and to what extent any funds or other

424
00:35:50,400 --> 00:35:54,880
property are held by a debtor in trust or constitute property of the debtors of

425
00:35:54,880 --> 00:36:03,760
states so I don't know folks want to let me know now if that's the language works

426
00:36:03,760 --> 00:36:15,080
to them or comments yeah I can speak with mr. Asman after the victory that

427
00:36:15,080 --> 00:36:19,360
sounds generally fine but the devil isn't the details obviously with the

428
00:36:19,360 --> 00:36:25,920
definition custom account that sort of thing but in broad terms that seems okay

429
00:36:25,920 --> 00:36:32,920
anyone else miss McLaughlin Smith good afternoon your honor I apologize for my

430
00:36:32,920 --> 00:36:37,840
camera setup first time at this desk so I apologize for not looking directly into

431
00:36:37,840 --> 00:36:42,480
the camera Marcine McLaughlin Smith of Chapman Pepper Hamilton Sanders on

432
00:36:42,480 --> 00:36:47,840
behalf of anchor coin LLC we did discuss prior to the hearing we received the

433
00:36:47,840 --> 00:36:51,760
language that debtors council just rubbed into the record we did have some

434
00:36:51,760 --> 00:36:55,840
additional comments as to that I don't know if you would like me to talk about

435
00:36:55,840 --> 00:37:00,360
them now or wait for the cash management I'm happy to do either can we wait to

436
00:37:00,360 --> 00:37:08,320
the cash management of course your honor is there anybody who wants to be heard

437
00:37:08,320 --> 00:37:13,760
further with respect to utilities subject to any language in the cash

438
00:37:13,760 --> 00:37:19,600
management order okay let me I will question with respect to utilities the

439
00:37:19,600 --> 00:37:25,640
Western Alliance Bank that's going to hold the deposit is that a UDA bank yes

440
00:37:25,640 --> 00:37:34,040
your honor okay does anyone want to be heard on this motion I want to make sure

441
00:37:34,040 --> 00:37:37,240
I'm not missing people because some people are raising their hands I don't

442
00:37:37,240 --> 00:37:41,280
see any hands that I don't hear anyone I have reviewed the motion of the proposed

443
00:37:41,280 --> 00:37:46,200
order I'm satisfied based on the record presented the relief is appropriate the

444
00:37:46,200 --> 00:37:50,920
proposed procedures are reasonable and consistent with procedures routinely

445
00:37:50,920 --> 00:37:55,280
granted in this district I'm also satisfied debtors have shown immediately

446
00:37:55,280 --> 00:37:58,840
irreparable harm would result if the relief isn't granted so I'm going to

447
00:37:58,840 --> 00:38:05,440
enter the interim order with modifications I see that the second day

448
00:38:05,440 --> 00:38:12,320
hearing has been included this is more of a comment in paragraph 6 it addresses

449
00:38:12,320 --> 00:38:17,320
the reduction of the utility deposit for discontinuance of the utility service

450
00:38:17,320 --> 00:38:24,800
but I would also like the final order to reflect that any in additional utilities

451
00:38:24,800 --> 00:38:34,000
added to list that there will also be an increase in the deposit in paragraph 11

452
00:38:36,680 --> 00:38:43,360
the first line I would ask that you strike the word in directed I'll

453
00:38:43,360 --> 00:38:47,360
authorize it but I'm not going to direct third parties who aren't before me on

454
00:38:47,360 --> 00:38:55,160
the issue and with those modifications I'll enter the order thank you your

455
00:38:55,160 --> 00:38:59,120
honor we'll make those modifications and submit a revised order to the court

456
00:38:59,120 --> 00:39:05,840
thank you the next motion is the insurance motion which is the sixth

457
00:39:05,840 --> 00:39:10,640
matter on the agenda the debtors are seeking authority to keep their

458
00:39:10,640 --> 00:39:14,200
insurance policies in coverage as well as their surety bond program in place

459
00:39:14,200 --> 00:39:18,200
in the ordinary course the debtors currently have non insurance policies and

460
00:39:18,200 --> 00:39:23,120
no insurance premium financing the list of insurance policies policy numbers

461
00:39:23,120 --> 00:39:30,320
terms and premiums is attached to the motion as you get it see we're seeking

462
00:39:30,320 --> 00:39:33,840
authority on an interim basis to pay any pre-petition obligations under those

463
00:39:33,840 --> 00:39:38,600
policies up to $18,000 on an interim basis just to provide a little bit more

464
00:39:38,600 --> 00:39:41,840
detail about that given the conversations earlier in the hearing

465
00:39:41,840 --> 00:39:47,080
that's with respect to the debtors property and casualty insurance premium

466
00:39:47,080 --> 00:39:52,440
the debtors also have 23 surety bonds the debtors are required to maintain

467
00:39:52,440 --> 00:39:55,800
these bonds in the ordinary course of business or to into various state

468
00:39:55,800 --> 00:40:00,600
regulations the list of surety bonds the relevant state the bond amount and the

469
00:40:00,600 --> 00:40:04,560
bond premium is attached to the motion as exhibit D we do not believe that at

470
00:40:04,560 --> 00:40:08,400
this time there are any amounts any pre-petition amounts do on the sherry

471
00:40:08,400 --> 00:40:13,720
bonds in the interim period unless your honor has any questions we'd ask that

472
00:40:13,720 --> 00:40:21,760
that motion be granted does anyone want to be heard on the insurance motion

473
00:40:21,760 --> 00:40:28,560
just before thank you your honor I'm not sure I didn't have the opportunity to

474
00:40:28,560 --> 00:40:33,120
clarify this issue before the hearing we were working on a few other matters but

475
00:40:33,120 --> 00:40:38,560
your honor the exhibit seats and insurance motion identifies multiple

476
00:40:38,560 --> 00:40:45,040
policies that care to be expiring on September 4th and this with about 1.5

477
00:40:45,040 --> 00:40:51,080
million in premiums associated with that this goes to the point made earlier

478
00:40:51,080 --> 00:40:54,600
about the status of these cases and the need for the committee to weigh in on

479
00:40:54,600 --> 00:40:59,360
the proper path for these cases to next some of these items certainly should

480
00:40:59,360 --> 00:41:03,600
continue others perhaps not depending on what path the case goes and whether this

481
00:41:03,600 --> 00:41:07,880
is going to be an operating chapter 11 to the extent I understand that the

482
00:41:07,880 --> 00:41:13,800
request was for $18,000 in interim relief the cardo has no objection to that to

483
00:41:13,800 --> 00:41:18,440
the extent that the request is somehow by implication allowing the expenditure of

484
00:41:18,440 --> 00:41:22,480
1.5 million to renew these policies no doubt at higher premiums now that we're

485
00:41:22,480 --> 00:41:28,200
in bankruptcy I suppose the cargo is objective to that at this point your

486
00:41:28,200 --> 00:41:36,680
honor I'm happy to address that issue and I apologize that this was not

487
00:41:36,680 --> 00:41:42,440
articulated in the motion but those policies are expiring but they've been

488
00:41:42,440 --> 00:41:48,680
effectively replaced by the exact same type of policy and policy limits which

489
00:41:48,680 --> 00:41:53,960
are the receivership the policies that are noted receivership DNO which were

490
00:41:53,960 --> 00:42:00,560
paid pre petition and do not expire until July of 2024 so for purposes of

491
00:42:00,560 --> 00:42:05,040
disclosure because we still have policies in place that don't expire for a

492
00:42:05,040 --> 00:42:09,560
week we included them on this exhibit but the fact that those policies expire

493
00:42:09,560 --> 00:42:13,120
well will not have any detriment to the debtors of the estate because they've

494
00:42:13,120 --> 00:42:19,320
effectively been renewed through a new policy and there's no funds owing with

495
00:42:19,320 --> 00:42:25,720
respect with respect to the receiver receivership DNO policy is that correct

496
00:42:25,720 --> 00:42:29,800
that's correct your honor mr. force does that respond to your

497
00:42:29,800 --> 00:42:35,840
inquiry thank you very much for the clarification thank you does anyone else

498
00:42:35,840 --> 00:42:41,760
wish to be heard regarding the insurance motion of the proposed formal border

499
00:42:42,600 --> 00:42:48,360
I've reviewed the motion I'm satisfied based on the record that the relief is

500
00:42:48,360 --> 00:42:54,360
necessary required by our rules and procedures and is customary so I will

501
00:42:54,360 --> 00:43:02,440
enter the interim order thank you your honor just one second because I'm some

502
00:43:02,440 --> 00:43:10,400
of the orders that I had in front of me are a little different than what was

503
00:43:10,400 --> 00:43:21,520
actually which will file so paragraph 3 of this order refers to this final order

504
00:43:21,520 --> 00:43:26,240
in the next to last line of the paragraph

505
00:43:26,240 --> 00:43:41,120
do you see where I'm referring to did you say paragraph 3 yes the next to last

506
00:43:41,120 --> 00:43:45,760
line it says and do a payable and this final order shall not be deemed allow

507
00:43:45,760 --> 00:43:53,520
think that should be interim yes I see to the extent that that hasn't already

508
00:43:53,520 --> 00:43:57,440
been fixed on the ones that we uploaded will fix it and upload another order

509
00:43:57,440 --> 00:44:00,800
yeah because I didn't see this particular one uploaded but and then the

510
00:44:00,800 --> 00:44:08,440
other question I have is paraf for deals with straddle taxes is that necessary in

511
00:44:08,440 --> 00:44:16,800
the center of mortar oh I'm sorry I skipped ahead I think that's in the

512
00:44:16,800 --> 00:44:25,000
taxes motion yeah I'm sorry I skipped ahead sorry all right so when I don't

513
00:44:25,000 --> 00:44:32,800
see that it's uploaded though the order and it may well be sure we'll make sure

514
00:44:32,800 --> 00:44:42,080
to upload as soon as the soon as the okay great thank you the next motion is

515
00:44:42,080 --> 00:44:47,420
the cash management motion which is the eighth matter on the agenda as mr.

