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Good? And now you can hear me. Okay. One small change on the pre-trial order is you identified

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me as the Chief Bankruptcy Judge at one point. I had to correct that.

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Your Honor, no battlefield promotion. That was unintended.

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I don't want it either. I'm sure your time will come.

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So with that, Your Honor, I would see the podium to Ms. Sarkeesian, the movement, and

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we'll proceed following her lead. Okay. And just a reminder for those on Zoom, this

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is a formal court proceeding. You are participating in a formal manner, so you need to keep your

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video off unless I call on you to speak and your audio should remain off at all times.

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If any interruptions will not be tolerated, then you will be removed if you interrupt

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the proceedings. So with that, Ms. Sarkeesian, go ahead.

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Thank you, Your Honor. Good morning. For the record, Juliet Sarkeesian on behalf of the

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U.S. Trustee. Are there microphones on there too? Okay.

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Hopefully this is working. I can hear you now.

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So, Your Honor, the Council for the Parties in Interest had discussed and we wanted to

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present to you a proposal that we would each start with not more than a 10-minute opening

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if it pleases the court, followed by evidence and then closing statements. Is that acceptable?

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Yes, absolutely. Also, Your Honor, in the joint pretrial order,

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the U.S. Trustee included two motions in limine. Would Your Honor, when would Your Honor like

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to hear those? Well, before we start the evidence, so let's

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do the openings and then we'll do the motions in limine.

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Thank you, Your Honor. The U.S. Trustee has moved to appoint an examiner

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in these cases under both 1104C1 and 1104C2. As the U.S. Trustee has argued in its motion

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and reply, Section 1104C2 of the Bankruptcy Code mandates the appointment of an examiner

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in a debtor's case if there is no trustee appointed, no Chapter 11 plan has been confirmed,

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a party in interest or the U.S. Trustee has requested the appointment of an examiner,

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and the debtor has fixed liquidated unsecured debts other than for debt,

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the debts for goods, services or taxes for owing to an insider that exceed $5 million.

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All of these elements have been made in this case. I think everybody can agree there's

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no trustee and there's no Chapter 11 plan, and the U.S. Trustee has requested an examiner.

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All of the objectors, the debtors, the committee and the Joint Provisional Liquidators,

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have all stipulated that the $5 million threshold has been met under 1104C2 for three debtors,

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West Realm Shires, Inc., FTX Trading LTD and Alameda Research LLC. As to the other debtors,

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the objecting parties do not stipulate that the $5 million threshold has been met because

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they are not currently in a position to make that determination. However, the objecting

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parties stipulate they are not contesting the examiner motion on the basis that the

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$5 million threshold has not been met for those other debtors. So based on the stipulated

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facts alone, the U.S. Trustee believes that the code does mandate the appointment of an

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examiner in these cases under 1104C2. The objectors argue that in addition to the elements

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that I've just set forth, the code has an additional requirement, which is that the

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court find the appointment of an examiner is appropriate in these cases. While the U.S.

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Trustee believes that the evidence will establish that an examiner is appropriate in these

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cases, the U.S. Trustee does not believe that the code requires a finding of appropriateness

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for either C2 or C1 for the reasons set forth in the U.S. Trustee's reply brief, which I

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will touch on. The objectors' reading of the statutes would mean that the only time that

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C2 would be applicable is if the $5 million threshold was met and it was not in the best

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interest of the creditors to have an examiner, because if it was, then it would go under

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C1. But so that even though it was not in the best interest of the creditors, it was

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nevertheless appropriate to appoint an examiner. So that, if appropriateness is a requirement,

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that would be the only time that C2 would apply. It's not in the, the threshold's been

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met, it's not in the best interest of the creditors, but it's somehow still appropriate.

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That, it's rather difficult to imagine what that situation would be. In addition, the

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wording of 1104C is that the court shall order the appointment of an examiner to conduct

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such an investigation of the debtors as is appropriate. I will note that it does not

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say if it is appropriate, which is different, and that's how the objectors are interpreting

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it. The U.S. trustee along with the majority of the published opinions have addressed,

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that have addressed that issue, do not interpret as is appropriate to mean if it is appropriate,

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but rather as is appropriate to modify the term directly before it, which is an investigation.

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So in other words, as is appropriate relates to the scope of the investigation, an appropriate

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scope of the investigation, not whether an examiner shall be appointed if the requirements

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of 1104C, 1 or C2 were met. And I think it's also important to note that 1104C2 does not

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provide for the examiner, for an examiner in every case in which a debtor has debts that

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exceed 5 million. It's much more narrow than that. To be counted to the 5 million, it has

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to be unsecured, fixed, liquidated, and for debts other than goods, services, or taxes,

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and not be owned to an insider. Not being for goods or services is a pretty significant

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factor. So it's much more stringent than just having over 5 million dollars in debt.

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That's my way, Your Honor, of saying that 1104C2 does not mandate that an examiner be

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appointed in every case in which the debtor has more than 5 million dollars in debt in

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anybody requested. That would be virtually every case that's before this court, I would

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imagine. But it's much more narrow than that. And here, again, they've stipulated, there's

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no question, that that 5 million dollar threshold with all of the qualifying terms have been

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met, at least for the three, and they're not contesting for the others. So, Your Honor,

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I would ask if the court is now prepared to make a ruling on whether 1104C2 mandates the

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appointment of an examiner in these cases, because if the court so rules, then there

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would be no need for an evidentiary hearing.

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Well, I'm not going to make that ruling now, but I will give you the opportunity to argue

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that in close.

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Thank you, Your Honor. Your Honor, the U.S. Trustee also believes that the requirements

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for 1104C1 have been met because the appointment of an examiner is in the best interest of

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creditors and other parties in interest, as has been demonstrated by the testimony of

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Mr. Ray, Mr. Mosley, by way of declaration, which we will be admitting, as well as Mr.

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Ray's testimony before the House Financial Services Committee. The U.S. Trustee will

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reserve the remainder of the argument for closing, unless Your Honor has any questions

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at this time.

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No, I'll save my questions for closing. Thank you.

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Thank you, Your Honor.

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Good morning, Your Honor. Jim Bromley of Sullivan.

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I'm Jim Bromley of Sullivan and Cromwell on behalf of the FTX debtors, so may it please

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the court.

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Your Honor, the question that the United States Trustee has posited, whether or not we are

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in a world of mandatory rulings, is one that unfortunately the U.S. Trustee mischaracterizes

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in terms of both the statute, the statutory language, and the precedent that exists. If

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you focus first on the statute, Your Honor, before you get to see one or see two, the

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word appropriate is in the statute. As is appropriate is the phrase. And that phrase,

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as is appropriate, has not been determined by the Revco decision in the Sixth Circuit,

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the only circuit decision that the U.S. Trustee hangs so many hats on. In fact, if you go

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to the Revco decision, it's about three pages long. The 20 minutes that the Sixth Circuit

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spent on writing the Revco decision should not be controlling the decision as to whether

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or not this court or any other court should be appointing an examiner as a mandatory matter

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so long as a $5 million threshold is met. Notwithstanding the U.S. Trustee's most recent

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comments, the $5 million threshold is but a peppercorn when we're dealing with super

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mega cases like we have here. Good bless you.

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So when we're talking about cases of this size and scope and magnitude, it's virtually

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certain that a $5 million threshold is going to be met, and therefore, under the rule that

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is proposed by the U.S. Trustee, it's virtually certain that an examiner is going to be appointed

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in every case. And remember, Your Honor, we may be sitting here today with the U.S. Trustee,

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but the statute is written in terms of any party in interest for the U.S. Trustee. The

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vast majority of examiners are requested by parties in interest who have a particular

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point to advocate, a particular act to grind. If we simply adopted the United States

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Trustee's point that if you meet the $5 million threshold, an appointment of an examiner is

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mandatory, then we're going to have an examiner in virtually every case. And indeed, the precedent

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here in the District of Delaware is very instructive and virtually ignored by the U.S.

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Trustee. Court after court and matter after matter, including Your Honor, has ruled that

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1104 does not require the appointment of an examiner if the $5 million threshold has been met.

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Judge Sanchi, Judge Walrath, Judge Gross, Judge Carey, yourself, Judge Silverstein,

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this is not a happenstance, this is a rule in the District. The U.S. Trustee makes a

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great deal of pay about the fact that there's not a written decision, a published decision.

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That, with all due respect, ignores the practice that we all engage in, which is that we have

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here in case after case situations where we ask bankruptcy judges to make rulings and

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many of those rulings come from the bench and we consistently look at those rulings

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as binding precedent. And it's not as if one decision came up or one comment came out,

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but we have a consistency here over a 15-year period and longer, even back to Judge Walsh.

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That is what the law is here in the District of Delaware. And we shouldn't lose sight

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of what's happening here today. This isn't about FTX. This is about the United States

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Trustee's Office out of Washington looking to make a matter of national policy.

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No, no, I'm sorry, I'm going to object to that. It's opening. We'll see if he can sustain

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it with evidence. He can make whatever comments he likes in opening.

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So, Your Honor, what we are looking at here is not about FTX. Matter of fact, since we've

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been in front of Your Honor since November 11, I would say 80 or 90 percent of the time

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we have spent in court has been dealing with issues that have been raised by the United

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States Trustee, whether it has to do with the creditor matrix, whether it has to do

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with 2004 requests that we filed. We had an objection filed over the weekend to a 2004

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request to take discovery from Sam Bank and Free. What the U.S. Trustee is doing here

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in this case is seeking not simply to be a watchdog, but to be a participant in a manner

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that effectively replaces the Official Committee of Unsecured Creditors that they themselves

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have appointed. There is nothing in the statute that talks about a true neutral. There's

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nothing in the statute that talks about there needing to be an independent party that is

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standing outside of the four corners of the debtors when the facts will show that the

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four corners of these debtors is controlled by an independent Chief Executive Officer,

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an independent Board of Directors, both of whom were appointed after the petition date

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or on the petition date and after. The facts are going to show, Your Honor, that it is

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not appropriate in this case. It is not appropriate in this case to appoint an examiner. It's

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not appropriate in this case to conduct any investigation at this moment in time. Mr.

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Wray will testify that there are enormous efforts that have been made since the beginning

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of the case to investigate the facts and circumstances that gave rise to these violence. Mr. Wray

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is going to testify that the cybersecurity environment that characterizes these debtors

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is unique, that to allow anyone else into that cybersecurity environment will jeopardize

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the security of everything that has gone forward and everything that will go forward. With

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all due respect, the U.S. Trustee's Office views this as if we have a warehouse full

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of sacks of potatoes. We do not. We have a virtual environment that is filled with code,

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and even looking at that code puts at risk everything about the cybersecurity environment.

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The investigation is not simply a legal investigation. It's not simply an accounting investigation.

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It is a technology investigation. The facts and circumstances here make it very clear,

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Your Honor, that if there's a case where an examiner is not appropriate, it's this case.

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Thank you.

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Anyone else want to make an opening?

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Good morning, Your Honor. Ken Pasquale from Paul Hastings with the Official Committee

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of Unsecured Creditors. Let me just start by saying, and I'll save some time, I agree

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with Mr. Bromley's comments with respect to the discretionary nature of the statute. Perhaps

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talk some more about that in closing. I only wanted to make a couple of very brief points

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in opening. We all recognize that this is a unique case, and it's unique in two particular

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ways, I believe, with respect to the U.S. Trustee's motion for an examiner. First,

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as Mr. Bromley just alluded to, and we will hear testimony regarding, the debtors are

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controlled by entirely new management and boards of directors that were installed literally

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on the eve of the bankruptcy cases. None of the alleged bad actors remain with the company.

