1 00:00:00,000 --> 00:00:11,400 Mr. Mosco, welcome. It's good to see you. 2 00:00:11,400 --> 00:00:14,400 Good to see you too, Your Honor. 3 00:00:14,400 --> 00:00:19,400 Mr. Shepard Carter, I like the tie. Is that black and orange? 4 00:00:19,400 --> 00:00:26,400 This is black. No, it's not black and orange. It's dark, dark blue and orange, which are the colors of your alma mater. 5 00:00:26,400 --> 00:00:30,400 The colors of my alma mater are black and orange. Oh, then it's black and orange. 6 00:00:30,400 --> 00:00:35,400 Your instincts are excellent. You may proceed. Mr. Mosco, good morning again. Good to see you. 7 00:00:35,400 --> 00:00:37,400 I should have known that since they were the Tigers. They are the Tigers. 8 00:00:37,400 --> 00:00:39,400 We are the Tigers. 9 00:00:39,400 --> 00:00:48,400 Good morning, Your Honor. We sent over to chambers a PowerPoint presentation. I can hand up an extra copy if you'd like. 10 00:00:48,400 --> 00:00:49,400 I have it. Thank you. 11 00:00:49,400 --> 00:00:58,400 And thanks for the Court's time today. It may seem like a bit of navel gazing going on here because there's not a controversy, 12 00:00:58,400 --> 00:01:07,400 but we did want to update the Court from our last presentation, from where we are. All the work is being done behind the scenes that you haven't seen. 13 00:01:07,400 --> 00:01:14,400 I appreciate that, and certainly no apology is necessary. I'm always happy to take a status report. 14 00:01:14,400 --> 00:01:25,400 As you just mentioned, I really have limited visibility into most of the cases that I have, and often then it just turns into a very ugly surprise when everything blows up all at once. 15 00:01:25,400 --> 00:01:31,400 So I'm hoping that's not going to happen here, but I certainly do appreciate the guidance that you're offering. 16 00:01:31,400 --> 00:01:43,400 Correct, Your Honor. Just to level set and for the record, Patty Tomasko, Quinn Emanuel on behalf of the Dutters, and I'm joined by my colleague, Ken Ennis from the Young Conaway Firm. 17 00:01:43,400 --> 00:01:54,400 We just wanted to go through where we were. The last presentation that we gave you, we had very low engagement from the customers that we had asked to withdraw their crypto. 18 00:01:54,400 --> 00:02:07,400 As you know, the Court entered an order allowing the customers to begin withdrawing cryptocurrency and fiat currency as of June 15th is when we reopened the platform after the May 8th petition date. 19 00:02:07,400 --> 00:02:21,400 So we wanted to go through that. I also want to introduce the Court to, we have a couple of the legal staff from Bittrex, Caleb Barker and David Maria. 20 00:02:21,400 --> 00:02:29,400 David Maria is the General Counsel of Bittrex and Caleb Barker is the Assistant General Counsel of Bittrex. 21 00:02:29,400 --> 00:02:31,400 Very good. Welcome, gentlemen. 22 00:02:31,400 --> 00:02:50,400 Morning, Your Honor. If I get something wrong, which I frequently do, they will correct me and I've invited them to be live so that as we go through this, if I get something wrong, they can say, or if the Court has any questions about what we've done and all of the efforts that have gone into this and where we are with the status of the withdrawals. 23 00:02:50,400 --> 00:03:06,400 I'm not going to bore the Court with the history, but as you know, we filed the bankruptcy petition on May 8th. The Court entered the customer withdrawal order on June 13th. We reopened the platform on June 15th. 24 00:03:06,400 --> 00:03:30,400 This is consistent with the main goal of the case, which was to set up a process by which Bittrex USA operations could be wound down, along with the sister company Bittrex Malta, which is a Maltese organization that has been roughly out of operation since late 2018. 25 00:03:30,400 --> 00:03:38,400 So to that end, if you turn to slide six, you can see our Chapter 11 timeline to where we are today. 26 00:03:38,400 --> 00:03:44,400 Of course, we have a disclosure statement hearing coming up on the 27th. 27 00:03:44,400 --> 00:03:45,400 Right. 