516
00:44:47,420 --> 00:44:52,360
Asman noted in his presentation the debtor ceased operations in June since

517
00:44:52,360 --> 00:44:56,280
then the cash management system has been simplified all the debtors accounts are

518
00:44:56,280 --> 00:45:01,040
held by debtor Prime Trust LLC the main operating account at the MO bank is

519
00:45:01,040 --> 00:45:05,320
being used to pay expenses and payroll it's our understanding that most if not

520
00:45:05,320 --> 00:45:08,920
all of the inner company transfers that currently occur in the ordinary course

521
00:45:08,920 --> 00:45:13,360
are the payment of payroll expenses by Prime Trust LLC for the benefit of

522
00:45:13,360 --> 00:45:17,360
debtor Prime Digital Prime Digital employees the debtors employees that live

523
00:45:17,360 --> 00:45:21,680
outside of Nevada Prime Trust employed the employees that live inside of

524
00:45:21,680 --> 00:45:26,240
Nevada through this motion the debtors are seeking authority to continue

525
00:45:26,240 --> 00:45:30,600
utilizing their centralized cash management system we're also seeking

526
00:45:30,600 --> 00:45:34,120
approval to pay certain pre petition obligations related to the cash

527
00:45:34,120 --> 00:45:41,240
management system we asked for an interim cap of $8,000 to provide a little

528
00:45:41,240 --> 00:45:47,160
bit more detail the actual amount of bank fees that we believe are

529
00:45:47,160 --> 00:45:53,480
outstanding is around $3,600 we added an extra cushion in case there are anything

530
00:45:53,480 --> 00:45:57,360
that was if there was anything that was discovered that we did not find in our

531
00:45:57,360 --> 00:46:05,440
review we're also asking the court to authorize the continued payment of bank

532
00:46:05,440 --> 00:46:09,320
fees in the ordinary course the use of the company's business forms and to

533
00:46:09,320 --> 00:46:13,200
continue to offer the intercompany transactions that I just noted and to

534
00:46:13,200 --> 00:46:16,920
the extent that we're not in compliance with bankruptcy code section 345 we

535
00:46:16,920 --> 00:46:21,600
request the 30-day extension to come into compliance we've received a number

536
00:46:21,600 --> 00:46:29,000
of informal and formal comments to this motion we initially received some

537
00:46:29,000 --> 00:46:32,440
comments from the US trustees office all of those have been incorporated in the

538
00:46:32,440 --> 00:46:37,320
orders that were submitted to your honor the other comments that we received mr.

539
00:46:37,320 --> 00:46:41,440
has been noted earlier when we've proposed language to most of the parties

540
00:46:41,440 --> 00:46:46,480
that have raised that issue we're happy to take that up now or we can continue

541
00:46:46,480 --> 00:46:51,000
to work with the parties after the hearing to finalize language to include

542
00:46:51,000 --> 00:46:55,520
in the order well let me ask does anyone wish to be heard regarding the motion

543
00:46:55,520 --> 00:47:01,600
proposed order your honor me and Deandrea on behalf of bemo Harris Bank

544
00:47:01,600 --> 00:47:05,360
your honor I am not licensed in Delaware and have not had the opportunity to

545
00:47:05,360 --> 00:47:10,120
obtain retain local council and get my prohoc on file however if I could be

546
00:47:10,120 --> 00:47:14,640
heard briefly certainly your honor we had the limited opportunity to review

547
00:47:14,640 --> 00:47:19,040
the proposed order in the motion we would reserve all of our rights we do

548
00:47:19,040 --> 00:47:22,880
object to the interim cap your honor there's certainly no cap on our clients

549
00:47:22,880 --> 00:47:28,560
liability in the event of a dishonored check that occurs so or other dishonored

550
00:47:28,560 --> 00:47:35,280
item so with that in mind we do object to the concept of the cap the $8,000 is

551
00:47:35,280 --> 00:47:48,360
the objection or the 3600 okay your honor we're happy to raise the cap to

552
00:47:48,360 --> 00:47:53,440
satisfy whatever concerns the bank has just based on our review of our records

553
00:47:53,440 --> 00:47:57,520
the only pre-condition obligations that we were that we were able to find is the

554
00:47:57,520 --> 00:48:06,800
thirty six hundred dollars in bank fees well I think given that this is a first

555
00:48:06,800 --> 00:48:11,240
day and the debtor has made an assessment I'm gonna allow the cap where

556
00:48:11,240 --> 00:48:15,440
it stands if there's an issue you can come in on an emergency basis and we'll

557
00:48:15,440 --> 00:48:24,560
address it is there anyone else who wants to be heard your honor Mike Nester

558
00:48:24,560 --> 00:48:28,640
again I just want to I want to be clear we spoke earlier am I echoing up I

559
00:48:28,640 --> 00:48:34,860
apologize for asking that repeated okay we rather than say this one we're okay

560
00:48:34,860 --> 00:48:37,840
to be half on the 19th and this one we're not I think what we'll do and

561
00:48:37,840 --> 00:48:42,880
obviously there's a committee formed yet but I think it's nice to say I think

562
00:48:42,880 --> 00:48:46,200
your honor said all rights of the committee are reserved with respect to

563
00:48:46,200 --> 00:48:50,760
any of these pleadings to seek your honors attention Wednesday or Thursday

564
00:48:50,760 --> 00:48:55,280
of next week so rather than appear on each motion and raise that point I think

565
00:48:55,280 --> 00:48:59,500
we'll just we'll deal with the general reservation of rights and hopefully we

566
00:48:59,500 --> 00:49:02,200
won't have to see you next week but at least we'll have the opportunity thank

567
00:49:02,200 --> 00:49:08,680
you okay are there any other comments with respect to the cash management

568
00:49:08,680 --> 00:49:14,480
motion I got one further item just with respect to the debtors requests to treat

569
00:49:14,480 --> 00:49:18,520
intercompany transfers as admin claims I think that's premature at this point in

570
00:49:18,520 --> 00:49:22,720
time your honor so I don't know that the debtors met the burden that those

571
00:49:22,720 --> 00:49:30,840
intercompany transfers should proceed as admin claims at this juncture your

572
00:49:30,840 --> 00:49:35,240
honor those are as noted the intercompany transfers are primarily

573
00:49:35,240 --> 00:49:40,880
related to payroll which would fall squarely within section 507 as an

574
00:49:40,880 --> 00:49:45,280
administrative claim that benefits the estate

575
00:49:49,600 --> 00:49:56,920
I'm looking for the provision bear with me a second can you point me to the

576
00:49:56,920 --> 00:50:25,200
paragraph in the order your honor

577
00:50:25,200 --> 00:50:30,280
sorry your honor Marissa Buckland Smith of Trump and pepper on behalf of anchor

578
00:50:30,280 --> 00:50:35,720
point again it is paragraph 10 and 11 we also had an objection to the inter

579
00:50:35,720 --> 00:50:39,160
company transfer authorization on an interim basis I didn't know if you want

580
00:50:39,160 --> 00:50:44,640
to jump in here or wait no I'm gonna address it all at once so if you have an

581
00:50:44,640 --> 00:50:52,560
issue please raise it now your honor we also would request on an interim basis

582
00:50:52,560 --> 00:50:57,360
intercompany transfers not be authorized to be paid whether that's a

583
00:50:57,360 --> 00:51:02,800
pre-petition or post-petition amount in this case obviously we've discussed a

584
00:51:02,800 --> 00:51:06,760
lot about the cash issues and there's a customer shortfall of 82 million dollars

585
00:51:06,760 --> 00:51:11,120
and the committee has yet to be appointed and specifically with the

586
00:51:11,120 --> 00:51:15,360
intercompany transaction or transfers I don't believe there was a disclosure in

587
00:51:15,360 --> 00:51:19,920
the motion of the total amount anticipated to be incurred on in this

588
00:51:19,920 --> 00:51:24,000
interim period or an amount of the pre-petition intercompany transfers that

589
00:51:24,000 --> 00:51:27,920
have been incurred or any interim cap amount and so those would be our

590
00:51:27,920 --> 00:51:31,080
objections as well to the payment of intercompany transfers on an interim

591
00:51:31,080 --> 00:51:42,200
basis your honor I'm happy to propose a resolution certainly we proposed just to

592
00:51:42,200 --> 00:51:51,560
limit the authorization to intercompany transfers that relate to payroll payroll

593
00:51:51,560 --> 00:51:56,120
is obviously it's very necessary in this case and the ordinary course prime trust

594
00:51:56,120 --> 00:52:01,960
LLC pays for employees that are actually employed by debtor prime digital