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The new management group's task is not only to investigate what happened pre-petition

166
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as would an examiner, but also unlike an examiner, to act upon that investigation and with the

167
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committee, evaluate and prosecute claims to maximize recoveries for all of the stakeholders

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of these states. Secondly, unlike many other cases involving fraud in which an examiner

169
00:17:03,280 --> 00:17:09,280
was found to be appropriate, here there's only one class of creditors, the unsecured

170
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creditors. These debtors do not have any secured debt. It's the committee's statutory and

171
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fiduciary obligation to investigate what occurred pre-petition for the benefit of those unsecured

172
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creditors, customers and other creditors alike. And given the capital structure here, the

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committee has no incentive or reason to use an investigation for a strategic advantage

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in planned negotiations or otherwise, as the U.S. Trustee asserts in her motion, in its

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motion, excuse me. The committee is perfectly positioned to investigate in these cases with

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the debtors and as necessary individually. Accordingly, Your Honor, and as you'll hear

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in closings and after the proof, we do not believe it is appropriate in the circumstances

178
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of this case to appoint an examiner. And unless the Court has questions now, I'll reserve

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further comments for closing.

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Thank you. No questions.

181
00:18:11,280 --> 00:18:12,280
Thank you, Your Honor.

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Good morning, Your Honor. Chris Short, Moitin Case, on behalf of the Joint Provisional

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00:18:19,280 --> 00:18:25,280
Liquidators and the Bahamian Proceedings of FTX Digital Markets, we don't intend to put

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on any evidence today and will reserve argument for closing.

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Thank you. Anyone else? All right. Ms. Sarkisian.

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Thank you, Your Honor. May I address the motions in limine at this time?

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Yes.

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Your Honor, the U.S. Trustee has two motions in limine. The first one relates to the scope

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of the testimony of Mr. Ray. Based on information that the Debtors' Council has provided to

190
00:19:04,280 --> 00:19:11,280
the U.S. Trustee concerning the scope, it appears that he will be testifying as a fact

191
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witness about his opinion on the usefulness of examiners in bankruptcy cases in general

192
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or perhaps just in the bankruptcy cases in which he's been involved. Now, such testimony

193
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should not be admissible for the following reasons. First of all, this is really in the

194
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nature of expert testimony, and Mr. Ray is not qualified. He's not been put forward as

195
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an expert witness. I don't believe he's qualified as an expert witness on whether examiners

196
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are helpful in bankruptcy cases. In addition, such testimony is also not relevant under

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Federal Rule of Evidence 401 as to whether an examiner should be appointed in these cases.

198
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Under 1104, the standard for appointment of examiner is not whether it's been helpful

199
00:20:00,280 --> 00:20:05,280
in other cases. It is a legal issue as to whether the requirements of 1104C have been

200
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met. The utility of examiners in general is a policy issue for Congress. It is not for

201
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the trier of fact or the trier of law. It is not relevant to consider usefulness of

202
00:20:17,280 --> 00:20:22,280
examiners in other bankruptcies because it does not inform the Court regarding the factors

203
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to be considered here. And balancing under 403, the probative value of any of Mr. Ray's

204
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testimony on this issue, it's outweighed by the danger of confusing the issues, undue

205
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delay, and wasting time. He does not have an examiner report in this case. He's giving

206
00:20:48,280 --> 00:20:53,280
a subjective opinion of examiner reports in other cases. That's my understanding of what

207
00:20:53,280 --> 00:21:00,280
his testimony is to be. And it is not relevant to whether an examiner should be appointed

208
00:21:00,280 --> 00:21:09,280
here. And then our other motion in Lumine relates to exhibits. And it's a related motion,

209
00:21:09,280 --> 00:21:14,280
essentially, because I understand Mr. Ray's going to be testifying about the exhibits

210
00:21:14,280 --> 00:21:19,280
to which we object. So, Your Honor, should I allow other parties to address this first

211
00:21:19,280 --> 00:21:20,280
motion in Lumine?

212
00:21:20,280 --> 00:21:29,280
Let's do the first one and then we'll go to the second one. Thank you.

213
00:21:29,280 --> 00:21:36,280
Your Honor, Jim Braun with the Sullivan and Cromwell. I don't know that I would characterize

214
00:21:36,280 --> 00:21:44,280
Mr. Kazian's comments as a motion in Lumine, more of an objection to particular testimony

215
00:21:44,280 --> 00:21:49,280
that's not yet occurred. I can assure the Court we are not going to offer Mr. Ray as

216
00:21:49,280 --> 00:21:54,280
an expert. So the idea that we have not submitted an expert report or we're seeking to elicit

217
00:21:54,280 --> 00:21:59,280
some sort of expert opinion from Mr. Ray, I can assure the Court we're not going to

218
00:21:59,280 --> 00:22:02,280
do either of those things.

219
00:22:02,280 --> 00:22:11,280
With respect to Mr. Ray's prior experience, we believe it's absolutely relevant, critical,

220
00:22:11,280 --> 00:22:17,280
not confusing, for Mr. Ray to talk about the two circumstances where he has run into examiner

221
00:22:17,280 --> 00:22:22,280
reports. Mr. Ray is the former Chief Executive Officer of Enron and the former Chief Executive

222
00:22:22,280 --> 00:22:30,280
of Residential Capital. Both of those matters involve the preparation and filing of substantial

223
00:22:30,280 --> 00:22:38,280
expert reports at costs totaling nearly $200 million. Mr. Ray was responsible for prosecuting

224
00:22:38,280 --> 00:22:44,280
claims. As you will hear in this testimony, he reviewed the reports and has views as to

225
00:22:44,280 --> 00:22:50,280
and these aren't opinions, these are personal experiences as to whether or not the reports

226
00:22:50,280 --> 00:22:57,280
were helpful or relevant to him in the exercise of his duties. So this goes directly to his

227
00:22:57,280 --> 00:23:03,280
own experience. We're not talking about him looking at reports that he has not had experience

228
00:23:03,280 --> 00:23:10,280
with. These are two matters, two very important matters, which frankly qualifies Mr. Ray himself

229
00:23:10,280 --> 00:23:19,280
as a person with a great deal of experience in dealing with Chapter 11 and one of the

230
00:23:19,280 --> 00:23:24,280
reasons he's here, right, one of the reasons he's in the role that he is. If there's any

231
00:23:24,280 --> 00:23:29,280
particular questions about that experience that Ms. Sarcasing finds objectionable, then

232
00:23:29,280 --> 00:23:34,280
I think she has the right to make objections at the time on whatever evidentiary basis

233
00:23:34,280 --> 00:23:39,280
may exist at the time. But to right now simply prohibit him from testifying because they

234
00:23:39,280 --> 00:23:47,280
are neither relevant nor or could potentially lead this court to confusion, we believe simply

235
00:23:47,280 --> 00:23:53,280
is not justified. Thank you. All right, on this motion, it's difficult for me to make

236
00:23:53,280 --> 00:23:58,280
a determination in a vacuum as to what the testimony is going to be that might be objectionable.

237
00:23:58,280 --> 00:24:04,280
I would note that if Mr. Ray is going to be testifying about his experience in other cases

238
00:24:04,280 --> 00:24:11,280
and how it might, his perception at least of what the efficacy or usefulness of examiners

239
00:24:11,280 --> 00:24:16,280
are in these types of cases, I think it would fall under Rule 701, which is opinion testimony

240
00:24:16,280 --> 00:24:22,280
by a lay witness based on his personal perception. And so therefore I would allow that testimony

241
00:24:22,280 --> 00:24:27,280
to go forward. But Ms. Sarcasing, you're free to object during the course of the testimony

242
00:24:27,280 --> 00:24:34,280
to any questions you think are inappropriate. Can I move on to my second motion? Yes, of

243
00:24:34,280 --> 00:24:43,280
course. And Your Honor, just to again, Julia Sarcasing for the U.S. Trustee, I'll just

244
00:24:43,280 --> 00:24:48,280
make sure to preserve all objections. We will be having a continuing objection to Mr. Ray

245
00:24:48,280 --> 00:24:54,280
testifying about his experience in other cases or what his opinions are about the usefulness

246
00:24:54,280 --> 00:24:59,280
of examiner reports in other cases. I just want to put that in the record. It's noted,

247
00:24:59,280 --> 00:25:04,280
so you don't have to raise it every time he answers a question. I'll give you a continuing

248
00:25:04,280 --> 00:25:12,280
objection. I may still object a few times, Your Honor. That's fine. That's fine. So the

249
00:25:12,280 --> 00:25:19,280
second issue has to do with exhibits. So, Your Honor, we were able to stipulate to visit

250
00:25:19,280 --> 00:25:28,280
23 joint exhibits, I believe. And I certainly appreciate all parties' efforts in that regard.

251
00:25:28,280 --> 00:25:37,280
On Friday, the debtors filed a declaration of Mr. Bluckstein, an attorney with Sullivan

252
00:25:37,280 --> 00:25:42,280
Cromwell, in further support of the debtor's objection to the motion of the U.S. Trustee

253
00:25:42,280 --> 00:25:52,280
to appoint an examiner. It attached 3,855 pages. It's three binders, large binders.

254
00:25:52,280 --> 00:26:00,280
And what's attached, the first exhibit we do not object to, the first exhibit is just

255
00:26:00,280 --> 00:26:06,280
something that Mr. Sam Bankman Freed signed, a corporate authorization. It's actually part

256
00:26:06,280 --> 00:26:10,280
of all of the petitions. I don't think it needs to be separately admitted. It's admitted

257
00:26:10,280 --> 00:26:18,280
in exhibit 1A, B, and C. But apart from that, what Mr. Bluckstein attaches are the examiner

258
00:26:18,280 --> 00:26:25,280
reports in Enron and residential capital. So, first of all, this filing was untimely.

259
00:26:25,280 --> 00:26:31,280
The objections to the examiner report and all responding papers were due on January

260
00:26:31,280 --> 00:26:38,280
25th. And this was filed February the 3rd, one business day before the hearing. And I

261
00:26:38,280 --> 00:26:45,280
can assure your honor that I did not have an opportunity to review the 3,833 pages of

262
00:26:45,280 --> 00:26:52,280
documents. These also were not identified in response to the debtor's, I'm sorry, in

263
00:26:52,280 --> 00:26:57,280
the debtor's response to the U.S. Trustee's discovery. So one of the interrogatories the

264
00:26:57,280 --> 00:27:03,280
U.S. Trustee had, there were very few, but one of them was please set forward all the

265
00:27:03,280 --> 00:27:09,280
exhibits that you will use at trial. There was nothing about, they listed some things,

266
00:27:09,280 --> 00:27:18,280
but there was nothing about anything from Enron or RezCap or anything of that nature.

267
00:27:18,280 --> 00:27:28,280
In addition, these documents are hearsay. They don't fall under any hearsay exception.

268
00:27:28,280 --> 00:27:35,280
We don't have the author of the document to lay a foundation for the documents, although

269
00:27:35,280 --> 00:27:41,280
author is, excuse me, which would be the examiners. And they're also completely irrelevant to

270
00:27:41,280 --> 00:27:47,280
the issue that is before this court, which is appointment of an examiner in these cases.