28 00:03:45,400 --> 00:03:51,400 And this is sort of to get everybody, you know, oriented correctly as we face that. 29 00:03:51,400 --> 00:04:05,400 So far, I will say we have gotten only informal comments and nothing momentous with respect to the disclosure statement or the plan. We're getting language, incorporating it. All of that's going to plan. 30 00:04:05,400 --> 00:04:20,400 Turning to slide eight, as I mentioned, we still have to comply as we're doing customer withdrawals with the various regulatory requirements for the payment. 31 00:04:20,400 --> 00:04:22,400 KYC and KML stuff. 32 00:04:22,400 --> 00:04:25,400 The main that I call them, Finson and OFAC. 33 00:04:25,400 --> 00:04:29,400 Finson is concerned with financial crimes. 34 00:04:29,400 --> 00:04:32,400 They want to have all the KYC information from the customer. 35 00:04:32,400 --> 00:04:35,400 So are you really who you say you are? 36 00:04:35,400 --> 00:04:42,400 And they also want to know that, you know, you're not engaging in some kind of money laundering. 37 00:04:42,400 --> 00:04:45,400 So that's that's really what they're about. 38 00:04:45,400 --> 00:04:54,400 OFAC is concerned with persons in foreign countries engaging in financial transactions in the U.S. 39 00:04:54,400 --> 00:05:00,400 So those two regulatory requirements are built into the algorithms of the platform. 40 00:05:00,400 --> 00:05:03,400 OK. 41 00:05:03,400 --> 00:05:17,400 So we also wanted them to update, accept the updated terms of service, which also incorporate these regulatory requirements. And so that process has been underway. 42 00:05:17,400 --> 00:05:24,400 So in conjunction with that, there was, of course, an increase in activity with the help desk. 43 00:05:24,400 --> 00:05:31,400 The company engaged overtime help desk assistance. 44 00:05:31,400 --> 00:05:47,400 And that has continued all the way through August 31st when the help desk was shut down, consistent with the August 31st, 2023, part eight. 45 00:05:47,400 --> 00:05:53,400 So that help desk activity kind of demonstrates how much the company has been working with the customers. 46 00:05:53,400 --> 00:06:01,400 There's been forty seven thousand plus customer help desk tickets and a lot. 47 00:06:01,400 --> 00:06:06,400 And then the other the other interesting thing is there's two factor authentication. 48 00:06:06,400 --> 00:06:08,400 Obviously, this is dealing with financial assets. 49 00:06:08,400 --> 00:06:19,400 And so that process of, you know, I know in my law firm to get logged on in the morning, sometimes it takes me 15 minutes as I'm going through all of the steps. 50 00:06:19,400 --> 00:06:23,400 The same thing happens on this platform. So you have two factor authentication. 51 00:06:23,400 --> 00:06:26,400 You're going to get a text to your phone and an email. 52 00:06:26,400 --> 00:06:37,400 And those two things combined give you, you know, the best security, high level confidence that you're dealing with the right person. 53 00:06:37,400 --> 00:06:48,400 Thirty five thousand nine hundred seventy two customers have withdrawn their like kind assets for a total value of one hundred and forty three point seven six million dollars worth of crypto. 54 00:06:48,400 --> 00:07:00,400 This is in addition to approximately twenty three million that was withdrawn during the April wind down period immediately before the petition was filed. 55 00:07:00,400 --> 00:07:08,400 So on slide eleven. We've broken these numbers down. 56 00:07:08,400 --> 00:07:20,400 By the number of customers remaining and the number of customers that have withdrawn. 57 00:07:20,400 --> 00:07:39,400 So the value of crypto withdrawn is one hundred and forty three point six point seven six million broken down between Bittrex US of ninety five million and Bittrex Malta of forty eight million. 58 00:07:39,400 --> 00:07:46,400 OK. So one of the things we wanted to explore was why were we getting such low levels of engagement. 59 00:07:46,400 --> 00:07:58,400 And so in the beginning and so we broke it down between customers with balances over one hundred dollars and customers with balances under one hundred dollars and of the remaining customers. 