595
00:52:01,960 --> 00:52:06,400
without the authority to pay those we were not going to be able to pay our

596
00:52:06,400 --> 00:52:11,480
employees but I'm happy to limit intercompany transactions to to just

597
00:52:11,480 --> 00:52:17,520
that relief in order to resolve any concern to the parties

598
00:52:20,280 --> 00:52:27,160
save anyone on an interim basis your honor Marcy McLaughlin spent again for

599
00:52:27,160 --> 00:52:31,400
the record we didn't have an objection to the interim wage motion so if this

600
00:52:31,400 --> 00:52:35,040
relief is tying into that with respect to payroll I don't believe we have a

601
00:52:35,040 --> 00:52:40,840
further objection okay I'm gonna overrule the objections and allow it on

602
00:52:40,840 --> 00:52:51,880
a limited basis and on an interim basis limited to payroll with respect to the

603
00:52:51,880 --> 00:52:56,800
form of order say anybody else have any further comments before I make some

604
00:52:56,800 --> 00:53:01,800
comments on the order good afternoon again your honor as I was a telling

605
00:53:01,800 --> 00:53:05,240
Quinn menu for the tricks and the only comment I had was the one we spoke about

606
00:53:05,240 --> 00:53:11,680
earlier I can speak with mr. Steinman and mr. Asman afterwards to the

607
00:53:11,680 --> 00:53:17,240
language okay understood and your honor so I'll probably use Mars McLaughlin

608
00:53:17,240 --> 00:53:21,720
Smith from trauma pepper again in your core also had some language that

609
00:53:21,720 --> 00:53:27,920
proposed language on trust payments and customer accounts language so if the

610
00:53:27,920 --> 00:53:32,480
debtors council is willing to work with us after the hearing we would appreciate

611
00:53:32,480 --> 00:53:38,440
that as well that was one of our issues your honor we'll make sure to include

612
00:53:38,440 --> 00:53:44,600
everyone that's raised that issue as we work through the language okay um a

613
00:53:44,600 --> 00:53:56,480
couple of questions um first of all are all the debtors banks UDA banks your

614
00:53:56,480 --> 00:54:00,640
honor the three of them are not we're working through that and try to work

615
00:54:00,640 --> 00:54:06,040
through that with the United States trustee with two of the two of the three

616
00:54:06,040 --> 00:54:12,840
are things that we that we no longer use the relations been terminated there's

617
00:54:12,840 --> 00:54:18,120
just the account is still open so I think one of them has zero dollars in it

618
00:54:18,120 --> 00:54:21,160
and the other one has nine thousand dollars so we're working on fixing that

619
00:54:21,160 --> 00:54:31,280
issue the third one is lexicon bank which has around a million dollars in it

620
00:54:31,280 --> 00:54:36,680
and we're working to either bring lexicon up to have them execute a UDA

621
00:54:36,680 --> 00:54:40,960
over we'll figure out a solution to to move those funds into a UDA approved

622
00:54:40,960 --> 00:54:47,360
bank okay thank you the other question I have is with respect to intercompany

623
00:54:47,360 --> 00:54:52,440
transactions are there any non debtor affiliates that have access to debtor

624
00:54:52,440 --> 00:54:59,720
accounts who can sweep accounts sorry your honor can you repeat the question

625
00:54:59,720 --> 00:55:06,600
are there any non debtor entities affiliates that have access to debtor

626
00:55:06,600 --> 00:55:11,800
accounts who can sweep the accounts no your honor there are no non debtor

627
00:55:11,800 --> 00:55:15,120
affiliates okay other than other than the New York entity which is not

628
00:55:15,120 --> 00:55:18,960
actually a foreign entity right that's not operating okay I just wanted to make

629
00:55:18,960 --> 00:55:28,200
sure in paragraph 17 it requires service of an order as soon as possible in the

630
00:55:28,200 --> 00:55:32,080
banks does the United States trustee have a time limit they want that

631
00:55:32,080 --> 00:55:38,280
completed by your honor Joseph cutie are for the United States trustee now that

632
00:55:38,280 --> 00:55:42,280
it since the Silicon Valley Bank incident that is the language that we've

633
00:55:42,280 --> 00:55:49,080
been asking to be inserted as soon as possible okay all right with respect to

634
00:55:49,080 --> 00:55:54,680
paragraph 20 in the form of order that paragraph I'm curious how it differs

635
00:55:54,680 --> 00:56:13,320
from paragraph 13

636
00:56:24,680 --> 00:56:49,720
your honor if I can have one second I think I'm looking at the wrong order I

637
00:56:49,720 --> 00:57:02,160
want to make sure I'm not looking at the wrong order this is just a provision

638
00:57:02,160 --> 00:57:08,160
regarding the banks being authorized to honor appears to me there are somewhat

639
00:57:08,160 --> 00:57:17,480
duplicative you said these were this is paragraph 13 and 20 yes well let me just

640
00:57:17,480 --> 00:57:20,520
put it this way I don't need to put you on the spot right here and now I know

641
00:57:20,520 --> 00:57:23,680
you have discussions to have with other people when you're having those

642
00:57:23,680 --> 00:57:29,520
discussions consider whether you need both of these paragraphs and with that

643
00:57:29,520 --> 00:57:35,240
well do your I will enter the order your honor yes before I was just informed

644
00:57:35,240 --> 00:57:39,400
that my understanding of our intercompany transfers is was not a

645
00:57:39,400 --> 00:57:44,000
hundred percent correct we also would need that authority to pay some of the

646
00:57:44,000 --> 00:57:47,720
other payments that we're seeking in the other motions like taxes and insurance

647
00:57:47,720 --> 00:57:53,640
so we'd ask that that relief be expected to authorize intercompany transfers on

648
00:57:53,640 --> 00:57:58,560
an interim basis only in connection with the motions that we're seeking today

649
00:58:01,600 --> 00:58:06,280
I'm going to allow it on an interim basis subject to committee coming back

650
00:58:06,280 --> 00:58:14,600
and reviewing it thank you your honor let me ask a quick question before we

651
00:58:14,600 --> 00:58:21,200
proceed further do you need a for a cash management order today yes your honor

652
00:58:21,200 --> 00:58:26,200
okay so let me I know you have some discussions and negotiations to do with

653
00:58:26,200 --> 00:58:32,000
other parties that form of order needs to be at our chambers by 530 today

654
00:58:32,000 --> 00:58:38,080
understand your honor okay all right your honor could we maybe take a brief

655
00:58:38,080 --> 00:58:42,320
recess then I'm a little concerned if we run too late here and we don't get a

656
00:58:42,320 --> 00:58:47,680
consensus and then we have to come back to your honor to adjudicate the dispute

657
00:58:47,680 --> 00:58:52,440
that we have if not all of the objecting parties agree does it make sense that's

658
00:58:52,440 --> 00:58:57,080
fine because unfortunately I just you know I at some point I lose staff the

659
00:58:57,080 --> 00:59:03,680
docket orders and what have you so I'm happy to take a quick okay if we could

660
00:59:03,680 --> 00:59:07,000
take 15 minutes now and we can work with the parties if that's okay with your

661
00:59:07,000 --> 00:59:12,840
honor that's fine we'll reconvene at 445 yeah you could send I'm sorry you could

662
00:59:12,840 --> 00:59:15,800
send the language around everybody I know you're planning to do that but just

663
00:59:15,800 --> 00:59:18,800
if you include us that'd be great thank you yeah you know we'll make sure to

664
00:59:18,800 --> 00:59:27,360
include everyone thanks okay thank you thank you recess

665
00:59:48,800 --> 00:59:51,840
you

666
01:00:18,800 --> 01:00:21,840
you

667
01:00:48,800 --> 01:00:51,840
you

668
01:01:18,800 --> 01:01:21,840
you

669
01:01:49,800 --> 01:01:57,720
okay we're back on the record in prime core technologies hi your honor

670
01:01:57,720 --> 01:02:02,800
Darren Asman for the record McDermott proposed council for the getters so I

671
01:02:02,800 --> 01:02:10,080
believe we have four objecting parties mr. force has accepted the proposed

672
01:02:10,080 --> 01:02:12,600
language which I'll go through in just a moment your honor

673
01:02:12,600 --> 01:02:18,400
mr. I will not get this pronunciation correct I'm sorry mr. Ezekielian from

674
01:02:18,400 --> 01:02:24,280
Quinn Emanuel they are okay with the language as well we have not heard back

675
01:02:24,280 --> 01:02:28,600
from mr. Nestor but I am hopeful that he can maybe give us his comments while

676
01:02:28,600 --> 01:02:36,480
we're on the line here and then the fourth I'm sorry miss Smith miss Smith

677
01:02:36,480 --> 01:02:41,000
miss Smith does not agree to the language miss Smith has some additional

678
01:02:41,000 --> 01:02:45,000
language she wants to add which is not workable for the debtors why don't I

679
01:02:45,000 --> 01:02:49,600
read again to your honor it's the same language I read before but let me bring

680
01:02:49,600 --> 01:02:54,600
it into your memory fresh and then we can tell you what her issues are and

681
01:02:54,600 --> 01:02:59,840
then hopefully mr. Nestor can let us know if he's okay or not

682
01:02:59,840 --> 01:03:06,880
give me one second okay your honor we just to be a punch we are okay my

683
01:03:06,880 --> 01:03:10,040
clients okay with this we're not letting try not to let the perfect it in the way