271
00:27:47,280 --> 00:27:51,280
Of course, as your honor knows, we don't think any of this would be relevant under C2, but

272
00:27:51,280 --> 00:27:57,280
even under C1, the best interest of the creditors, it's not relevant what an examiner in another

273
00:27:57,280 --> 00:28:04,280
case put in his or her report. And I'd like to respond to, in the joint pretrial order,

274
00:28:04,280 --> 00:28:10,280
the debtor set forth their statement about why they believe these examiner reports could

275
00:28:10,280 --> 00:28:19,280
come in. So the first thing they indicated was that the judge can take, your honor can

276
00:28:19,280 --> 00:28:24,280
take judicial notice of these reports. The US trustee agrees that your honor can take

277
00:28:24,280 --> 00:28:28,280
judicial notice of the fact that examiners were appointed in these other cases and that

278
00:28:28,280 --> 00:28:32,280
they issued reports that were filed with the court. We have no problem with that. But that

279
00:28:32,280 --> 00:28:39,280
does not make them, that does not make the content of the reports admissible. They also

280
00:28:39,280 --> 00:28:45,280
argue that these are admissible as business records of the relevant debtors. I assume

281
00:28:45,280 --> 00:28:57,280
they mean Enron and residential capital under federal rule of evidence 8036. Now, 8036 is

282
00:28:57,280 --> 00:29:03,280
a document that is kept in the ordinary course of regularly conducted activity of a business

283
00:29:03,280 --> 00:29:09,280
organization, occupation or polling, and that making the record was a regular practice of

284
00:29:09,280 --> 00:29:14,280
that activity and that all these conditions are shown by the testimony of a custodian

285
00:29:14,280 --> 00:29:19,280
or other qualified witness or by certification that applies with federal rule of evidence

286
00:29:19,280 --> 00:29:25,280
902.11 or 12. None of these elements are present. An example of a business record, I'm sure

287
00:29:25,280 --> 00:29:31,280
your honor is very familiar, an invoice would be an example of a business record. Not a

288
00:29:31,280 --> 00:29:38,280
report created by a court appointed examiner. That is not a business record and you also

289
00:29:38,280 --> 00:29:45,280
don't have any person to lay the foundation, again I would assume it would be the examiner

290
00:29:45,280 --> 00:29:50,280
to lay the foundation that this is somehow a business record. The last thing that the

291
00:29:50,280 --> 00:29:56,280
debtor set forth is 807, which is the residual exception. The U.S. trustee does not believe

292
00:29:56,280 --> 00:30:02,280
that the requirements for this exception have been met. And in order to meet this exception

293
00:30:02,280 --> 00:30:06,280
you would also still need to lay a foundation. You would need to have the examiners and Enron

294
00:30:06,280 --> 00:30:12,280
and residential capital who wrote these reports testify to establish the foundation to meet

295
00:30:12,280 --> 00:30:20,280
807. Also 807B requires that the proponents give an adverse party reasonable notice of

296
00:30:20,280 --> 00:30:25,280
the intent to offer the statement. And your honor, the U.S. trustee did not receive reasonable

297
00:30:25,280 --> 00:30:34,280
notice here. So your honor, those are the reasons why we believe that the exhibits to

298
00:30:34,280 --> 00:30:41,280
Mr. Glotstein's declaration that was called at Dock at 611 should not be admitted other

299
00:30:41,280 --> 00:30:45,280
than the first exhibit, which again does not need to be separately admitted because it's

300
00:30:45,280 --> 00:30:48,280
already part of exhibit 1A, B or C.

301
00:30:48,280 --> 00:30:58,280
Thank you.

302
00:30:58,280 --> 00:31:10,280
Your honor, I am happy that the U.S. trustee is willing to stipulate that your honor can

303
00:31:10,280 --> 00:31:18,280
take judicial notice that examiner reports were prepared in the Enron and residential

304
00:31:18,280 --> 00:31:27,280
capital matters. And in fact, if we had had that conversation on Friday maybe we could

305
00:31:27,280 --> 00:31:32,280
have avoided some of this. But the fact is, your honor, these are business records of

306
00:31:32,280 --> 00:31:39,280
Enron and the residential capital. Mr. Kaysing is absolutely incorrect that either 803 or

307
00:31:39,280 --> 00:31:48,280
807 requires that the author of the document be present and able to testify. The basic

308
00:31:48,280 --> 00:31:54,280
construct of records of regularly conducted activity are that the testimony that would

309
00:31:54,280 --> 00:32:00,280
be necessary to admit such a document as an exception to hearsay would be sufficient if

310
00:32:00,280 --> 00:32:09,280
it was provided by custodian of such document. Now, it is naive to think that in a case such

311
00:32:09,280 --> 00:32:17,280
as residential capital or Enron or indeed FTX that the epitome of a business record

312
00:32:17,280 --> 00:32:23,280
is an invoice. The business of those entities and the business of this entity is winding

313
00:32:23,280 --> 00:32:32,280
down its business. The records of regularly conducted activity of Chapter 11 debtors include

314
00:32:32,280 --> 00:32:40,280
by definition those matters that are prepared and filed on court dockets. In terms of the

315
00:32:40,280 --> 00:32:47,280
custodian of that document or these documents, Mr. Ray is present in court and was the chief

316
00:32:47,280 --> 00:32:54,280
executive of both of those entities and is qualified to testify that these documents

317
00:32:54,280 --> 00:32:59,280
indeed were maintained by each of Enron and residential capital in the ordinary course

318
00:32:59,280 --> 00:33:06,280
of their business, which at the time was liquidating and winding down. Now, that being said, your

319
00:33:06,280 --> 00:33:20,280
honor, the purpose of the use of these examiner reports is not to point to page 532 and say

320
00:33:20,280 --> 00:33:27,280
that on such and such a day such and such a thing happened. The reason these reports

321
00:33:27,280 --> 00:33:35,280
are present in court and are sitting here in front of you is so that Mr. Ray can testify

322
00:33:35,280 --> 00:33:41,280
that yes, these reports were something that he considered during the course of his work

323
00:33:41,280 --> 00:33:47,280
in each of those entities and that among the obligations that he had was to maximize recovery

324
00:33:47,280 --> 00:33:53,280
on assets and the use to which he put those reports. He is not going to be testifying

325
00:33:53,280 --> 00:33:59,280
about any particular fact or assertion in any of the Enron or residential capital reports.

326
00:33:59,280 --> 00:34:05,280
It's merely the fact that they existed and that he considered them. So he is not going

327
00:34:05,280 --> 00:34:12,280
to be testifying in a manner that would require us to introduce either of the reports for

328
00:34:12,280 --> 00:34:18,280
the truth of the matter asserted in those reports merely for the fact that Mr. Ray consulted

329
00:34:18,280 --> 00:34:23,280
with, read, and considered those reports during the course of his obligations as the chief

330
00:34:23,280 --> 00:34:29,280
executive of each of Enron and residential capital.

331
00:34:29,280 --> 00:34:36,280
All right. On this one, I'm not going to allow the other than exhibit one, I'm not going

332
00:34:36,280 --> 00:34:41,280
to allow the two reports to be admitted into evidence for a number of reasons. One, I don't

333
00:34:41,280 --> 00:34:47,280
believe there was fair notice to the U.S. trustee that these exhibits were going to be

334
00:34:47,280 --> 00:34:53,280
introduced. Two, I don't see how they're relevant to the issues before me today. Three, they

335
00:34:53,280 --> 00:34:57,280
are hearsay. They certainly don't fit within the business record exception which requires

336
00:34:57,280 --> 00:35:02,280
under rule 8.03 that they be a record of regularly conducted activities and certainly an examiner

337
00:35:02,280 --> 00:35:09,280
report is not a regularly conducted activity of an entity. So for those reasons, I will

338
00:35:09,280 --> 00:35:15,280
not allow them into evidence. But Mr. Ray can testify, obviously, I've already ruled,

339
00:35:15,280 --> 00:35:20,280
he can testify about his work in other cases where there were examiner reports introduced

340
00:35:20,280 --> 00:35:26,280
and he can testify about his experience in that regard without reference to the reports,

341
00:35:26,280 --> 00:35:36,280
the specific information contained in those reports. Okay? All right. Ms. Arquita, are

342
00:35:36,280 --> 00:35:42,280
we done with motion practice at this point? Are we moving on to the evidence?

343
00:35:42,280 --> 00:35:46,280
Yes, Your Honor, at least from the U.S. trustee's standpoint.

344
00:36:03,280 --> 00:36:10,280
Your Honor, our testimony witnesses will be coming in by way of declarations that have

345
00:36:10,280 --> 00:36:15,280
been brought forth as exhibits. So that's Mr. Ray's declaration. That's at docket 24

346
00:36:15,280 --> 00:36:21,280
and another one at docket 92 which are joint exhibits 2 and 3 as well as his testimony

347
00:36:21,280 --> 00:36:28,280
before Congress which is joint exhibit 8 and is on the docket at 371. In addition, Mr.

348
00:36:28,280 --> 00:36:35,280
Mosley of Alvarez and Marcell, Mr. Edgar Mosley by way of his deposition in support of first

349
00:36:35,280 --> 00:36:41,280
day pleadings which is joint exhibit 4 and docket 93.

350
00:36:41,280 --> 00:36:43,280
Any objection?

351
00:36:43,280 --> 00:36:45,280
No objection.

352
00:36:45,280 --> 00:36:47,280
Third middle without objection.

353
00:36:47,280 --> 00:36:56,280
Your Honor, we did list Mr. Ray as a witness for us. So we're not going to be asking him

354
00:36:56,280 --> 00:37:02,280
any questions initially but to the extent that I understand the debtors will be putting

355
00:37:02,280 --> 00:37:12,280
him on, we reserve the right to cross examine and then to go beyond, if Your Honor permits,

356
00:37:12,280 --> 00:37:20,280
to go beyond the scope of their direct and use him as our own witness which again we

357
00:37:20,280 --> 00:37:25,280
did put in a, we did file the notice that he would be a witness and we did reserve that

358
00:37:25,280 --> 00:37:27,280
right in our notice.

359
00:37:27,280 --> 00:37:30,280
Is there any objection?

360
00:37:30,280 --> 00:37:32,280
No, Your Honor.

361
00:37:32,280 --> 00:37:34,280
Thank you.

362
00:37:34,280 --> 00:37:52,280
Your Honor, my colleague reminded me I need to move for the admission of all the exhibits

363
00:37:52,280 --> 00:38:01,280
1 through 23 and I'm not sure with respect to Mr. Bluckstein's declaration how they

364
00:38:01,280 --> 00:38:07,280
want to handle that because it's only a piece of it that's coming in but we would move for

365
00:38:07,280 --> 00:38:10,280
the admission of exhibits 1 through 23.

366
00:38:10,280 --> 00:38:13,280
Any objection?

367
00:38:13,280 --> 00:38:30,280
Your Honor, we have no objection to admission of exhibits 1 through 23.

368
00:38:30,280 --> 00:38:36,280
And on behalf of the JPLs, there was a stipulation which was included in the pretrial order that

369
00:38:36,280 --> 00:38:40,280
what was coming in today was for the purposes of this hearing only and was not going to

370
00:38:40,280 --> 00:38:43,280
be coming in for all purposes in the case.

371
00:38:43,280 --> 00:38:44,280
All right.

372
00:38:44,280 --> 00:38:45,280
That's fine.

373
00:38:45,280 --> 00:38:48,280
So with the exhibit, you want to mark that as debtor's exhibit then separately?

374
00:38:48,280 --> 00:38:52,280
Debtor's exhibit number 1 as opposed to joint?

375
00:38:52,280 --> 00:38:53,280
Any objection?

376
00:38:53,280 --> 00:38:54,280
No, Your Honor.

377
00:38:54,280 --> 00:39:01,280
I would just, right now it's attached to Mr. Bluckstein's declaration with the 3,800

378
00:39:01,280 --> 00:39:02,280
pages so.

379
00:39:02,280 --> 00:39:11,280
I don't know how to do that technically but I don't want that entire thing being coming

380
00:39:11,280 --> 00:39:12,280
in as an exhibit.

381
00:39:12,280 --> 00:39:13,280
No, I understand.