60 00:07:58,400 --> 00:08:09,400 Their balances are under one hundred dollars. That's the number of those is seventy seven percent of the remaining customers have balances under one hundred dollars. 61 00:08:09,400 --> 00:08:25,400 So we have a combination that you've talked about earlier. We have what may be stale accounts with dated or old or ineffective contact information and then basically relatively modest amounts that nobody's necessarily wondering where my money go. 62 00:08:25,400 --> 00:08:33,400 Correct your honor. OK. And I will tell you anecdotally I've been monitoring things like the Bittrex Twitter Bittrex Reddit. 63 00:08:33,400 --> 00:08:49,400 You know the various sites where customers are engaging more frankly and the sentiment is you know I don't want to give you all that information to get to get thirty five dollars correct. 64 00:08:49,400 --> 00:09:11,400 OK. They really are making a calculated decision. They know about it and we're going to go through the notice process in a bit. But we have also prioritized we took a list of the crypto customers that remained and we put them in in rank order of highest to lowest and we engage with them directly. 65 00:09:11,400 --> 00:09:21,400 Send them an email not just a group email sent them an email and said hey you've got this much you need to get it off. And so that's where we've seen a lot of success. You know understandably. 66 00:09:21,400 --> 00:09:44,400 OK. So 11 of the top 50 customers by balance have withdrawn substantially all their assets for a total of eight point seven million of withdrawn balances. Five hundred and seventeen of the seven hundred and one users with a balance over one hundred thousand have withdrawn substantially all of their assets. 67 00:09:44,400 --> 00:09:58,400 And so that you know prioritizing the large dollar dollar customers has really paid off in terms of getting the crypto off. Most of the remaining accounts are inactive and have been inactive for a year or more. 68 00:09:58,400 --> 00:10:15,400 Fifty one point two percent have been active in the last two years. Only forty one point one percent of the remaining funds are associated with user accounts that have shown no activity since December 31 of 2019. 69 00:10:15,400 --> 00:10:20,400 The story with them is most of them signed up with inadequate information. 70 00:10:20,400 --> 00:10:24,400 OK. 71 00:10:24,400 --> 00:10:45,400 Also we've been actively engaging with the government on a couple of accounts. Some of the accounts were involved in criminal proceedings criminal forfeiture proceedings and we've cooperated with the U.S. Attorney's Office the Justice Department and the SEC to withdraw those amounts that were subject to those criminal forfeiture proceedings. 72 00:10:45,400 --> 00:10:55,400 The Secret Service had one of our largest accounts of six point two million dollars. 73 00:10:55,400 --> 00:11:00,400 We worked with that agency for them to successfully withdraw that amount. 74 00:11:00,400 --> 00:11:03,400 OK. As I said. 75 00:11:03,400 --> 00:11:16,400 Notice has been extremely robust. We knew it was going to be a large number of potential creditors. We we did not spare. 76 00:11:16,400 --> 00:11:22,400 We spent every dollar that was responsibly spent to get notice out. 77 00:11:22,400 --> 00:11:34,400 But this is in addition to the numerous emails that have gone out to customers throughout the history of the company in particular Bittrex Malta because it shut down operations in 2019. 78 00:11:34,400 --> 00:11:46,400 It's since you know more than a million emails to its users in October of 2019 advising them that it was shutting down its platform. 79 00:11:46,400 --> 00:11:56,400 So it was known as Bittrex International at that time and it the company decided it no longer wanted to operate Bittrex International. 80 00:11:56,400 --> 00:12:01,400 So it started shutting down and moving those accounts over to Bittrex Global. 81 00:12:01,400 --> 00:12:13,400 So additional notices went out as reflected on this slide and they were notified at the end of 2019. 