684
01:03:10,040 --> 01:03:15,440
the good oh thank you mr. Nester okay thank you thank you mr. Nester we

685
01:03:15,440 --> 01:03:20,880
appreciate that so the language is as follows notwithstanding anything to the

686
01:03:20,880 --> 01:03:28,560
contrary in this order the debtors shall not use funds from customer accounts to

687
01:03:28,560 --> 01:03:34,960
honor any pre-petition obligations or pay for any post-petition obligations

688
01:03:34,960 --> 01:03:39,560
absent further order of the court and before I tell you the second sentence

689
01:03:39,560 --> 01:03:44,640
again customer account is a defined term and it references to the same defined

690
01:03:44,640 --> 01:03:49,880
term in the motion the second sentence is all parties rights are reserved

691
01:03:49,880 --> 01:03:55,800
regarding whether and to what extent any funds or other property are held by a

692
01:03:55,800 --> 01:04:06,920
debtor in trust or constitute property of the debtors estates and maybe the

693
01:04:06,920 --> 01:04:11,080
last sentence I should just give you some context for very briefly I think

694
01:04:11,080 --> 01:04:15,920
the idea there is that the estate may ultimately come to the conclusion that

695
01:04:15,920 --> 01:04:19,840
some of the assets in the customer deposit accounts are property of the

696
01:04:19,840 --> 01:04:23,120
estate this is issue that's front and center in every single crypto case that

697
01:04:23,120 --> 01:04:27,800
has been filed I'm sure your honor is familiar with that generally and

698
01:04:27,800 --> 01:04:33,560
likewise I'm sure that the customers once you preserve the right to argue

699
01:04:33,560 --> 01:04:38,840
that other funds are not property of the estate and so it's designed to allow

700
01:04:38,840 --> 01:04:46,720
party the time they need to figure out figure those issues out your honor

701
01:04:46,720 --> 01:04:52,120
Marcy McLaughlin Smith again on behalf of anchor coin LLC for some additional

702
01:04:52,120 --> 01:04:57,120
context that I think will be helpful as to our position anchor coin is party to

703
01:04:57,120 --> 01:05:02,240
a trust agreement dated July 12 2018 with the debtor property trust this is

704
01:05:02,240 --> 01:05:05,200
not one of the master services agreements that's referenced in the

705
01:05:05,200 --> 01:05:09,000
first-day declaration that the debtors are party to a certain customers it's

706
01:05:09,000 --> 01:05:13,360
expressly called a trust agreement and pursuant to that agreement Prime Trust

707
01:05:13,360 --> 01:05:18,720
serves merely as a trustee with respect to certain deposited trust accounts and

708
01:05:18,720 --> 01:05:22,440
those funds are deposited at the direction of anchor point by its

709
01:05:22,440 --> 01:05:27,240
customers who are crypto token holders there's a circular relationship there

710
01:05:27,240 --> 01:05:31,920
between a positive the funds with Prime Trust as the trustee and then anchor

711
01:05:31,920 --> 01:05:38,280
or recognize that issues tokens back out to the holders who is the holders who

712
01:05:38,280 --> 01:05:43,080
have the property and trust with Prime Trust and that agreement expressly

713
01:05:43,080 --> 01:05:47,160
provides that the Prime Trust is not entitled to any funds in that trust

714
01:05:47,160 --> 01:05:51,240
account at any time nor shall any of those amounts deposited in the trust

715
01:05:51,240 --> 01:05:55,800
become property of Prime Trust for subject to any debts liens or other

716
01:05:55,800 --> 01:05:59,560
encumbrances of Prime Trust and they're exclusively held for the benefit of

717
01:05:59,560 --> 01:06:03,600
holders and based on anchor coins records there should be approximately

718
01:06:03,600 --> 01:06:07,840
20 million dollars of funds deposited with a trust account held by but not

719
01:06:07,840 --> 01:06:13,200
owned by the debtor and so it's anchors point anchor coins position that any

720
01:06:13,200 --> 01:06:17,040
language added to the order should expressly provide that the funds that

721
01:06:17,040 --> 01:06:21,680
were to be held in trust by the debtors are not to be used or transferred unless

722
01:06:21,680 --> 01:06:26,320
in accordance with applicable law or applicable contract and this aligns with

723
01:06:26,320 --> 01:06:29,960
Supreme Court precedent that if the debtor does not own an equity interest

724
01:06:29,960 --> 01:06:34,000
in property he holds interest for another it is not a state property and

725
01:06:34,000 --> 01:06:41,200
that's major versus IRS or 96 us five three and so our proposal is to add to

726
01:06:41,200 --> 01:06:45,400
the end of the first sentence that debtors council run into the record well

727
01:06:45,400 --> 01:06:50,680
nor shall any debtor use or transfer property parentheses including funds

728
01:06:50,680 --> 01:06:55,840
and parentheses held by interest other than in compliance with any applicable

729
01:06:55,840 --> 01:07:00,000
law or contract and we think that that is sufficiently protective language for

730
01:07:00,000 --> 01:07:03,400
both the debtors and anchor point because only the debtors know what

731
01:07:03,400 --> 01:07:08,240
accounts the funds to be held in trust by it were deposited into we have no

732
01:07:08,240 --> 01:07:11,880
idea whether the customer accounts contain the funds that were deposited

733
01:07:11,880 --> 01:07:16,160
by our customers in trust or if those funds were deposited into other accounts

734
01:07:16,160 --> 01:07:20,760
customer deposits is simply I think defined as the 17 customer accounts I'm

735
01:07:20,760 --> 01:07:25,120
at the cash management order and so in conclusion your honor we think it's

736
01:07:25,120 --> 01:07:29,080
well settled all that property held in trust by a debtor for another is not

737
01:07:29,080 --> 01:07:32,600
property of the estate and we had less than 24 hours notice of this hearing

738
01:07:32,600 --> 01:07:35,720
your honor I mean we don't think that we should be present prejudice going

739
01:07:35,720 --> 01:07:40,960
forward if there are funds that were deposited and to be held in trust by

740
01:07:40,960 --> 01:07:46,800
the debtors in an account that is not a customer account this is very difficult

741
01:07:46,800 --> 01:07:53,400
without having the language in front of me can somebody share screen put your

742
01:07:53,400 --> 01:08:00,840
respective language on screen yes your honor thank you

743
01:08:00,840 --> 01:08:02,900
you

744
01:08:02,900 --> 01:08:29,300
you is it up on the screen it is oh thank you

745
01:08:33,900 --> 01:08:39,900
and your honor I have a marked up version as well

746
01:08:41,020 --> 01:08:46,500
marked up with your edit to his language that's correct can you show me that

747
01:08:46,500 --> 01:08:48,940
please

748
01:08:54,060 --> 01:08:58,660
and your honor whenever you're ready I had some responses but I think it might

749
01:08:58,660 --> 01:09:11,740
be easier for you to see the language are you able to see just the word document

750
01:09:11,740 --> 01:09:38,980
your honor let me let me hear from the debtor yeah your honor the issue we have

751
01:09:38,980 --> 01:09:43,300
with this language is that there is inherent uncertainty in it if they

752
01:09:43,300 --> 01:09:47,380
believe that there are any amounts right the language we're proposing makes clear

753
01:09:47,380 --> 01:09:51,620
that we're not going to use any funds absent court order that is sitting in

754
01:09:51,620 --> 01:09:56,740
the client the part the customer deposit accounts if any creditor believes that

755
01:09:56,740 --> 01:10:02,460
amounts held in another account is held in trust they have the burden of

756
01:10:02,460 --> 01:10:06,340
demonstrating more we are again agreeing to not use funds held in the customer

757
01:10:06,340 --> 01:10:09,980
accounts for right now that may have changed later but no one has put forth

758
01:10:09,980 --> 01:10:15,020
any evidence that any funds in the non customer deposit accounts are not

759
01:10:15,020 --> 01:10:18,660
property of state and I think the really important issue here to focus on your

760
01:10:18,660 --> 01:10:22,820
honor the agreement is one thing the agreement may say and this has played

761
01:10:22,820 --> 01:10:29,260
out in FTX and other crypto cases the agreement may say that buying funds

762
01:10:29,260 --> 01:10:33,380
customer funds are to be segregated and held in trust but the real test in the

763
01:10:33,380 --> 01:10:38,780
Third Circuit and every other circuit frankly is whether the person that is

764
01:10:38,780 --> 01:10:44,180
asserting a trust exists can identify and trace the trust funds if they've

765
01:10:44,180 --> 01:10:49,460
been comingled and certainly there's no evidence of that today and so to insert

766
01:10:49,460 --> 01:10:53,380
this language just creates ambiguity it's almost circular in that it says

767
01:10:53,380 --> 01:10:58,860
the debtors can't use trust funds but there's no articulation about where this

768
01:10:58,860 --> 01:11:02,660
creditor believes trust funds offer other than in the customer deposit

769
01:11:02,660 --> 01:11:04,660
account.