382
00:39:13,280 --> 00:39:14,280
We'll just submit exhibit 1 to Mr. Bluckstein's declaration as a separate exhibit, as debtor's

383
00:39:14,280 --> 00:39:15,280
exhibit number 1.

384
00:39:15,280 --> 00:39:16,280
Thank you, Your Honor.

385
00:39:16,280 --> 00:39:35,280
Any other evidence, Ms. Harkish?

386
00:39:35,280 --> 00:39:50,280
I'm sorry, Your Honor.

387
00:39:50,280 --> 00:39:51,280
Any other evidence?

388
00:39:51,280 --> 00:39:52,280
No, no.

389
00:39:52,280 --> 00:39:53,280
Thank you.

390
00:39:53,280 --> 00:39:54,280
Mr. Rauhlin?

391
00:39:54,280 --> 00:39:55,280
Your Honor, the debtors would like to call John Jay Reyes, the third for the stand.

392
00:39:55,280 --> 00:39:56,280
Mr. Reyes, please come forward.

393
00:39:56,280 --> 00:39:57,280
Take the stand and remain standing, please.

394
00:39:57,280 --> 00:39:58,280
Please raise your right hand.

395
00:39:58,280 --> 00:40:09,280
Please state your full name and spell your last name for the court record, please.

396
00:40:09,280 --> 00:40:12,280
John Jay Reyes, the third, last name R-A-Y.

397
00:40:12,280 --> 00:40:16,280
Do you affirm that you tell the truth, the whole truth and nothing but the truth to the

398
00:40:16,280 --> 00:40:17,280
best of your knowledge and abilities?

399
00:40:17,280 --> 00:40:18,280
Yes.

400
00:40:18,280 --> 00:40:19,280
You may be seated, Your Honor.

401
00:40:19,280 --> 00:40:20,280
Thank you.

402
00:40:20,280 --> 00:40:21,280
If there's a problem, you may proceed.

403
00:40:21,280 --> 00:40:22,280
Thank you, Your Honor.

404
00:40:22,280 --> 00:40:23,280
Mr. Reyes, what's your current occupation?

405
00:40:23,280 --> 00:40:36,280
I'm owner of an advisory firm called Owl Hill Partners, and I'm also chief executive officer

406
00:40:36,280 --> 00:40:37,280
of FTX.

407
00:40:37,280 --> 00:40:44,280
And could you please give a brief summary of your educational background?

408
00:40:44,280 --> 00:40:45,280
Yes.

409
00:40:45,280 --> 00:40:51,280
I graduated 1980 from the University of Massachusetts.

410
00:40:51,280 --> 00:41:01,280
I graduated 1982, graduated from Drake University Law School, initially admitted in Iowa, Nebraska,

411
00:41:01,280 --> 00:41:07,280
and still admitted in good standing in the state of Illinois.

412
00:41:07,280 --> 00:41:11,280
And could you please give the court a short summary of, say, the first 10 years of your

413
00:41:11,280 --> 00:41:12,280
professional career?

414
00:41:12,280 --> 00:41:24,280
The first 10 years, I began at Touche Ross, an accounting firm, doing tax work as a lawyer.

415
00:41:24,280 --> 00:41:32,280
Thereafter, I moved on to become an associate at Mayor Brown and Platt, now known as Mayor

416
00:41:32,280 --> 00:41:39,280
Brown in Chicago, Illinois, practicing in initially the employee benefits and securities

417
00:41:39,280 --> 00:41:42,280
area.

418
00:41:42,280 --> 00:41:47,280
Practice included M&A work, primarily.

419
00:41:47,280 --> 00:41:58,280
Thereafter, I departed private practice and became employed by a private company.

420
00:41:58,280 --> 00:42:02,280
And what private company were you employed at?

421
00:42:02,280 --> 00:42:06,280
Initially, it was Waste Management, now known as WMX.

422
00:42:06,280 --> 00:42:20,280
I began there in 1988 and worked there either for Waste Management, Inc., or one of its

423
00:42:20,280 --> 00:42:26,280
operating subsidiaries as general counsel of the various operating units, including

424
00:42:26,280 --> 00:42:33,280
certain of their public subsidiaries, again, for approximately 10 years.

425
00:42:33,280 --> 00:42:40,280
The practice included corporate governance, securities law matters, and then at the operational

426
00:42:40,280 --> 00:42:48,280
level, a variety of managing complex litigation and other investigatory matters relative to

427
00:42:48,280 --> 00:42:51,280
the company's operations.

428
00:42:51,280 --> 00:42:54,280
And after Waste Management, what did you do?

429
00:42:54,280 --> 00:42:56,280
After Waste Management, the company was sold.

430
00:42:56,280 --> 00:43:02,280
I then became general counsel of a company called Fruit of the Loom, also based in Chicago,

431
00:43:02,280 --> 00:43:03,280
Illinois.

432
00:43:03,280 --> 00:43:07,280
I was general counsel and chief administrative officer of that company.

433
00:43:07,280 --> 00:43:11,280
And when did you first come in contact with Chapter 11?

434
00:43:11,280 --> 00:43:16,280
The company, unfortunately, shortly after I got to the company, the company went into

435
00:43:16,280 --> 00:43:17,280
bankruptcy.

436
00:43:17,280 --> 00:43:27,280
The company had a number of operational issues that led to the Chapter 11 and very quickly

437
00:43:27,280 --> 00:43:34,280
became embroiled in issues relative to the chief executive officer of the company, who

438
00:43:34,280 --> 00:43:43,280
at the time had loans that were guaranteed by the company prior to my joining the company,

439
00:43:43,280 --> 00:43:47,280
and they became quickly issues in the Chapter 11.

440
00:43:47,280 --> 00:43:52,280
And did you have any role in investigating anything with respect to the CEF?

441
00:43:52,280 --> 00:43:53,280
I did.

442
00:43:53,280 --> 00:43:59,280
I mean, ultimately, within days really of the filing, the chief executive officer was

443
00:43:59,280 --> 00:44:01,280
dismissed by the board.

444
00:44:01,280 --> 00:44:08,280
I then became the most senior officer of the company and ran the Chapter 11 for approximately

445
00:44:08,280 --> 00:44:14,280
26 months after the case was confirmed out.

446
00:44:14,280 --> 00:44:19,280
The creditors asked me to stay on to prosecute a variety of claims, including the claims

447
00:44:19,280 --> 00:44:23,280
related to the chief executive officer, which I did.

448
00:44:23,280 --> 00:44:28,280
We litigated those cases in a couple different jurisdictions, including the Federal District

449
00:44:28,280 --> 00:44:36,280
Court in New York, to recover the monies that were loaned to the chief executive officer.

450
00:44:36,280 --> 00:44:39,280
And what was the result of those efforts?

451
00:44:39,280 --> 00:44:43,280
We got our money back.

452
00:44:43,280 --> 00:44:46,280
And after Fruit of the Loom, what did you do?

453
00:44:46,280 --> 00:44:51,280
After Fruit of the Loom, I took a liking to Chapter 11.

454
00:44:51,280 --> 00:45:00,280
It sort of fit the essentially my business experience, my legal experience, and I took

455
00:45:00,280 --> 00:45:11,280
on a variety of Chapter 11 cases, either as chief restructuring officer or in many cases

456
00:45:11,280 --> 00:45:19,280
essentially the liquidating trustee of a post-confirmation trust, primarily to prosecute claims related

457
00:45:19,280 --> 00:45:21,280
to the bankruptcy.

458
00:45:21,280 --> 00:45:29,280
A number of those cases involved prosecuting claims against accountants and directors and

459
00:45:29,280 --> 00:45:32,280
officers, and I certainly can take you through those cases.

460
00:45:32,280 --> 00:45:34,280
Can you do that for us?

461
00:45:34,280 --> 00:45:35,280
Yes, please.

462
00:45:35,280 --> 00:45:43,280
The first case that, of course, of no notoriety, and you've heard many comments in the last

463
00:45:43,280 --> 00:45:45,280
few months over, of course, was Enron.

464
00:45:45,280 --> 00:45:51,280
I became chairman of the board of Enron and chief executive officer.

465
00:45:51,280 --> 00:46:04,280
That began in 2004, from 2004 through 2008 was primarily the time period in which those

466
00:46:04,280 --> 00:46:06,280
cases were prosecuted.

467
00:46:06,280 --> 00:46:10,280
The company still was very, very complex in Chapter 11.

468
00:46:10,280 --> 00:46:15,280
I wouldn't say that much was accomplished in the Chapter 11, but much was left over

469
00:46:15,280 --> 00:46:17,280
in the Chapter 11.

470
00:46:17,280 --> 00:46:21,280
We still owned a public utility in Oregon, the Portland Utility Company.

471
00:46:21,280 --> 00:46:24,280
We still owned an international energy business.

472
00:46:24,280 --> 00:46:30,280
We still had several thousand employees, and we still were plaintiff in over a thousand

473
00:46:30,280 --> 00:46:31,280
cases.

474
00:46:31,280 --> 00:46:37,280
Those cases were a wide variety.

475
00:46:37,280 --> 00:46:44,280
Virtually every single bank, American, some outside North America, were defendants in

476
00:46:44,280 --> 00:46:51,280
cases that were either fraud cases or avoidance actions.

477
00:46:51,280 --> 00:47:00,280
Then there was cases against law firms, accounting firms, including Anderson, Vincent and Elkins

478
00:47:00,280 --> 00:47:03,280
as a law firm that was sued in those cases.

479
00:47:03,280 --> 00:47:12,280
But it's a massive list of cases where the company was a plaintiff recovering for various

480
00:47:12,280 --> 00:47:22,280
misfeasance, malfeasance, fraud, negligence, really the waterfront of events that occurred

481
00:47:22,280 --> 00:47:28,280
during the Chapter 11 that were ultimately prosecuted.

482
00:47:28,280 --> 00:47:33,280
We recovered in litigation proceeds about-

483
00:47:33,280 --> 00:47:39,280
I was waiting for the next question, but I'm going to object to this testimony based on

484
00:47:39,280 --> 00:47:40,280
relevance.

485
00:47:40,280 --> 00:47:44,280
I think he's giving his background off overall.

486
00:47:44,280 --> 00:47:53,280
We recovered over $5 billion in litigation recoveries against just the banks alone.

487
00:47:53,280 --> 00:48:01,280
The overall recoveries in the case were approximately $26 billion, which is double the planned recovery

488
00:48:01,280 --> 00:48:04,280
that was estimated in the disclosure statement.

489
00:48:04,280 --> 00:48:08,280
From there, I took on a number of other cases.

490
00:48:08,280 --> 00:48:11,280
I was the litigation trustee in a company called Hayes-Lamers.

491
00:48:11,280 --> 00:48:14,280
Hayes-Lamers was in bankruptcy a couple of times.

492
00:48:14,280 --> 00:48:16,280
I was involved with Hayes-Lamers.

493
00:48:16,280 --> 00:48:22,280
One, my sole role in that capacity was to sue the officers and directors for breach

494
00:48:22,280 --> 00:48:29,280
of their fiduciary duty, ultimately settling with the directors related to that action.

495
00:48:29,280 --> 00:48:37,280
We also sued the accounting firm related to Hayes-Lamers.

496
00:48:37,280 --> 00:48:46,280
Other cases that I've been involved in, I was essentially the chief executive officer

497
00:48:46,280 --> 00:48:51,280
of Nortel, which is a cross-border case where we had conflicts between the United States,

498
00:48:51,280 --> 00:49:00,280
operations for Nortel, the Canadian operations, and the operations outside of the United States

499
00:49:00,280 --> 00:49:04,280
and Canada that involved 19 separate subsidiaries.