82 00:12:13,400 --> 00:12:19,400 The Bittrex International was no longer going to support those accounts. 83 00:12:19,400 --> 00:12:24,400 So that was over the course of a year. A lot of effort went into getting customers off that platform. 84 00:12:24,400 --> 00:12:35,400 Sure. Now Bittrex US made the decision to shut down its platform in late March of 2020. 85 00:12:35,400 --> 00:12:48,400 But even before that Bittrex had reached out to customers with inactive balances starting in March of 2022. 86 00:12:48,400 --> 00:13:00,400 It emailed inactive customers and asked them to update their account information and to otherwise interact with the platform. 87 00:13:00,400 --> 00:13:14,400 Inactive accounts also got letters in August of 2022 and in 2023 Bittrex mailed postcards to additional inactive customers. 88 00:13:14,400 --> 00:13:22,400 As I said in March of 2023 Bittrex announced via Twitter that it was shutting down its US operations. 89 00:13:22,400 --> 00:13:36,400 It sent an email to 1,045,323 users. Reminder emails were sent to 521,000 accounts on various dates in April. 90 00:13:36,400 --> 00:13:45,400 Between March 31 and April 30 the customer support team resolved 27,000 help desk tickets. 91 00:13:45,400 --> 00:13:59,400 After the bankruptcy 1.6 million customers got notice of the commencement via email. 92 00:13:59,400 --> 00:14:09,400 Regular mail went to 44,000 parties in interest including certain customers where we knew their email wasn't good. 93 00:14:09,400 --> 00:14:21,400 In total via email or regular mail Omni served the notice of the commencement on 1.652 million customers. 94 00:14:21,400 --> 00:14:30,400 We similarly adopted a robust approach to the bar date notice knowing how important it was in the case of this type. 95 00:14:30,400 --> 00:14:32,400 Could you remind me what's the bar date? What was the bar date? 96 00:14:32,400 --> 00:14:43,400 The bar date was August 31. This status report may seem random but it happens to happen after the bar date before the disclosure statement. 97 00:14:43,400 --> 00:14:47,400 That gets pretty timely. 98 00:14:47,400 --> 00:14:59,400 That bar date went to even more customers, 1.9 million customers and regular mail to 57,000 parties in interest. 99 00:14:59,400 --> 00:15:10,400 In total 2 million customers received either email or mail notice of the bar date. 100 00:15:10,400 --> 00:15:21,400 There was also publication notice in CoinDesk, Wall Street Journal, and the Financial Times of London and the Financial Times of Malta. 101 00:15:21,400 --> 00:15:33,400 It's not just financial. All of those publication notices have been filed on the docket. 102 00:15:33,400 --> 00:15:43,400 There have been also social media efforts on Twitter. Twitter messages in June, July, and at the end of July. 103 00:15:43,400 --> 00:15:52,400 There was a Reddit message on July 26. There was a text message where SMS had been authorized for the customers on August 2. 104 00:15:52,400 --> 00:16:01,400 Can I ask just out of curiosity, who is doing that messaging via Twitter? Is that coming directly from the company or is that being managed by Omni or Kroll or somebody else? 105 00:16:01,400 --> 00:16:10,400 It's being done by the company through the company's normal social media accounts. 106 00:16:10,400 --> 00:16:21,400 As I said, I've been monitoring them as well, looking at customer feedback and seeing if there was anything that looked like a customer had a legitimate break. 107 00:16:21,400 --> 00:16:25,400 We've been dealing with those throughout. 108 00:16:25,400 --> 00:16:44,400 In addition, we prioritized balances over $100,000 and sent an additional mail to postcard to 73,000 customers on August 3. 109 00:16:44,400 --> 00:17:06,400 We detailed the emails that have gone out to the email addresses on the platform and how those were targeted towards different groups with certain balances or locations in an attempt to provide as much notice as possible to the customers. 110 00:17:06,400 --> 00:17:19,400 In addition to the withdrawals, the debtors have received 3,292 claims, of which 3,240 are customer proofs of claim and 52 are non-customer proofs of claim. 