770
01:11:05,980 --> 01:11:11,700
Ms. Smith. Your honor it's my understanding from my client that they have been

771
01:11:11,700 --> 01:11:17,300
trying to get information on where their trust funds are located and which

772
01:11:17,300 --> 01:11:20,260
account through the receivership action and that they haven't yet been provided

773
01:11:20,260 --> 01:11:24,500
that information from the debtors and so I'm certain that you know this will be

774
01:11:24,500 --> 01:11:28,540
the top of our list to try to get that information but I don't think that it

775
01:11:28,540 --> 01:11:32,020
should be a prejudice to us that the debtors request this really the debtors

776
01:11:32,020 --> 01:11:36,740
know the language of this trust express trust agreement and that we should be

777
01:11:36,740 --> 01:11:40,420
prejudiced in this interim period because of information that we have not

778
01:11:40,420 --> 01:11:45,900
yet been able to attain despite our best efforts. Well as first day relief I'm

779
01:11:45,900 --> 01:11:51,180
gonna allow the debtors language to maintain status quo and all rights are

780
01:11:51,180 --> 01:11:59,380
reserved for parties to present evidence at a later date. Thank you your honor.

781
01:11:59,380 --> 01:12:07,380
Your honor we're going to upload that revised order shortly and then I guess

782
01:12:07,380 --> 01:12:12,660
in the meantime if it makes sense we can continue on. Yes please.

783
01:12:14,660 --> 01:12:21,300
And one other thing with respect to submission of the revised order please

784
01:12:21,300 --> 01:12:28,540
submit a clean and a black line under certification of counsel. Thank you. Of

785
01:12:28,540 --> 01:12:33,420
course your honor I look to turn things over to Ms. Candiston now to finish the

786
01:12:33,420 --> 01:12:42,220
rest of the matters on the agenda. Thank you Mr. Steinman. Your honor again for

787
01:12:42,220 --> 01:12:46,580
the record Maris Candiston of McDermott Will and Emory on behalf of the debtors.

788
01:12:46,580 --> 01:12:50,180
If it would please the court I would suggest proceeding with the matters that

789
01:12:50,180 --> 01:12:54,900
are uncontested in the first instance and leave the one contested matter as I

790
01:12:54,900 --> 01:13:00,380
understand it with respect to the US trustee towards the end. Okay which

791
01:13:00,380 --> 01:13:06,340
matters contested with the US trustee? There are a few things that the US

792
01:13:06,340 --> 01:13:10,260
trustees contesting with respect to our motion the creditor matrix motion we're

793
01:13:10,260 --> 01:13:18,380
calling it. So I will, sorry your honor. No that's okay you may proceed with the

794
01:13:18,380 --> 01:13:24,020
uncontested matters. Thank you. Item number three on the agenda is the

795
01:13:24,020 --> 01:13:27,820
debtors application for the appointment of Stretto as the debtors court

796
01:13:27,820 --> 01:13:31,140
appointed claims and noticing agent which is five was filed at duct at

797
01:13:31,140 --> 01:13:37,060
number 15. Prior to engaging Stretto the debtor solicited proposals from two

798
01:13:37,060 --> 01:13:41,660
other claims agents consistent with the claims agent protocol and the debtor

799
01:13:41,660 --> 01:13:44,420
selected Stretto based on its experience competitive rates and

800
01:13:44,420 --> 01:13:48,580
qualifications. As the debtors have over 200 creditors the appointment of the

801
01:13:48,580 --> 01:13:52,640
claims and noticing agent is required by the local rules. The US trustee had no

802
01:13:52,640 --> 01:13:57,220
comments to this proposed form of order and unless your honor has any questions

803
01:13:57,220 --> 01:14:00,860
we'd ask that you enter the order approving this application. Does anyone

804
01:14:00,860 --> 01:14:08,340
want to be heard on the motion to retain Stretto? Okay I see no one. I've reviewed

805
01:14:08,340 --> 01:14:13,220
the application the declaration the proposed order the relief is customary

806
01:14:13,220 --> 01:14:17,820
and required under the local rules. In addition the debtors have complied with

807
01:14:17,820 --> 01:14:21,460
the claims agent protocol having considered at least two other court

808
01:14:21,460 --> 01:14:26,340
approved claims agent so I will enter the order granting the application

809
01:14:26,340 --> 01:14:33,740
subject to a clarification and modification. First I may have missed it

810
01:14:33,740 --> 01:14:38,940
but I didn't see a representation or disclosure that Stretto is not a party

811
01:14:38,940 --> 01:14:45,540
to any agreement to provide claims data in exchange for compensation. Does was

812
01:14:45,540 --> 01:14:49,660
that in there or if someone from Stretto is on the line if they can make a

813
01:14:49,660 --> 01:14:59,460
representation in that regard? Your honor I'm not sure someone from Stretto is on

814
01:14:59,460 --> 01:15:05,100
the line and I'd be happy to confer with them after the hearing and even maybe

815
01:15:05,100 --> 01:15:09,140
include something in the proposed order to that effect. Yeah or supplemental

816
01:15:09,140 --> 01:15:14,100
declaration that would be fine. The other question I have and I don't know

817
01:15:14,100 --> 01:15:23,420
if perhaps this was changed with the US trustee but paragraphs 12 13 16 and 17

818
01:15:23,420 --> 01:15:31,660
all relate to indemnification and I was wondering if the trustee's office had

819
01:15:31,660 --> 01:15:47,060
any comment with respect to those paragraphs. I'm trying to pull up the

820
01:15:47,060 --> 01:16:16,380
order that was uploaded. Mr. Cootie do you see what I'm referring to? Yeah your

821
01:16:16,380 --> 01:16:20,020
honor I'm trying to pull that up myself at this point. I mean there's a pair of

822
01:16:20,020 --> 01:16:26,220
12 refers to indemnification under the engagement as modified by the order and

823
01:16:26,220 --> 01:16:35,260
then paragraph 13 indicates are entitled to indemnification and then paragraph 16

824
01:16:35,260 --> 01:16:42,220
says notwithstanding anything in the engagement letter and then paragraph 17

825
01:16:42,220 --> 01:16:51,980
again refers to indemnification. As standard procedure your honor the we

826
01:16:51,980 --> 01:16:58,540
normally if there's an indemnification procedure in the you know in the

827
01:16:58,540 --> 01:17:03,860
engagement agreement we normally modify it to conform with the United Artists

828
01:17:03,860 --> 01:17:17,980
Standards. Right. Like I said I'm trying to find that order right now myself. And

829
01:17:17,980 --> 01:17:24,140
while you're looking for that the other question I had is the relevance of

830
01:17:24,140 --> 01:17:39,140
paragraph 14 in connection with the retention of claims agent. Your honor I

831
01:17:39,140 --> 01:17:48,140
think this is likely just boilerplate for orders and I'm happy to remove it.

832
01:17:48,140 --> 01:17:55,940
Yeah I think it should be removed in the context of this retention. And with

833
01:17:55,940 --> 01:17:59,860
expected indemnification the reason I bring it up is it because is because it

834
01:17:59,860 --> 01:18:05,020
doesn't seem consistent with what's generally required by the United States

835
01:18:05,020 --> 01:18:11,540
trustee's office or at least it should be modified so that it's in one or two

836
01:18:11,540 --> 01:18:17,300
paragraphs. It creates a little bit of ambiguity being afforded for

837
01:18:17,300 --> 01:18:26,740
paragraphs. Yeah we're happy subject to Mr. Cudia agreeing to synthesize those

838
01:18:26,740 --> 01:18:30,620
paragraphs. Thank you. I think that would be appropriate. Do you need that order

839
01:18:30,620 --> 01:18:40,700
today? I don't believe so I think Monday would be fine. Okay I just want to make

840
01:18:40,700 --> 01:18:44,100
sure you have ample time to look at it. So if you could just say that that would

841
01:18:44,100 --> 01:18:49,820
be great. Yes your honor I'm happy to work with Miss Candiston on the order.

842
01:18:49,820 --> 01:18:59,060
Okay thank you. Thank you your honor item number five on the agenda is the

843
01:18:59,060 --> 01:19:02,820
debtors motion to pay certain prepetition taxes and fees just filed at

844
01:19:02,820 --> 01:19:07,140
docket number five. In the ordinary course of the debtors business the

845
01:19:07,140 --> 01:19:12,140
debtors incur various types of taxes including franchise property commerce

846
01:19:12,140 --> 01:19:16,660
and income taxes and they also pay various regulatory and licensing fees.