500
00:49:04,280 --> 00:49:12,280
A very complex case involving a myriad of intercompany transactions, somewhat complex,

501
00:49:12,280 --> 00:49:20,280
that went on for an extended period of time due to the issues between the various silos

502
00:49:20,280 --> 00:49:23,280
within that Nortel estate.

503
00:49:23,280 --> 00:49:35,280
I also was an overseas shipping group CEO, CRO, about the same time from 2012 to 2015.

504
00:49:35,280 --> 00:49:44,280
That case, another Chapter 11 case, the principal problem in that case was the company had

505
00:49:44,280 --> 00:49:51,280
understated its tax liability by somewhere between $300 million and $500 million.

506
00:49:51,280 --> 00:50:00,280
They had achieved that status by obtaining a legal opinion from a very prominent firm

507
00:50:00,280 --> 00:50:08,280
in New York, and that legal opinion to which they relied on was the vehicle under which

508
00:50:08,280 --> 00:50:11,280
they avoided those taxes.

509
00:50:11,280 --> 00:50:21,280
Ultimately, our mission in an overseas shipping group beyond the Chapter 11 was to take on

510
00:50:21,280 --> 00:50:29,280
the issues surrounding the tax opinions that were in the view of the company and ultimately

511
00:50:29,280 --> 00:50:36,280
the creditors that involved malpractice by that law firm.

512
00:50:36,280 --> 00:50:42,280
The case was somewhat unique in the sense that it has one sort of similarity with FTX

513
00:50:42,280 --> 00:50:50,280
almost immediately upon filing the case, discovering of course the legal opinion and the faulty

514
00:50:50,280 --> 00:50:52,280
nature of that legal opinion.

515
00:50:52,280 --> 00:50:55,280
We went into the Internal Revenue Service.

516
00:50:55,280 --> 00:51:03,280
I went in with counsel at the time, walked over to the offices over at the IRS on around

517
00:51:03,280 --> 00:51:12,280
about 8th and 56th Street in New York, and we walked in and we self-reported that liability,

518
00:51:12,280 --> 00:51:18,280
which was somewhat startling to the service, but it was my obligation as an officer of

519
00:51:18,280 --> 00:51:21,280
the company to go in and report that.

520
00:51:21,280 --> 00:51:24,280
Of course, the reactions from the Internal Revenue Service were unique.

521
00:51:24,280 --> 00:51:27,280
There was no particular form for that.

522
00:51:27,280 --> 00:51:32,280
Very startling for the IRS to see someone come in and self-report a liability that was

523
00:51:32,280 --> 00:51:34,280
half a billion dollars.

524
00:51:34,280 --> 00:51:39,280
Your Honor, I don't think this is relevant, but I would object to Mr. Ray testifying about

525
00:51:39,280 --> 00:51:43,280
what was in the head of the IRS agents.

526
00:51:43,280 --> 00:51:45,280
Are they surprised?

527
00:51:45,280 --> 00:51:47,280
I'll sustain that.

528
00:51:47,280 --> 00:51:49,280
Thank you.

529
00:51:49,280 --> 00:51:58,280
Ultimately, after overseas shipping, I moved on to residential capital.

530
00:51:58,280 --> 00:52:01,280
Residential capital was essentially a mortgage case.

531
00:52:01,280 --> 00:52:03,280
It was the subsidiary of General Motors.

532
00:52:03,280 --> 00:52:11,280
I was appointed as the litigation trustee for that case and prosecuted over 100 separate

533
00:52:11,280 --> 00:52:19,280
legal actions related to indemnification and breach of contract related to the sale of

534
00:52:19,280 --> 00:52:27,280
mortgages to residential capital in the tens of billions of dollars that ultimately were

535
00:52:27,280 --> 00:52:30,280
faulty, in some cases fraudulent.

536
00:52:30,280 --> 00:52:37,280
We litigated those for several years and I presided over that litigation.

537
00:52:37,280 --> 00:52:46,280
Mr. Ray, to take you back a bit, in Enron, when you were the CEO, were you aware that

538
00:52:46,280 --> 00:52:51,280
examiner reports had been prepared in connection with that case?

539
00:52:51,280 --> 00:52:55,280
Yes, I was made very aware of those reports.

540
00:52:55,280 --> 00:53:06,280
The reports, when I became affiliated with Enron, almost immediately I joined her.

541
00:53:06,280 --> 00:53:13,280
We were in the middle of somewhat of a skirmish related to those reports because various

542
00:53:13,280 --> 00:53:20,280
parties were attempting to use those reports, to get access to those reports.

543
00:53:20,280 --> 00:53:25,280
There was essentially fights over whether or not they should be redacted.

544
00:53:25,280 --> 00:53:31,280
There were effect on the criminal trials that were yet to have occurred, as well as the

545
00:53:31,280 --> 00:53:37,280
use of those reports that the parties had substantial disputes over.

546
00:53:37,280 --> 00:53:41,280
Your Honor, I have a continuing objection to the relevance of this testimony.

547
00:53:41,280 --> 00:53:43,280
Overall.

548
00:53:43,280 --> 00:53:48,280
Mr. Ray, do you have a sense of the cost to the Enron estate of those reports?

549
00:53:48,280 --> 00:53:53,280
Again, I object as irrelevant.

550
00:53:53,280 --> 00:54:02,280
The Enron report was $90 million.

551
00:54:02,280 --> 00:54:07,280
Now, moving on to residential capital, was there an examiner report in residential capital?

552
00:54:07,280 --> 00:54:08,280
There was.

553
00:54:08,280 --> 00:54:10,280
Are you familiar with that report?

554
00:54:10,280 --> 00:54:13,280
Yes, I am.

555
00:54:13,280 --> 00:54:15,280
Do you know what the cost of that report was?

556
00:54:15,280 --> 00:54:19,280
The cost of that report was approximately $100 million.

557
00:54:19,280 --> 00:54:24,280
Did you use that report at all in your collection evidence?

558
00:54:24,280 --> 00:54:27,280
Your Honor, again, I object as irrelevant.

559
00:54:27,280 --> 00:54:30,280
Overreport.

560
00:54:30,280 --> 00:54:36,280
Neither in Enron nor in residential funding and in residential capital did I make use of

561
00:54:36,280 --> 00:54:42,280
that report for distinctly different reasons, but neither case did I use those reports.

562
00:54:42,280 --> 00:54:45,280
What was the reason you didn't use it in Enron?

563
00:54:45,280 --> 00:54:46,280
I'm sorry, Your Honor.

564
00:54:46,280 --> 00:54:48,280
I have to object again based on relevance.

565
00:54:48,280 --> 00:54:50,280
Overall.

566
00:54:50,280 --> 00:54:53,280
Multiple reasons in Enron.

567
00:54:53,280 --> 00:55:01,280
First, when you review the Enron report, which I believe is, in my experience, characteristics

568
00:55:01,280 --> 00:55:06,280
of many of the reports, they're very topical, they're very general.

569
00:55:06,280 --> 00:55:16,280
They're almost sort of a curated gathering of statements that failed to take real positions

570
00:55:16,280 --> 00:55:18,280
relative to what occurred.

571
00:55:18,280 --> 00:55:20,280
Your Honor, I have a different objection here.

572
00:55:20,280 --> 00:55:26,280
I believe that the witness is testifying now not just about the Enron report, but more

573
00:55:26,280 --> 00:55:27,280
generally.

574
00:55:27,280 --> 00:55:33,280
In addition, he is testifying about the contents of the Enron report, and Your Honor has ruled

575
00:55:33,280 --> 00:55:38,280
that those reports are not to be admitted, and therefore he cannot testify about the

576
00:55:38,280 --> 00:55:39,280
contents.

577
00:55:39,280 --> 00:55:40,280
Raman?

578
00:55:40,280 --> 00:55:46,280
I would ask the witness to limit your comments with respect to the Enron report, not other

579
00:55:46,280 --> 00:55:47,280
reports.

580
00:55:47,280 --> 00:55:53,280
With respect to the contents, Mr. Ray is testifying as to not what the contents were, but how

581
00:55:53,280 --> 00:55:57,280
he used those reports in the exercise of his duties.

582
00:55:57,280 --> 00:56:05,280
Testify about how you use the reports, but don't talk about the contents of the reports.

583
00:56:05,280 --> 00:56:10,280
I did not use the reports because they were very shallow, sort of a mile wide, inch deep,

584
00:56:10,280 --> 00:56:15,280
and ultimately we had to... Your Honor, I think that relates to the contents of the

585
00:56:15,280 --> 00:56:16,280
report.

586
00:56:16,280 --> 00:56:20,280
Well, he can characterize, and you can't really talk about how he used them, I mean

587
00:56:20,280 --> 00:56:24,280
I can't characterize how he perceived those reports, so I'll overrule that.

588
00:56:24,280 --> 00:56:25,280
Thank you.

589
00:56:25,280 --> 00:56:37,280
Ultimately, the information that was in the report didn't go far enough relative to what

590
00:56:37,280 --> 00:56:41,280
I needed to do to prosecute the actions.

591
00:56:41,280 --> 00:56:46,280
The reports are somewhat ambivalent in their conclusory sense, and ultimately the evidence...

592
00:56:46,280 --> 00:56:51,280
Objection, Your Honor, he's testifying about the contents again, what the conclusions were.

593
00:56:51,280 --> 00:56:56,280
He's not telling me what the conclusions were, he's saying that he did not find the

594
00:56:56,280 --> 00:56:58,280
conclusions helpful to him.

595
00:56:58,280 --> 00:57:03,280
I think that's appropriate, and I'll overrule the objection.

596
00:57:03,280 --> 00:57:10,280
But ultimately I had to spend all of the time to investigate and ultimately prosecute those

597
00:57:10,280 --> 00:57:16,280
actions, and the reports themselves did not aid in that investigation.

598
00:57:16,280 --> 00:57:22,280
Relative to residential capital, somewhat of a different story there.

599
00:57:22,280 --> 00:57:27,280
Residential capital largely was focused on inter-company transactions involving the parent

600
00:57:27,280 --> 00:57:30,280
company GMC, who still owned the equity in the company.

601
00:57:30,280 --> 00:57:35,280
So the shareholder was still present during the Chapter 11, and there was an investigation

602
00:57:35,280 --> 00:57:38,280
related to that existence.

603
00:57:38,280 --> 00:57:44,280
The rest camp is notable, frankly, for what it didn't cover.

604
00:57:44,280 --> 00:57:50,280
When you read that report, a very, very extensive report, you can take an eyeful over there.

605
00:57:50,280 --> 00:57:52,280
It's a very deep report.

606
00:57:52,280 --> 00:57:58,280
But ultimately the tens of billions of dollars' worth of mortgage fraud in terms of the

607
00:57:58,280 --> 00:58:04,280
mortgages that were sold to the company that I prosecuted, that yielded over a billion

608
00:58:04,280 --> 00:58:12,280
three in recoveries, which included over 100 cases, two trials, a jury trial and a bench trial.

609
00:58:12,280 --> 00:58:16,280
There's not a single word in that report related to those actions.

610
00:58:16,280 --> 00:58:18,280
I don't object.

611
00:58:18,280 --> 00:58:20,280
He's talking about the content of the documents again.

612
00:58:20,280 --> 00:58:24,280
Now you're getting into the content of the documents.

613
00:58:24,280 --> 00:58:32,280
I'll sustain you, Jack.

614
00:58:32,280 --> 00:58:36,280
Mr. Ray, I'd like to just touch on it based on a couple of the other matters that you

615
00:58:36,280 --> 00:58:39,280
mentioned just briefly.

616
00:58:39,280 --> 00:58:47,280
In connection with the Nortel case, did you have a cooperative relationship with the

617
00:58:47,280 --> 00:58:49,280
Creditor's Committee in that matter?