111 00:17:19,400 --> 00:17:36,400 We, just so the court knows, it is our intention because some of the claims were filed by customers with very large amounts in them. One such claim had $160 million claimed. 112 00:17:36,400 --> 00:17:46,400 We do plan on starting the proof of claim objection process soon, in the next few weeks. 113 00:17:46,400 --> 00:17:50,400 We are cordially happy to accommodate scheduling in connection with that. 114 00:17:50,400 --> 00:17:51,400 Thank you, Your Honor. 115 00:17:51,400 --> 00:18:04,400 While I usually like to get creditors' votes before I object to their claims in this case, the proof of claim process is going to require company resources to resolve them. 116 00:18:04,400 --> 00:18:22,400 It is as much a cost saving measure as it is trying to get to the bottom of these claims for feasibility purposes as well. The $150 million claim plus the SEC plus FinCEN, OFAC, that might get on the edge of feasibility. 117 00:18:22,400 --> 00:18:25,400 We are going to have some of those objections filed. 118 00:18:25,400 --> 00:18:28,400 Okay. I understand. 119 00:18:28,400 --> 00:18:39,400 We filed our plan and disclosure statement on August 25th. We have our disclosure statement hearing on September 26th. 120 00:18:39,400 --> 00:18:50,400 For disclosure purposes, we've only unimpaired priority claims because they're statutorily unimpaired. Everybody else is going to get a chance to vote. 121 00:18:50,400 --> 00:18:57,400 Whether or not they're impaired will lead for a confirmation objection, but everybody's going to get to vote. 122 00:18:57,400 --> 00:19:03,400 That leaves our next few deadlines of disclosure statement hearing. 123 00:19:03,400 --> 00:19:11,400 3018 motions on 929. Voting is on October 16. 124 00:19:11,400 --> 00:19:17,400 Confirmation hearing is October 23rd. 125 00:19:17,400 --> 00:19:27,400 If the court has any other questions, we wanted to present that to the court showing where we are post-BAR date, pre-discourse statement. 126 00:19:27,400 --> 00:19:30,400 This is particularly helpful to me. I appreciate getting the heads up. 127 00:19:30,400 --> 00:19:33,400 Again, as I said, I really don't have much visibility. 128 00:19:33,400 --> 00:19:41,400 Most of the activity you've described is not necessarily taking place on the docket or in open court. 129 00:19:41,400 --> 00:19:50,400 At the outset of this case, you all reported that there were many, many holders or potential holders and lots of people with an interest in this exercise. 130 00:19:50,400 --> 00:19:58,400 You laid out with, I think, specificity what your intentions were in terms of dealing with those folks. 131 00:19:58,400 --> 00:20:08,400 I think you started and repeated a number of times that the circumstances of this particular crypto case are very different from most of the others that are pending or in the ABI headlines. 132 00:20:08,400 --> 00:20:11,400 I get it. Let me ask you a question. 133 00:20:11,400 --> 00:20:13,400 It is just, frankly, out of curiosity. 134 00:20:13,400 --> 00:20:17,400 I confess that I have not gone back and looked again at the plan and the disclosure statement. 135 00:20:17,400 --> 00:20:22,400 That hearing is coming up in a couple of weeks, and I will certainly be prepared for that. 136 00:20:22,400 --> 00:20:36,400 The process that you've just described clearly leads to an assumption that there will be significant assets and the number of parties that have lost interest in this exercise. 137 00:20:36,400 --> 00:20:45,400 They've only got $25, $50, $100 with you. They don't want to fill out a bunch of paperwork over it. They haven't thought about this since 2018. I get it. 138 00:20:45,400 --> 00:21:03,400 This would seem to me, then, to be one of these cases that has a fair number of assets at the end of it that need to be disposed of, and I assume that the plan provides for the mechanism for doing that. 139 00:21:03,400 --> 00:21:18,400 Is there an expectation that there will be funds left over that are not claimed by creditors, and do they then get used in the implementation of the plan, or are they given away, or is geded, or I don't know exactly what happens? 