847
01:19:16,660 --> 01:19:20,340
And for the reasons set forth in our motion the debtors are seeking

848
01:19:20,340 --> 01:19:23,700
authority to pay taxes and fees that accrued prior to the petition date and

849
01:19:23,700 --> 01:19:29,460
an aggregate amount not to exceed $75,000 on the interim basis. Your honor

850
01:19:29,460 --> 01:19:34,900
the US trustee didn't have any comments to this proposed form of interim order

851
01:19:34,900 --> 01:19:41,740
and so we do ask your honor to enter the order subject to any questions and

852
01:19:41,740 --> 01:19:48,580
concerns you have. I only had two questions with respect to taxes and one

853
01:19:48,580 --> 01:19:54,060
was and maybe I'm just reading this sentence wrong but in paragraph three it

854
01:19:54,060 --> 01:19:58,740
references the final order in the second second to last sentence it says this

855
01:19:58,740 --> 01:20:05,940
final order. Mm-hmm. Yes your honor I will fix that. And then the only other

856
01:20:05,940 --> 01:20:10,740
question I had is paragraph four that deals with straddle taxes is that

857
01:20:10,740 --> 01:20:15,660
necessary in an interim order or is that something that can wait to the final

858
01:20:15,660 --> 01:20:20,540
order? Your honor we'd be happy to push that to the final order. I mean given

859
01:20:20,540 --> 01:20:24,940
the comments that have been raised today let's put that off to a final order. With

860
01:20:24,940 --> 01:20:31,660
that I have no other comments and I'll enter the order. Thank you your honor. The

861
01:20:31,660 --> 01:20:35,280
next item that I'm handling is item number seven on the agenda it's the

862
01:20:35,280 --> 01:20:38,780
debtors motion to pay employee wages and other benefits which appears at

863
01:20:38,780 --> 01:20:44,140
docket number 19. The debtors employees are really the lifeblood of this

864
01:20:44,140 --> 01:20:48,220
business and are critical to the success of these cases. Debtors currently have

865
01:20:48,220 --> 01:20:53,300
about 70 employees and independent contractors and as Mr. La testified to

866
01:20:53,300 --> 01:20:56,900
you in his declaration following entry of the cease and desist order by the

867
01:20:56,900 --> 01:21:01,260
Nevada Division of Financial Institutions on June 21st the debtors

868
01:21:01,260 --> 01:21:05,340
reduced the size of their workforce including through executing furloughs

869
01:21:05,340 --> 01:21:08,780
and as a result many of the debtors current employees have been forced to

870
01:21:08,780 --> 01:21:13,020
take on additional workloads and responsibilities. The amounts of the

871
01:21:13,020 --> 01:21:16,740
debtors are seeking authority to pay are set forth in the chart appearing on

872
01:21:16,740 --> 01:21:21,660
pages 14 and 15 of the motion as well as in paragraph 3 of the proposed interim

873
01:21:21,660 --> 01:21:26,100
order. As provided the debtors are seeking authority to pay compensation

874
01:21:26,100 --> 01:21:31,400
and related expenses in an amount not to exceed $156,000 in the aggregate on the

875
01:21:31,400 --> 01:21:35,260
interim basis and the debtors are also seeking to make payments on account of

876
01:21:35,260 --> 01:21:40,860
employee benefits and an amount not to exceed $167,600 in the interim.

877
01:21:40,860 --> 01:21:45,660
Your Honor the US trustee didn't have any comments with respect to this order. I

878
01:21:45,660 --> 01:21:51,820
did want to make note of one thing though we erroneously listed

879
01:21:51,820 --> 01:21:55,340
employees as notice parties in this motion and I wanted to make it clear on

880
01:21:55,340 --> 01:21:59,180
the record that we are not intending to serve this motion or any of the orders

881
01:21:59,180 --> 01:22:04,980
approving it on employees. We made the US trustee aware of this prior to the

882
01:22:04,980 --> 01:22:09,220
hearing as well. So with that your honor unless you have any questions we ask

883
01:22:09,220 --> 01:22:14,020
that you enter order approving the motion on the interim basis. Does anyone

884
01:22:14,020 --> 01:22:19,500
want to be heard with respect to the employee motion? Okay I see no hands that

885
01:22:19,500 --> 01:22:23,580
I hear no one. I've reviewed the motion based on the facts and circumstance

886
01:22:23,580 --> 01:22:28,260
described in the motion as supported by the first day declaration. I'm prepared

887
01:22:28,260 --> 01:22:32,460
to approve the motion. The facts and circumstance of the case establish the

888
01:22:32,460 --> 01:22:37,940
importance of the employees to the debtors business. Also rule 6003B

889
01:22:37,940 --> 01:22:42,940
standard is met. I find it immediate and irreparable harm would result if the

890
01:22:42,940 --> 01:22:47,220
interim order isn't entered. So I will enter the order and I believe that all

891
01:22:47,220 --> 01:22:52,060
the comments I have have already been addressed. So thank you and thank you for

892
01:22:52,060 --> 01:22:57,980
putting your honor. I appreciate the charts and formal order. I will make a note of that

893
01:22:57,980 --> 01:23:04,740
going forward. In your honor the remaining item on the agenda is item

894
01:23:04,740 --> 01:23:08,660
number two which is the debtors motion sinking entry of an order authorizing

895
01:23:08,660 --> 01:23:12,820
the debtors to a few things. File a consolidated creditor matrix as well as

896
01:23:12,820 --> 01:23:17,180
a consolidated list of their top 50 unsecured creditors. Redact the

897
01:23:17,180 --> 01:23:20,580
personally identifiable information of the debtors current and former employees

898
01:23:20,580 --> 01:23:26,420
and customers from public filings in this case. And to serve parties solely

899
01:23:26,420 --> 01:23:30,660
through electronic means and specifically the debtors seek to serve

900
01:23:30,660 --> 01:23:35,380
customers by email and instances where the debtors have a valid email address

901
01:23:35,380 --> 01:23:40,780
on file and the customer has neither designated a physical mailing address and

902
01:23:40,780 --> 01:23:45,420
nor have they requested to be served with hard copies of notices in this case.

903
01:23:45,420 --> 01:23:50,820
And then the debtors also seek to serve non-customers via email in instances

904
01:23:50,820 --> 01:23:55,260
where the debtors have a valid email address but no physical address on file

905
01:23:55,260 --> 01:24:00,420
and where the customer has neither designated a mailing address nor requested

906
01:24:00,420 --> 01:24:04,260
to be served with hard copies of pleadings in this case. As I mentioned

907
01:24:04,260 --> 01:24:09,420
earlier the US trustee has two objections to the relief requested in the motion. My

908
01:24:09,420 --> 01:24:12,900
understanding is first the US trustee objects to the debtors request to seal

909
01:24:12,900 --> 01:24:17,540
the names of their customers and employees. It's our understanding that

910
01:24:17,540 --> 01:24:21,380
the US trustee has no objection to our request to seal the physical and email

911
01:24:21,380 --> 01:24:27,260
addresses of these parties. And second the US trustee has an

912
01:24:27,260 --> 01:24:32,100
objection to our request to serve parties by email. And your honor at this

913
01:24:32,100 --> 01:24:37,020
point I would like to proffer the testimony of Jor Law who is still in the

914
01:24:37,020 --> 01:24:41,660
virtual courtroom in connection with the debtors request to seal as well as to

915
01:24:41,660 --> 01:24:48,260
serve parties by email. Okay let me ask does anybody object to use of a proffer?

916
01:24:48,260 --> 01:24:57,580
Your honor Joseph Cuginia for the United States trustee and don't object to the use of a proffer provided it's subject to cross examination should I need it.

917
01:24:57,580 --> 01:25:02,820
Certainly. You may proffer subject to cross examination.

918
01:25:02,820 --> 01:25:13,140
Thank you your honor. If called to the stand Mr. Law would testify as follows. With respect to the debtors request to seal the names of its employees he would testify that he has been

919
01:25:13,140 --> 01:25:27,460
informed that while the company was operating there were instances of employees being threatened physically and or electronically by crypto enthusiasts and that these threats triggered security changes at the debtors corporate headquarters.

920
01:25:27,900 --> 01:25:40,940
Mr. Law would further testify that he has been informed that one such example of this was when a crypto enthusiast posted a message hoping that the company's employees would quote go to jail or go die.

921
01:25:40,940 --> 01:25:49,300
End quote. He would also testify that his understanding is that targeted attacks such as this are not uncommon among crypto enthusiasts.

922
01:25:49,300 --> 01:26:02,260
Mr. Law would testify that he has been informed that members of the debtor support team have used pseudonyms in the past when responding to support tickets due to individuals attempting to contact them on personal communication channels.

923
01:26:02,260 --> 01:26:08,620
He would further testify that he would not expect these circumstances to improve by virtue of the bankruptcy filing.

924
01:26:08,620 --> 01:26:21,140
Mr. Law would also testify that creating a centralized public list identifying the debtors current and former employees would unnecessarily put employees at risk for receiving additional physical threats and or cyber attacks.

925
01:26:21,140 --> 01:26:34,020
Mr. Law would also testify that the debtors initiated some reduction in force and furloughs following the issuance of the cease and desist order by the Nevada Financial Institutions Division in June of this year.

926
01:26:34,020 --> 01:26:40,940
He would testify that the debtors current workforce is compensating for the loss of these employees by taking on additional responsibilities and workloads.

927
01:26:40,940 --> 01:26:50,020
He would also testify that the crypto industry is experiencing a period of consolidation and that employees with specific skills or knowledge are at a premium.

928
01:26:50,020 --> 01:27:01,740
Mr. Law would testify that the debtors current and furloughed employees have irreplaceable institutional knowledge and specialized skills that are critical to the success of the debtors restructuring efforts.

929
01:27:01,740 --> 01:27:11,860
He would also testify that creating a centralized public list of these employees would open them up to poaching by competitors and other companies during this critical stage.

930
01:27:11,860 --> 01:27:27,500
With respect to the debtors request to seal the names of customers, he would testify that some of the debtors corporate and institutional clients act as integrators and that they contracts with the debtors for services that ultimately benefit the customers of these integrators.

931
01:27:27,500 --> 01:27:31,420
In other words, the end users of these services are customers of the integrators.

932
01:27:31,420 --> 01:27:39,340
He would further testify that given the nature of the debtors custodial business and commercial agreements, the debtors often enter into contracts directly with these end users.