618
00:58:49,280 --> 00:58:51,280
I don't object on relevance, Your Honor.

619
00:58:51,280 --> 00:58:55,280
I'm sorry to keep making the same objection, but I feel it's necessary.

620
00:58:55,280 --> 00:58:57,280
Overruled.

621
00:58:57,280 --> 00:58:59,280
Yes, a very cooperative relationship.

622
00:58:59,280 --> 00:59:02,280
We worked hand in glove.

623
00:59:02,280 --> 00:59:05,280
And was that including investigating and prosecuting claims?

624
00:59:05,280 --> 00:59:09,280
Yes, we did that really on a joint basis.

625
00:59:09,280 --> 00:59:13,280
At the end of the day, we're debtors there for the benefit of creditors, and so we worked

626
00:59:13,280 --> 00:59:15,280
very cooperatively.

627
00:59:15,280 --> 00:59:19,280
What was the ultimate recovery to the Nortel creditors?

628
00:59:19,280 --> 00:59:22,280
Sorry, Your Honor, I'm going to object for the record on relevance.

629
00:59:22,280 --> 00:59:25,280
Overruled.

630
00:59:25,280 --> 00:59:27,280
It was capped at 100%.

631
00:59:27,280 --> 00:59:32,280
It certainly could have been higher.

632
00:59:32,280 --> 00:59:35,280
Mr. Ray, I'd like to turn your attention now to FTX.

633
00:59:35,280 --> 00:59:38,280
Yes.

634
00:59:38,280 --> 00:59:43,280
Prior to your appointment and your current position, did you have any connections to FTX?

635
00:59:43,280 --> 00:59:44,280
No, I did not.

636
00:59:44,280 --> 00:59:47,280
Did you have any connections to Sam Bankman Fried?

637
00:59:47,280 --> 00:59:49,280
No, I did not.

638
00:59:49,280 --> 00:59:51,280
Or Gary Wang?

639
00:59:51,280 --> 00:59:52,280
No.

640
00:59:52,280 --> 00:59:53,280
Carolyn Ellison?

641
00:59:53,280 --> 00:59:54,280
No.

642
00:59:54,280 --> 00:59:55,280
Nishant Singh?

643
00:59:55,280 --> 00:59:56,280
No.

644
00:59:56,280 --> 00:59:57,280
Ryan Salami?

645
00:59:57,280 --> 00:59:58,280
No.

646
00:59:58,280 --> 01:00:02,280
Did you have any connection with any of the executives at FTX?

647
01:00:02,280 --> 01:00:03,280
No.

648
01:00:03,280 --> 01:00:08,280
Did you have any connection with Mr. Bankman Fried's parents?

649
01:00:08,280 --> 01:00:15,280
No.

650
01:00:15,280 --> 01:00:20,280
Can you tell me how you chose the members of the boards of directors?

651
01:00:20,280 --> 01:00:25,280
Each of the members of the board of directors was somewhat curated.

652
01:00:25,280 --> 01:00:27,280
Each of them have their independent.

653
01:00:27,280 --> 01:00:34,280
First of all, they had no involvement with FTX, similar to my position.

654
01:00:34,280 --> 01:00:39,280
We needed an independent board in place immediately.

655
01:00:39,280 --> 01:00:46,280
So really within hours of my appointment, I saw the need to have an independent board.

656
01:00:46,280 --> 01:00:54,280
So I contacted several individuals who I knew that had diverse experiences,

657
01:00:54,280 --> 01:01:05,280
who collectively as a group would form the ideal board to govern the situation.

658
01:01:05,280 --> 01:01:12,280
Mr. Ray, in your first day declaration, you described generally the state of FTX when you arrived.

659
01:01:12,280 --> 01:01:15,280
Could you just summarize that for the court today?

660
01:01:15,280 --> 01:01:25,280
The company was really unlike any other I've ever seen, not a single list of anything.

661
01:01:25,280 --> 01:01:33,280
Normally you come in and there's a bank account list, but there's personnel who you speak to about these things.

662
01:01:33,280 --> 01:01:41,280
There's lists of assets, there's balance sheets, there's income statements, there's professionals, there's insurance.

663
01:01:41,280 --> 01:01:51,280
There's just nobody to turn to really in the company, just a complete void, massive scramble for information.

664
01:01:51,280 --> 01:02:04,280
Fortunately, we had the services of firms at my disposal who ultimately could become what I've described as an army of soldiers,

665
01:02:04,280 --> 01:02:10,280
of women and men who have been dedicated to putting this together.

666
01:02:10,280 --> 01:02:23,280
Your Honor, I'd like to put up on the screen a demonstrative.

667
01:02:23,280 --> 01:02:24,280
Do you have that in front of you, Mr. Ray?

668
01:02:24,280 --> 01:02:27,280
Yes, I do.

669
01:02:27,280 --> 01:02:34,280
Now, Mr. Ray, could you just help walk us through this, starting first with the debtors' advisors?

670
01:02:34,280 --> 01:02:41,280
Your Honor, I'm just again going to put on the record my objection to this testimony as not being relevant.

671
01:02:41,280 --> 01:02:44,280
I'm not even sure what the testimony is yet.

672
01:02:44,280 --> 01:02:46,280
Let me hear the testimony first.

673
01:02:46,280 --> 01:02:57,280
Mr. Ray, with respect to the group that's debtors' advisors, are they participating at your direction in an investigation, a series of investigations with respect to FTS?

674
01:02:57,280 --> 01:03:20,280
Yes. I mean, the first thing, obviously, to observe here is the center of this wheel, and I, along with the directors, are empowered to deal with this sort of circle of different advisors and different fiduciaries, as well as other parties here.

675
01:03:20,280 --> 01:03:35,280
But to your bottom left, to answer your question, are the debtors' advisors, and it's really a multiple set of advisors because of the technical, highly technical nature of this case.

676
01:03:35,280 --> 01:03:54,280
It's also driven by the lack of professionals that were ongoing and that I could rely on that existed on a pre-petition basis, so either there was an absence of consultants or professionals, or those professionals were not reliable such that we had to replace those.

677
01:03:54,280 --> 01:04:22,280
So obviously, starting at the top, at the top of the hour, Sullivan and Cromwell was our main bankruptcy lawyers. Immediately at the time of the filing, with haste, we employed Quinn Emanuel, and we did that for purposes of not only their bankruptcy expertise, but they had one of the more renowned lawyers in the country in investigatory work,

678
01:04:22,280 --> 01:04:44,280
Mr. Bill Burke, who's in this courtroom. Yeah, we brought on Ernst & Young because the company, on a worldwide basis, did not have reliable accounting professionals. In some cases, we didn't have income statements and balance sheets at all.

679
01:04:44,280 --> 01:04:58,280
All of this had to be recreated, and as you'll see in a moment, to the far right of me, you know, sits the IRS who's investigating various tax positions taken by the company, and Ernst & Young was brought in to do that.

680
01:04:58,280 --> 01:05:12,280
So we really needed those sort of books and records. Down below, of course, is the Landis firm, who's counsel here in Delaware and also available for other purposes relative to the debtors' cases.

681
01:05:12,280 --> 01:05:36,280
Down below is Pirello Weinstein Partners, the investment bankers to sell the portfolio. This is the portfolio of roughly $5 billion of approximately 400 investments that were made over a myriad of industries in a relatively short time period from October of 2021, primarily to the petition date.

682
01:05:36,280 --> 01:05:54,280
Then below that is Alvarez & Marcel restructuring professionals that are really sort of the backbone, along with Sullivan & Cromwell, relative to almost everything that has to be achieved in these cases.

683
01:05:54,280 --> 01:06:18,280
We also brought on Alex Partners, Alex Partners, you know, another well-redowned firm that had a particular expertise related to investigations and tracing and certain skill sets that were essential given what had happened in the company.

684
01:06:18,280 --> 01:06:41,280
And their particular expertise was essential relative to the underlying investigations that have led to not only our future prosecution of the avoidance actions, but they've aided immensely the investigation in replying to the regulatory authorities that I'll get into in a moment.

685
01:06:41,280 --> 01:06:52,280
And then last but not least is Cigna. Cigna is a highly technical cybersecurity firm.

686
01:06:52,280 --> 01:07:13,280
This case, you know, is about cybersecurity or the failure of cybersecurity. This firm was needed to protect what was a crumbling shell of securities around assets that are highly vulnerable.

687
01:07:13,280 --> 01:07:27,280
And their services were critical, as we saw in the waking hours of the morning of the 11th, as these petitions were being filed, you know, hacking was occurring.

688
01:07:27,280 --> 01:07:45,280
And so this firm, you know, is not only instrumental in stopping that, but also rebuilding an environment that's highly sensitive to this day because of the nature of crypto assets and the vulnerability of crypto assets.

689
01:07:45,280 --> 01:08:10,280
You know, over last year, there's been something Worldwide reported about $4 billion worth of crypto that's been hacked. And so these folks are essential for us to have some integrity in our systems to allow us to preserve assets and to repair what was a dangerous, dangerous environment relative to the storage of

690
01:08:10,280 --> 01:08:16,280
hot wallets and other wallets related to the company's crypto.

691
01:08:16,280 --> 01:08:18,280
Now, Mr.

692
01:08:18,280 --> 01:08:21,280
What steps have been taken to replace prior management?

693
01:08:21,280 --> 01:08:26,280
I'm sorry. Now that his testimony is over, I would like to remove my objection.

694
01:08:26,280 --> 01:08:38,280
Obviously under 1104C2, the U.S. trustee does not believe any of Mr. Ray's testimony is relevant, but even under C1 as to whether this is in the best interest of the creditors.

695
01:08:38,280 --> 01:08:51,280
The fact that the debtors have a lot of retained professionals and they're working together is not relevant to the issue as to whether an examiner should be appointed even under C1.

696
01:08:51,280 --> 01:08:55,280
Overrule.

697
01:08:55,280 --> 01:08:56,280
I'm sorry, could you repeat the question?

698
01:08:56,280 --> 01:09:01,280
Sure. What steps have been taken to replace prior management?

699
01:09:01,280 --> 01:09:13,280
Prior management has been terminated. There's no one that was in a control position that today is in a control position whatsoever. That was eliminated immediately on my taking control.

700
01:09:13,280 --> 01:09:33,280
Now, when you took control, the omnibus corporate authority, which is debtors exhibit one, referenced a request for Mr. Bagman to consult with his counsel at Paul Weiss regarding director appointments. Did you ever consult with Paul Weiss?

701
01:09:33,280 --> 01:09:34,280
No, I did not.

702
01:09:34,280 --> 01:09:37,280
And why not?

703
01:09:37,280 --> 01:09:47,280
I didn't think it was in the best interest of the estate to consult with lawyers for someone who we now know has been charged with crimes.

704
01:09:47,280 --> 01:09:58,280
Now, Mr. Ray, I'd like to draw your attention on the on the demonstrative to the lower right hand corner. Federal criminal and regulatory authorities.

705
01:09:58,280 --> 01:09:59,280
Yes, I do.

706
01:09:59,280 --> 01:10:05,280
Are you familiar with criminal and regulatory investigations that are ongoing?

707
01:10:05,280 --> 01:10:07,280
Yes, I am.

708
01:10:07,280 --> 01:10:16,280
And what have you directed the company and your advisors to do with respect to those investigations?

709
01:10:16,280 --> 01:10:34,280
I made it very, very clear from from the beginning of my taking control on virtually the day of the control that that we would do whatever the government requests relative to cooperation.