140 00:21:18,400 --> 00:21:19,400 Sources and uses? 141 00:21:19,400 --> 00:21:20,400 Yeah. 142 00:21:20,400 --> 00:21:27,400 So we're going to have claims. We have settlements with FinCEN, OPAC, and the SEC. Those are significant numbers. 143 00:21:27,400 --> 00:21:28,400 Right. 144 00:21:28,400 --> 00:21:37,400 We have the costs of administration. We have the claims that are on file, so those will all come out of whatever is left. 145 00:21:37,400 --> 00:21:51,400 But at this point, one of the reasons why we want to do some claim objections is to make sure we have enough to pay all the claims, and if those are successful, I believe there will be money left over. 146 00:21:51,400 --> 00:21:52,400 Okay. 147 00:21:52,400 --> 00:22:12,400 Well, the claims reconciliation process is an exercise that, as you described, is often one that depends upon the judgment and discretion of the debtor about the fights that are, whether it's worth picking these fights, but obviously some of these steps may need to be taken in the context of the confirmation process. 148 00:22:12,400 --> 00:22:20,400 If you need scheduling with respect to claims administration, again, you can contact Ms. Velo in my chambers, and she'll be happy to give you hearing data if you need it. 149 00:22:20,400 --> 00:22:31,400 Correct. We've been working with Mr. Enos in terms of coming up with any kind of procedures that we're going to conform with the local rules. 150 00:22:31,400 --> 00:22:41,400 I will tell you our approach is we're going to take the low-hanging fruit first, which is duplicates. 151 00:22:41,400 --> 00:22:43,400 Yeah, you separate wheat from chaff. 152 00:22:43,400 --> 00:22:51,400 Yeah, but in the very large claims that were filed that have no correlation with what is shown on the debtor's books and records. 153 00:22:51,400 --> 00:22:52,400 Okay. 154 00:22:52,400 --> 00:23:00,400 Well, I do not have any questions and again I very much appreciate getting the report. 155 00:23:00,400 --> 00:23:09,400 You know this case has unusual features, but all the crypto cases do but these are at least features that I can understand when they're explained to me. 156 00:23:09,400 --> 00:23:14,400 Yes, Mr. Sheppard Carter, did you have anything to answer? 157 00:23:14,400 --> 00:23:17,400 Sure. 158 00:23:17,400 --> 00:23:27,400 For the record, Richard Park, the United States, trustee, we haven't completed our review of the plan disclosure statement and the procedures, of course, attended there to the deadlines 21st. 159 00:23:27,400 --> 00:23:32,400 I'm hoping that by Friday, I can get out my comments to counsel. 160 00:23:32,400 --> 00:23:42,400 I like to do it that way, get the comments out, see if we can work through what we can work through. If we have to file objections, we'll take that up into the course. 161 00:23:42,400 --> 00:23:53,400 I think after that, we'll just go to plan confirmation and we'll see where we go from there and hopefully we get there in the middle of October. 162 00:23:53,400 --> 00:23:54,400 Very good. 163 00:23:54,400 --> 00:23:56,400 Other than that, if nothing else, you're all invited. 164 00:23:56,400 --> 00:24:13,400 I note that we have a number of parties that are participating virtually. I would ask if anyone else wishes to be heard with respect to the debtor's status report to the court on developments in the Chapter 11 case. 165 00:24:13,400 --> 00:24:19,400 Hearing no response, again, I very much appreciate getting the status report from the debtor. I had no further questions. 166 00:24:19,400 --> 00:24:34,400 As noted, if the debtor requires scheduling or other support from the court as you move forward through the disclosure statement and into plan confirmation, all you need to do is call chambers and we'll be happy to accommodate with any scheduling needs that you have. 167 00:24:34,400 --> 00:24:37,400 But with that, I believe we are adjourned. Thank you, counsel. 168 00:24:37,400 --> 00:24:50,400 We stand in recess.