933
01:27:39,340 --> 01:27:59,740
Mr. Law would further testify that in many instances, the commercial agreements maintain that customer data and confidential information constitute property of the integrators, not prime trust, and that the agreements provide that the integrators retain all legal rights with respect to any customer data, including confidential information of the end users.

934
01:27:59,740 --> 01:28:10,300
He would also testify that the debtors are required to maintain the confidentiality of such customer data and that the debtors agreements provide that the debtors are required by law to disclose this information.

935
01:28:10,300 --> 01:28:19,180
They must provide notice to the integrators prior to making any such disclosure and work with them to obtain entry of an order of protecting the information.

936
01:28:19,180 --> 01:28:27,820
He would further testify that the public disclosure of customer data and confidential information could trigger a post-petition violation of these agreements.

937
01:28:27,820 --> 01:28:38,860
Mr. Law would testify that disclosure of these names, the names of these indirect customers would severely jeopardize their lucrative relationships with their corporate and institutional clients.

938
01:28:38,860 --> 01:28:50,860
He would testify that since the filing of the Chapter 11 cases, he has been informed that the debtors have received inbound requests from integrator customers requesting that the debtors not publish their names in the public domain.

939
01:28:50,860 --> 01:29:06,300
Mr. Law would further testify that debtors' customer lists are highly proprietary and the public disclosures of the identities of their direct and indirect customers would give their competitors an unfair advantage and cause irreparable harm to the debtors' restructuring efforts.

940
01:29:06,300 --> 01:29:26,620
With respect to the debtors' request to serve the debtors direct and indirect, with respect to serve parties via electronic mail, Mr. Law would testify that he has been informed that the debtors communicate with their customers via email and that there are very few instances, if any, where the debtors have communicated with customers through more traditional mail channels.

941
01:29:26,620 --> 01:29:33,980
And that their agreements provide that customers will receive statements via email and that they will never, they will not receive hard copies.

942
01:29:33,980 --> 01:29:39,260
Mr. Law would testify that the debtors' commercial agreements generally contain the following language.

943
01:29:39,260 --> 01:29:59,260
I'm going to quote, each party hereby agrees that all current and future notices, confirmations, and other communications regarding the agreement specifically and future communications in general between the parties may be made by email sent to the email address of record without necessity of confirmation of receipt, delivery, or reading.

944
01:29:59,260 --> 01:30:06,300
And such a form of electronic communication is sufficient for all matters regarding the relationship between the parties.

945
01:30:06,300 --> 01:30:16,300
He would further testify that the agreements further contain language to the effect of, again, I'm going to quote here, no physical paper documents will be sent to customer.

946
01:30:16,300 --> 01:30:38,780
And if customer desires physical documents, then it agrees to be satisfied by directly and personally printing at customer's own expense either the electronically sent communications or the electronically available communications by logging onto the customer's account and then maintaining such physical records in any manner or form that the customer desires.

947
01:30:38,780 --> 01:30:57,500
Mr. Law would testify that it is his understanding that the debtor's email addresses for their customers are filed and that service by email is not only the means by which customers expect to be served, but it's the quickest, most reliable, effective means of reaching the highest number of customers with important notices in these Chapter 11 cases.

948
01:30:57,500 --> 01:31:11,980
He would also testify that it is his understanding that there are approximately 50,000 non-customer creditors listed on the matrix in this case and that there are approximately 5.4 million customers listed on the creditors matrix.

949
01:31:11,980 --> 01:31:27,260
He would further testify that the costs associated with serving customers with notices by a regular mail and when necessary through expedited means such as using federal express would be exorbitant and given the customer's expectations with respect to receiving communications from the company.

950
01:31:27,260 --> 01:31:31,260
Such service would be a waste of the company's very limited resources.

951
01:31:31,260 --> 01:31:43,340
Mr. Law would testify that he has been informed that the cost to serve the notice of commencement in this case would approximate would come to approximately 10.2 million dollars.

952
01:31:43,340 --> 01:31:51,100
He would further testify that he has been informed that the cost to serve these parties via email is drastically less than the service by regular mail.

953
01:31:51,100 --> 01:31:55,180
And that would conclude Mr. Law's testimony with respect to this motion.

954
01:31:55,180 --> 01:32:01,100
Thank you. Mr. Cudia? Cross-examination?

955
01:32:01,100 --> 01:32:13,500
Yes, Your Honor. I have just a couple of questions for the witness.

956
01:32:13,500 --> 01:32:18,700
You may proceed.

957
01:32:18,700 --> 01:32:26,060
Mr. Law, please turn on your microphone. Please raise your right hand.

958
01:32:26,060 --> 01:32:33,260
Do you affirm that you will tell the truth, the whole truth and nothing but the truth to the best of your knowledge and ability?

959
01:32:33,260 --> 01:32:34,620
Yes.

960
01:32:34,620 --> 01:32:40,060
Please state your name and spell your last name for the record.

961
01:32:40,060 --> 01:32:44,460
Jor Law, last name Law, L-A-W.

962
01:32:44,460 --> 01:32:47,820
Thank you.

963
01:32:47,820 --> 01:32:54,300
Your Honor, I don't mean to interrupt. I just wanted to briefly introduce my partner, Joe Evans, who's here on Zoom. He's going to be defending the cross.

964
01:32:54,300 --> 01:32:59,900
I didn't want you to be confused as to who he was or why he was objecting, if there's any objections.

965
01:32:59,900 --> 01:33:02,060
Okay. Thank you.

966
01:33:02,060 --> 01:33:03,100
Good afternoon, Your Honor.

967
01:33:03,100 --> 01:33:06,780
Good afternoon. Mr. Cudia?

968
01:33:06,780 --> 01:33:09,740
Good afternoon, Mr. Law.

969
01:33:09,740 --> 01:33:11,900
Good afternoon.

970
01:33:11,900 --> 01:33:25,900
My first question is, there's a substantial amount of the creditors in this case that are not directly in privity with the debtors here. Is that correct?

971
01:33:25,900 --> 01:33:40,620
I'm not sure that that is correct. We have agreements with integrators and the integrators have end users. And in many cases, we have direct contracts with those end users.

972
01:33:40,620 --> 01:33:52,780
Okay. But you would agree that there are creditors that are not directly – that do not directly contact the debtors in – on a regular basis?

973
01:33:52,780 --> 01:33:54,540
There are creditors that –

974
01:33:54,540 --> 01:34:04,300
Mr. Law, just for the record, can you confirm you're in the room by yourself and you're not looking at anything when you're answering Mr. Cudia's questions?

975
01:34:04,300 --> 01:34:04,780
Yes.

976
01:34:04,780 --> 01:34:05,180
Okay.

977
01:34:05,180 --> 01:34:05,500
Confirmed.

978
01:34:05,500 --> 01:34:08,780
I assume you're looking at the ceiling, but go ahead, sir.

979
01:34:08,780 --> 01:34:16,140
I was doing – I was being left-minded looking up.

980
01:34:16,140 --> 01:34:31,740
Sorry. I am – I'm not sure how to answer that. We – you know, if a customer has a relationship with us, they usually have an agreement with us.

981
01:34:31,740 --> 01:34:43,420
Okay. And maybe I can rephrase it. You – I believe you stated earlier that the debtors do contract with other entities who have their own end users. Is that correct?

982
01:34:43,420 --> 01:34:45,340
That's correct.

983
01:34:45,340 --> 01:34:57,900
And the heart of my question is, do those other end – do you know if those other end users have also consented the service by mail? I mean, by email.

984
01:34:57,900 --> 01:35:04,540
If we have a direct engagement with them, then in general, yes.

985
01:35:04,540 --> 01:35:17,900
But you don't supply – you don't make customers of your end users aware of the policies that you have for customers, correct?

986
01:35:17,900 --> 01:35:26,460
It is my understanding that most end users of integrators are aware of this and entering into a direct relationship with us.

987
01:35:26,460 --> 01:35:27,500
All right. Thank you.

988
01:35:27,500 --> 01:35:28,780
Those were my questions, Your Honor.

989
01:35:28,780 --> 01:35:33,580
Okay. Thank you.

990
01:35:33,580 --> 01:35:42,780
Your Honor, with that, based on the proffer testimony of Mr. Law and for the reasons set forth in our motion, the debtors respectfully request that the court overrule the objections of the U.S.

991
01:35:42,780 --> 01:35:58,140
Trustee and approve the relief requested in the motion as fully set forth therein. And – I'd like to hear argument from Mr. Cudia.

992
01:35:58,140 --> 01:35:59,340
Thank you, Your Honor.

993
01:35:59,340 --> 01:36:21,420
As far as the email issue, as I'm sure you're aware, Rule 2002 requires notice to be sent by mail. Rule 9036 does allow for email notices to be sent by email, but parties have to consent in writing to such service.

994
01:36:21,420 --> 01:36:35,180
And it's not the absence of assistance – insistence on mail that is the standard there.

995
01:36:35,180 --> 01:37:00,140
As far as the – as far as the redaction of the names, the U.S. Trustee generally objects to the objection – to the redaction of names, not email addresses or addresses, basically on a general right of access to court records.

996
01:37:00,140 --> 01:37:13,580
And I don't believe that the debtors can demonstrate undue risk of identity theft or unlawful injury merely due to exposure of the names without other identifying information.

997
01:37:13,580 --> 01:37:25,740
Now, as far as the proffer that was given, I was made aware of that just a few hours ago, that the proffer was going to be made and the contents of same.