710
01:10:34,280 --> 01:10:55,280
We believe that ultimately, not only is that, you know, required, but we believe that, you know, it's in the best interest of creditors to allow these regulatory authorities to get full access to the information on a real time basis as we're learning about what happened in the company.

711
01:10:55,280 --> 01:11:10,280
They're virtually getting information again, real time, and we believe that was sort of fundamental to our mission here, which is to maximize value for the creditors.

712
01:11:10,280 --> 01:11:18,280
And do you receive regular reports on the materials and cooperation that's been given to the investigative authorities?

713
01:11:18,280 --> 01:11:20,280
Yeah, virtually daily.

714
01:11:20,280 --> 01:11:29,280
I'd like to come back to this slide in a moment, but I'd like to turn to the next one.

715
01:11:29,280 --> 01:11:31,280
You familiar with this slide?

716
01:11:31,280 --> 01:11:32,280
Very much so.

717
01:11:32,280 --> 01:11:35,280
Your Honor, I'm going to again object on relevance.

718
01:11:35,280 --> 01:11:37,280
Oh, good.

719
01:11:37,280 --> 01:11:41,280
And Mr. Ray, what is this slide?

720
01:11:41,280 --> 01:11:56,280
The first part of it talks really about speaks to the volume, the massive amount of data that we have produced. As you can see, we've collected 10 terabytes of data, over 27 million documents.

721
01:11:56,280 --> 01:12:02,280
We provided an analysis of several hundred thousand documents.

722
01:12:02,280 --> 01:12:07,280
We've interviewed and received pro offers of 24 current and former employees.

723
01:12:07,280 --> 01:12:16,280
And then we've also provided analysis relative to the transactions inside the company's databases.

724
01:12:16,280 --> 01:12:32,280
The company's databases include a couple of different databases, the primary databases, the AWS system, which is Amazon Web Services, where we housed some of the wallets, the hot wallets.

725
01:12:32,280 --> 01:13:01,280
And the database itself is in the millions of terabytes of data, so it's a vast resource of information, unfortunately, in a somewhat unconstructed environment, which requires the assistance of people like Alvarez and people like Alex Partners to sift through these terabytes to ultimately provide useful data to the regulatory authorities.

726
01:13:01,280 --> 01:13:11,280
Are you familiar with the cooperation that's been given to the U.S. Attorney's Office for the Southern District of New York and the Department of Justice's National Cryptocurrency Enforcement Team?

727
01:13:11,280 --> 01:13:40,280
Yes, our teams have been involved with virtually daily requests. As you can see, we've had over 150 requests from the Southern District, produced substantial amounts of information, and provided substantial cooperation relative to instances where they wanted specific information related to certain actions, prehistoric actions for the company.

728
01:13:40,280 --> 01:14:08,280
So it's virtually an ongoing exercise, but the last, you know, roughly 90 days have been an extremely intense effort to provide the information that the government has requested, which obviously, you know, yielded substantial results in record time.

729
01:14:08,280 --> 01:14:17,280
Now, Mr. Ray, are you familiar how these requests come in from the Department of Justice?

730
01:14:17,280 --> 01:14:27,280
Yes, I am. I'm familiar with how they contact the company. They do that through Sullivan and Cromwell, primarily.

731
01:14:27,280 --> 01:14:34,280
And have you ever, are you aware of any instances where full cooperation was not given immediately?

732
01:14:34,280 --> 01:14:37,280
That wouldn't be tolerated.

733
01:14:37,280 --> 01:14:42,280
I'd like you to turn your attention to the next slide.

734
01:14:42,280 --> 01:14:53,280
Now, in addition to the Southern District of New York, U.S. Attorney's Office, are you familiar with other U.S. Attorney's Offices that have submitted information or requests?

735
01:14:53,280 --> 01:15:04,280
We've had full participation. You know, we've had numerous requests have shown by this chart from other prosecutors around the country.

736
01:15:04,280 --> 01:15:13,280
The Securities and Exchange Commission has had a number of requests, again, all cooperative presentations that have been provided.

737
01:15:13,280 --> 01:15:40,280
The CFTC has been extremely active here in connection with their investigation and have submitted those, you know, over 150 requests on a state basis. Now, shown in this chart, but we have entered into dozens of cease and desist orders with respect to licenses around the world, the money transaction sector, licenses that were maintained by the company.

738
01:15:40,280 --> 01:15:54,280
So this chart really doesn't show the full gambit of the things that we've done to cooperate on a state and local basis, as well as these particular federal agencies.

739
01:15:54,280 --> 01:15:57,280
If I can draw your attention to the next slide.

740
01:15:57,280 --> 01:16:01,280
Yes, this is really what I'm referring to.

741
01:16:01,280 --> 01:16:10,280
We self-reported to 26 state regulators. We produced a mountain of documents there as well.

742
01:16:10,280 --> 01:16:17,280
We've been in regular contact with these agencies, not leaving it to the agencies to come to us.

743
01:16:17,280 --> 01:16:22,280
We've taken a proactive effort to work with them.

744
01:16:22,280 --> 01:16:26,280
We've hosted update calls with these agencies.

745
01:16:26,280 --> 01:16:34,280
They're almost treating these agencies in effect like their own committee, if you will, and giving them real-time information.

746
01:16:34,280 --> 01:16:37,280
No objection, Your Honor.

747
01:16:37,280 --> 01:16:52,280
Now, in addition to the various states and state authorities, have you, are you aware of additional requests that have come from Congress and non-U.S. authorities?

748
01:16:52,280 --> 01:16:57,280
Yes, I've been very, very active and personally involved in these requests.

749
01:16:57,280 --> 01:17:10,280
As everyone has reported, testified in front of Congress, but leading up to that congressional testimony, we've had 100 requests from the Financial Services Committee.

750
01:17:10,280 --> 01:17:18,280
We've had requests from the Senate as well, and follow-up testimony that has been provided to the House Financial Services Committee.

751
01:17:18,280 --> 01:17:26,280
And then we've also been involved in regulatory requests from outside the United States.

752
01:17:26,280 --> 01:17:35,280
They're listed here in pretty extensive requests that stem from our international operations.

753
01:17:35,280 --> 01:17:42,280
And we have exchanges that, for example, are in Japan and Singapore, Cyprus.

754
01:17:42,280 --> 01:17:45,280
We have European operations where we host the European exchange.

755
01:17:45,280 --> 01:17:58,280
So all of these agencies relate to the operations outside the United States, and they've been very active in terms of requests as well as us responding to those requests.

756
01:17:58,280 --> 01:18:01,280
And since you're aware of the appointment of the Creditors Committee in these cases?

757
01:18:01,280 --> 01:18:02,280
Yes, I am.

758
01:18:02,280 --> 01:18:09,280
And so what has been the level of cooperation with the Creditors Committee since its appointment?

759
01:18:09,280 --> 01:18:17,280
Well, I'd like to think it's a model of how a company should work with the Creditors Committee.

760
01:18:17,280 --> 01:18:22,280
My approach really is sort of a partnership approach with the Creditors Committee.

761
01:18:22,280 --> 01:18:25,280
We've had numerous requests from the Committee.

762
01:18:25,280 --> 01:18:32,280
They've been in place, I think, for less than probably a full 45 days, something to that effect.

763
01:18:32,280 --> 01:18:35,280
So we had a head start, if you will, which was helpful.

764
01:18:35,280 --> 01:18:53,280
That head start allowed us then to really put the Committee in a position right away where they could be a true partner with us in this whole process, this journey we're on to figure out where we're going with the assets and the recoveries here.

765
01:18:53,280 --> 01:19:03,280
So we've had, you know, we have lots of calls, almost hourly contact between the professionals and the Committee and the debtors.

766
01:19:03,280 --> 01:19:07,280
I've personally had a call with members of the Creditor Committee.

767
01:19:07,280 --> 01:19:23,280
I've also given my contact information on a personal level to the co-chairs of the Committee with a full invite for them to call me at any time related to any requests that they might have or any views that they might have that they'd like to share with me on a personal basis.

768
01:19:23,280 --> 01:19:32,280
So we really have a, I think, hopefully what I think should be a model for cooperation in this important mission.

769
01:19:32,280 --> 01:19:39,280
Let's go back for a moment to the directors that were appointed.

770
01:19:39,280 --> 01:19:47,280
Did you appoint the directors with any keeping in mind potential for any conflicts between silos?

771
01:19:47,280 --> 01:19:49,280
Yes.

772
01:19:49,280 --> 01:19:56,280
It's no coincidence that the way we established the director positions, it is not one board.

773
01:19:56,280 --> 01:20:12,280
They often function to get information at the same time, just for efficiencies and clarity as to the information, but each director is a director of a separate silo.

774
01:20:12,280 --> 01:20:19,280
So they have duties as a director, for example, of the Almeida silo.

775
01:20:19,280 --> 01:20:21,280
The other directors do not.

776
01:20:21,280 --> 01:20:26,280
There's a director, for example, for West Rome Shires.

777
01:20:26,280 --> 01:20:41,280
So each of the directors, there is, you know, one silo where there's two directors on a silo, but each of these directors essentially have their own silo and their own responsibilities related to their silo in the subsidiaries beneath it.

778
01:20:41,280 --> 01:20:47,280
There's also a subsidiary director for those silos who's separate as well.

779
01:20:47,280 --> 01:20:52,280
And do you have separate board meetings for the directors in the separate silos?

780
01:20:52,280 --> 01:21:03,280
We have joint meetings, which are informational for all the directors, and then we have separate meetings for the directors related to their unique silos.

781
01:21:03,280 --> 01:21:11,280
So we actually put presentations together that only deal with that director and that director's unique silo information.

782
01:21:11,280 --> 01:21:19,280
And we do that for a few reasons. One is that we want to really give in-depth information related to that silo to that particular director.

783
01:21:19,280 --> 01:21:30,280
But we also want to create an environment under which that director can raise any issue whatsoever with respect to their silo versus any other silo or any other issue that exists in the FTX environment.

784
01:21:30,280 --> 01:21:43,280
So we want to create an efficient process which allows all the directors to share ideas and share their experiences, ensure access to the host of professionals we have.

785
01:21:43,280 --> 01:21:54,280
But we also have a very sterile environment where each director gets to spend, you know, quality time relative to the specific information that relates to that particular silo.

786
01:21:54,280 --> 01:22:07,280
For example, if there are assets that are in that silo and not in another silo, or if there are intercompany claims, for example, that directors want to discuss in their silo vis-a-vis other silos,

787
01:22:07,280 --> 01:22:19,280
they've got the environment in the forum to do that outside of the presence of the other directors. So that's really the model we created.

788
01:22:19,280 --> 01:22:25,280
Now, Mr. Ray, I'd like to go back to the cybersecurity environment that you mentioned a few minutes ago.

789
01:22:25,280 --> 01:22:36,280
Now, when – is there a physical location right now where FTX is located, the company?

790
01:22:36,280 --> 01:22:48,280
No, there is not. The company was described, and I think we referred to it in the first day petitions, as it's located in the meta universe. But we have no physical location whatsoever.

791
01:22:48,280 --> 01:23:04,280
So the investigations work that's been taking place so far, how does that take place in the metaverse? How does that investigation take place?

792
01:23:04,280 --> 01:23:21,280
Carefully, because all of our data is stored in the cloud. It's stored electronically. This isn't a case where, for example, like in Rhino, where we owned a 100,000-square-foot facility,

793
01:23:21,280 --> 01:23:35,280
and we owned a forklift, and we hired a forklift operator to go get the documents, and someone required them. This requires someone to go into our data environment to do their day job.

794
01:23:35,280 --> 01:23:46,280
Now, on the first day of the case, we received relief that provided indemnities for certain individuals who were accessing that environment. Do you recall that?