998
01:37:25,740 --> 01:37:38,380
To the extent, Your Honor, is inclined to grant these, I ask that it only be on an interim basis so that the U.S. Trustee may be heard on full notice and fulsome briefing.

999
01:37:38,380 --> 01:37:38,860
Okay.

1000
01:37:38,860 --> 01:37:40,460
That's all I have, Your Honor.

1001
01:37:40,460 --> 01:37:51,260
Mr. Cudia, I recall – and I might be wrong about this – but that other crypto cases have permitting service by email.

1002
01:37:51,260 --> 01:37:53,820
Is that your understanding as well?

1003
01:37:53,820 --> 01:37:56,060
That is my understanding, Your Honor.

1004
01:37:56,060 --> 01:37:57,500
Okay.

1005
01:37:57,500 --> 01:38:07,100
I'm going to overrule the Trustee's objection, but I'm only going to allow this on an interim basis to allow a fulsome hearing on this on notice.

1006
01:38:07,100 --> 01:38:23,660
So I would ask that the order be an interim order and that this be scheduled for a fulsome hearing at the second day.

1007
01:38:23,660 --> 01:38:24,700
Yes, Your Honor.

1008
01:38:24,700 --> 01:38:25,260
Thank you.

1009
01:38:25,260 --> 01:38:27,580
We will make those changes and upload the order.

1010
01:38:27,580 --> 01:38:31,500
Okay.

1011
01:38:31,500 --> 01:38:35,740
With that, Your Honor, I believe that concludes our agenda for today.

1012
01:38:35,740 --> 01:38:37,420
I had one other comment.

1013
01:38:37,420 --> 01:38:38,380
I'm sorry.

1014
01:38:38,380 --> 01:38:48,220
But on paragraph 9 of the matrix order, the first sentence didn't make sense to me.

1015
01:38:48,220 --> 01:38:49,980
I think there's a word missing.

1016
01:38:49,980 --> 01:38:59,660
I think it should be the – notwithstanding the above, the debtor shall file publicly without redacting.

1017
01:38:59,660 --> 01:39:02,860
I'm not –

1018
01:39:02,860 --> 01:39:05,660
The debtor shall file – yes, the any.

1019
01:39:05,660 --> 01:39:11,980
It should be file any public filings, which is the defined term in the motion.

1020
01:39:11,980 --> 01:39:14,300
Oh, take out the – okay.

1021
01:39:14,300 --> 01:39:14,780
Yes.

1022
01:39:14,780 --> 01:39:15,260
Okay.

1023
01:39:15,260 --> 01:39:17,580
Which will clean up.

1024
01:39:17,580 --> 01:39:18,380
That would make sense.

1025
01:39:18,380 --> 01:39:18,860
Okay.

1026
01:39:18,860 --> 01:39:19,500
That's terrific.

1027
01:39:19,500 --> 01:39:20,220
Thank you.

1028
01:39:20,220 --> 01:39:25,260
And if you'll just put in a hearing date and objection deadline and make it interim,

1029
01:39:25,260 --> 01:39:26,380
we'll have a final hearing.

1030
01:39:26,380 --> 01:39:26,940
Okay.

1031
01:39:26,940 --> 01:39:28,060
Thank you very much.

1032
01:39:28,060 --> 01:39:35,420
And Mr. Cudia, thank you very much for working with the debtors on their first days on short notice.

1033
01:39:35,420 --> 01:39:39,900
And particularly, I appreciate your concerns with respect to the notice issue,

1034
01:39:39,900 --> 01:39:44,140
and I want to give you a more fulsome opportunity to address that issue.

1035
01:39:44,140 --> 01:39:45,820
Thank you, Your Honor.

1036
01:39:45,820 --> 01:39:49,180
Is there anything further for today?

1037
01:39:49,180 --> 01:39:50,860
Your Honor, it's Mike Nester again.

1038
01:39:50,860 --> 01:39:51,580
Yes.

1039
01:39:51,580 --> 01:39:51,980
Sorry.

1040
01:39:51,980 --> 01:39:53,100
Marish, are you going to say something?

1041
01:39:53,100 --> 01:39:53,580
That's okay.

1042
01:39:53,580 --> 01:39:55,740
No, I was going to shut you down, but you go ahead.

1043
01:39:55,740 --> 01:39:56,860
Oh, nice try.

1044
01:39:58,460 --> 01:40:03,260
I just want to – just getting back to the budget, and we appreciate Your Honor's guidance on coming

1045
01:40:03,260 --> 01:40:04,060
back to you next week.

1046
01:40:04,060 --> 01:40:06,300
Hopefully, we don't go there, but we'll see what happens.

1047
01:40:07,660 --> 01:40:12,460
With respect to the professional fee line items that don't exist at this time because no

1048
01:40:12,460 --> 01:40:16,540
retentions have been filed and orders entered, et cetera, I assume those are just accruals that

1049
01:40:16,540 --> 01:40:17,820
nothing's being done.

1050
01:40:17,820 --> 01:40:19,500
The money is still staying with the debtor.

1051
01:40:20,620 --> 01:40:22,860
So if I'm incorrect, let me know.

1052
01:40:22,860 --> 01:40:26,300
But I assume that's the case since no one's really been retained at this point.

1053
01:40:26,300 --> 01:40:29,580
And if that is true, then we're done for the day.

1054
01:40:33,180 --> 01:40:37,020
Your Honor, it's Darren Asman from McDermott, Post-Council for the Debtors.

1055
01:40:37,740 --> 01:40:42,860
The accruals are being funded – and unless Ms. Candice Stenar-Steinman corrects me,

1056
01:40:42,860 --> 01:40:47,260
I believe the accruals are being funded into an escrow, but they're not – certainly not

1057
01:40:47,260 --> 01:40:52,300
being paid to any professionals absent retention applications, fee applications,

1058
01:40:53,020 --> 01:40:54,140
of course, that are required.

1059
01:40:54,140 --> 01:40:56,220
That's correct.

1060
01:40:56,220 --> 01:40:56,940
I'm sorry.

1061
01:40:56,940 --> 01:40:59,180
Is it a segregated account at the debtor?

1062
01:40:59,180 --> 01:41:04,140
Is it a separate escrow account with a separate bank with an escrow agreement?

1063
01:41:05,500 --> 01:41:08,460
I'm just trying to understand if the funds are out of the estate or in the estate,

1064
01:41:08,460 --> 01:41:12,220
and what the basis would be to take them out of the estate if they are up in the estate.

1065
01:41:12,220 --> 01:41:19,820
Your Honor, the debtors are in the process of finalizing agreements to set up that account.

1066
01:41:20,940 --> 01:41:28,460
So at this time, I mean, we don't have – we're not sure what type of form it will take.

1067
01:41:28,460 --> 01:41:33,660
But the – I guess – well, we all appreciate there will be no payment of professionals

1068
01:41:33,660 --> 01:41:39,900
absent, A, retention, and B, some type of payment mechanism, whether it be interim

1069
01:41:39,900 --> 01:41:43,500
compensation or a fee order, right?

1070
01:41:43,500 --> 01:41:51,020
But the question I think Mr. Nestor is asking is, is this an account that is being set up

1071
01:41:51,020 --> 01:41:57,980
and held by the debtor that's simply segregating fees, or are these fees being transferred out of

1072
01:41:57,980 --> 01:42:01,100
the estate or otherwise not?

1073
01:42:01,100 --> 01:42:01,600
No.

1074
01:42:02,060 --> 01:42:02,560
Go ahead.

1075
01:42:03,580 --> 01:42:04,700
I'm sorry, Your Honor.

1076
01:42:04,700 --> 01:42:10,220
It is a new segregated account to be held by the debtors.

1077
01:42:10,220 --> 01:42:10,720
Okay.

1078
01:42:11,260 --> 01:42:12,620
That's fine, Your Honor.

1079
01:42:12,620 --> 01:42:15,340
If it's just a segregated account over which the debtor has control,

1080
01:42:15,900 --> 01:42:16,540
completely fine.

1081
01:42:16,540 --> 01:42:17,420
Thank you very much.

1082
01:42:17,420 --> 01:42:17,920
Okay.

1083
01:42:18,140 --> 01:42:19,260
You said it better than I did.

1084
01:42:20,140 --> 01:42:24,300
Is there anything else pending for today or anything else we need to address?

1085
01:42:26,380 --> 01:42:27,260
No, Your Honor.

1086
01:42:27,260 --> 01:42:28,860
I think we're all done here.

1087
01:42:28,860 --> 01:42:33,740
We did just upload the revised cash balance in order, I believe.

1088
01:42:33,740 --> 01:42:38,140
And so we appreciate, Your Honor, sticking around to answer that.

1089
01:42:38,140 --> 01:42:38,620
Certainly.

1090
01:42:38,620 --> 01:42:39,740
I don't mind being here.

1091
01:42:39,740 --> 01:42:43,340
I really very much appreciate the court staff for sticking around.

1092
01:42:43,340 --> 01:42:46,060
So I hope you all have a great weekend.

1093
01:42:46,860 --> 01:42:47,980
We stand adjourned.

1094
01:42:48,940 --> 01:42:52,140
And if you should need the court, you know where to reach us.

1095
01:42:52,140 --> 01:43:04,540
Thank you all.