795
01:23:46,280 --> 01:23:52,280
Yes, I do. And why was that indemnity required?

796
01:23:52,280 --> 01:24:12,280
The reason for that, and it's very extensive, and I'll try to keep it focused and brief, but you're allowing and requiring, more importantly, professionals to enter into a highly fragile computerized database

797
01:24:12,280 --> 01:24:29,280
where things can happen and go wrong pretty quickly. If you open up that database, you're subjecting yourself to third-party hacks. You're subjecting yourself to inadvertent errors.

798
01:24:29,280 --> 01:24:45,280
I guess the word sometimes that might come to mind is sort of, you know, thick fingers or whatever. You literally could hit the wrong key in this environment and destroy hundreds of millions of dollars' worth of value

799
01:24:45,280 --> 01:25:01,280
because you've misquoted letters to a code, a key, if you will, a password that allows you to open up a wallet. This is an environment that has to be very cleansed, very clinical.

800
01:25:01,280 --> 01:25:17,280
This is not something for people to bounce around in without creating tremendous amounts of risks, external risks, internal risks. So it's really a laboratory that you have to work in very, very carefully.

801
01:25:17,280 --> 01:25:31,280
I'd like to show you another demonstrative. You're familiar with this slide? Yes, unfortunately. Could you please describe what this is depicting?

802
01:25:31,280 --> 01:25:59,280
Well, this depicts a couple of few different things. As you can see, the bricks around this wall shows the state of what our AWS environment was at the time of the petition. A very loose environment, one that is probably a case study for how not to have a controlled environment for crypto.

803
01:25:59,280 --> 01:26:17,280
Very vulnerable. We had hot wallets in a system where people, multiple people had access to passwords, wallets that, you know, sitting in a system that are accessible virtually by anyone who could access that data system.

804
01:26:17,280 --> 01:26:36,280
So these, there's multiple access points into an environment that literally held billions of dollars worth of the company's assets. And as you can see to the right, there's a few different, you know, words set out in red print there.

805
01:26:36,280 --> 01:27:03,280
Pre-petition, this environment allowed insiders to freely transfer assets of the company with no accountability and no tracing. Literally, one of the founders could come into this environment, download half a billion dollars worth of wallets onto a thumb drive, and walk off with them and there'd be no accounting for that whatsoever.

806
01:27:03,280 --> 01:27:08,280
Virtually unthinkable, really, in a controlled environment.

807
01:27:08,280 --> 01:27:24,280
What you'll see down below is that, you know, while we were securing this, this environment, you know, the petition date, we signed the power that gave me the right to advise on the filing of this.

808
01:27:24,280 --> 01:27:41,280
That was done at 424 a.m. in the morning on the 11th. By seven o'clock in the morning I was reviewing petitions. By 10 o'clock we were filing the first positions, or first petitions by early afternoon.

809
01:27:41,280 --> 01:27:55,280
We had, I think, achieved most of the filings of the petitions. And then throughout that day, those early hours, or within six, seven hours, you know, we were doing the normal first day petition filing.

810
01:27:55,280 --> 01:28:11,280
And one of our team, one of our advisors, not someone inside the company, one of our advisors that we had hired, detected movement of crypto off of our wallets.

811
01:28:11,280 --> 01:28:29,280
And so immediately, effectively, on the filing, we had, you know, an issue with the crypto being stolen from the company. At the same time, you know, there were efforts.

812
01:28:29,280 --> 01:28:42,280
At the time, we didn't fully realize what was transpiring, but there was efforts by the provisional liquidators to also secure assets for the protection of customers.

813
01:28:42,280 --> 01:28:52,280
This was all happening simultaneously. So your normal first day petition is chaotic as it sometimes can be.

814
01:28:52,280 --> 01:29:05,280
This was something that I have never experienced. And it all stems from the failure of this system and the lack of integrity related to this system.

815
01:29:05,280 --> 01:29:16,280
And we were fortunate enough, because of the professionals we had, to stop these, the cryptos being stolen.

816
01:29:16,280 --> 01:29:31,280
We were fortunate, of course, that the provisional liquidators were also able to capture some of this value and held in custody in the Bahamas that presumably could have been also stolen in this time period.

817
01:29:31,280 --> 01:29:45,280
And those hacks went on virtually all night long. I think that they somehow ceased around 4 to 5 a.m. the following day.

818
01:29:45,280 --> 01:29:56,280
We had over 100 people on the phone trying to stop these hacks, because at that point you have no passwords.

819
01:29:56,280 --> 01:30:09,280
You don't know where the wallets are in this environment. Someone described the wallets sort of in this AWS system as sort of needles in a haystack of needles.

820
01:30:09,280 --> 01:30:17,280
And we don't have the wallets. We don't have the passwords. Obviously, some people did have passwords that were accessing these.

821
01:30:17,280 --> 01:30:23,280
So it was really 48 hours of what I can only describe as pure hell.

822
01:30:23,280 --> 01:30:26,280
Mr. Bromley, before you continue, how much longer do you think you have?

823
01:30:26,280 --> 01:30:28,280
I'd say another 15 minutes.

824
01:30:28,280 --> 01:30:32,280
Okay, we'll go ahead and finish up in that moment. Take a recess before we cross.

825
01:30:32,280 --> 01:30:35,280
Okay, thank you.

826
01:30:35,280 --> 01:30:52,280
Now, Mr. Ray, take a look at the next slide.

827
01:30:52,280 --> 01:31:15,280
Sorry.

828
01:31:15,280 --> 01:31:20,280
So, Mr. Ray, could you describe the computing environment at FTX today?

829
01:31:20,280 --> 01:31:25,280
We have created the environment as it should be.

830
01:31:25,280 --> 01:31:32,280
We've hired experts in computer science and cryptography.

831
01:31:32,280 --> 01:31:46,280
I mentioned the Signia Group, as well as the Albrez and Marcello Group that have been essential to rebuilding the brick walls around these wallets to give them some security.

832
01:31:46,280 --> 01:31:55,280
We have gotten access to the code and controls and the data to prevent any further loss by way of hacking.

833
01:31:55,280 --> 01:32:01,280
We've moved hot wallets into what's called cold storage to secure those.

834
01:32:01,280 --> 01:32:14,280
We have also gone off to exchanges where wallets are contained and moved those wallets over to a controlled environment.

835
01:32:14,280 --> 01:32:36,280
So, this first exercise with the assistance of computer experts is to provide integrity to the environment, increase the security, move those wallets into cold storage and secure the assets for the benefit of customers and creditors.

836
01:32:36,280 --> 01:32:45,280
That, of course, involves the analytics that these experts use to find wallets.

837
01:32:45,280 --> 01:33:01,280
Also, what's key here is we're doing a tracing analysis, if you will, to look at unauthorized transfers of crypto that either were in wallets or in the environment itself.

838
01:33:01,280 --> 01:33:06,280
All with the goal, this isn't sort of a study for study's sake.

839
01:33:06,280 --> 01:33:15,280
There's a purpose here to what this is beyond just the integrity of the system and maintaining it and securing the assets.

840
01:33:15,280 --> 01:33:28,280
This is effectively to also recoup those assets to investigate who moved assets and for what purpose, the source of the funds for those assets.

841
01:33:28,280 --> 01:33:42,280
Whether that's external or on an inter-company basis, when we're investigating who did that, the potential misconduct, the wrong doers, the clawback opportunities related to that, and of course, in the process of that.

842
01:33:42,280 --> 01:33:51,280
All of the evidentiary work that we're doing to cooperate with the government is not an exercise for exercise's sake.

843
01:33:51,280 --> 01:33:55,280
There is no sort of billing code that just says cooperate with the government.

844
01:33:55,280 --> 01:33:59,280
We look at all of our cooperation really on an end-use basis.

845
01:33:59,280 --> 01:34:02,280
What do we do with that information?

846
01:34:02,280 --> 01:34:05,280
What's the byproduct of that investigation?

847
01:34:05,280 --> 01:34:11,280
The byproduct is always with an asset in mind or a recovery in mind.

848
01:34:11,280 --> 01:34:13,280
It's not sharing for sharing's sake.

849
01:34:13,280 --> 01:34:40,280
It's how we use that information that we've provided to ourselves and to regulatory authorities to then synthesize it in a way that provides us with the tools that we need to recover on avoidance actions, to inevitably file actions related to misfeasance or metal feasance against insiders, for example.

850
01:34:40,280 --> 01:34:45,280
Then obviously, there's the compliance with our Chapter 11 obligations and disclosure.

851
01:34:45,280 --> 01:34:53,280
That's an ongoing obligation that we have, and that's fulfilled through this very exercise.

852
01:34:53,280 --> 01:35:01,280
Lastly, as I mentioned, our byproduct of that leads to sharing evidence and cooperating with the authorities.

853
01:35:01,280 --> 01:35:06,280
But this is an ongoing circular effort, right?

854
01:35:06,280 --> 01:35:12,280
The answer is we get questions, we provide information, that information gets synthesized.

855
01:35:12,280 --> 01:35:17,280
That turns into new inquiries, new questions, and we're continuing to evolve in the process.

856
01:35:17,280 --> 01:35:20,280
We've been at it 90 days.

857
01:35:20,280 --> 01:35:21,280
It's night and day.

858
01:35:21,280 --> 01:35:24,280
When you see this environment today, it's a very simple chart.

859
01:35:24,280 --> 01:35:33,280
But to get from where we were 90 days ago, which is what I would describe as pure hell, to where we are today is pretty satisfying.

860
01:35:33,280 --> 01:35:39,280
Mr. Ray, do you think that there would be a danger of introducing a new party into the environment?

861
01:35:39,280 --> 01:35:41,280
Objection.

862
01:35:41,280 --> 01:35:48,280
His opinion on this issue is not relevant to the court's determination to buy into the examinee.

863
01:35:48,280 --> 01:35:54,280
Overruled.

864
01:35:54,280 --> 01:36:04,280
There is a danger, and beyond the, we have a lot of seats at the table.

865
01:36:04,280 --> 01:36:09,280
We're happy to feed all those people at the table.

866
01:36:09,280 --> 01:36:16,280
But what's unique about this is this controlled environment.

867
01:36:16,280 --> 01:36:27,280
This isn't some lawyer exercise where we bring in a well-heeled professional who observes misconduct by people.

868
01:36:27,280 --> 01:36:35,280
Literally, you have to operate in this laboratory to investigate, to secure these assets,

869
01:36:35,280 --> 01:36:44,280
and to develop a process of translating this data into recoverable assets for customers.

870
01:36:44,280 --> 01:36:56,280
This is just too fragile of an environment for me to accept yet another seat at the table with someone who just bounces into this environment and puts ourselves at risk.

871
01:36:56,280 --> 01:37:03,280
We've come too far to allow that to happen in my mind.

872
01:37:03,280 --> 01:37:06,280
That's all I have for this witness at the moment, Your Honor.

873
01:37:06,280 --> 01:37:08,280
We have time for redirect.

874
01:37:08,280 --> 01:37:09,280
All right. Thank you.

875
01:37:09,280 --> 01:37:18,280
All right. Let's go ahead and take a 15-minute recess. We'll reconvene at 1125.

876
01:37:39,280 --> 01:38:00,280
Thank you.

877
01:38:09,280 --> 01:38:20,280
I have this here.

878
01:38:20,280 --> 01:38:43,280
I don't know what's in this one.

879
01:38:43,280 --> 01:39:09,280
Thank you.

880
01:39:13,280 --> 01:39:38,280
Thank you.

881
01:39:43,280 --> 01:40:08,280
Thank you.

882
01:40:08,280 --> 01:40:17,280
Thank you.

883
01:40:17,280 --> 01:40:40,280
Thank you, everybody.

884
01:40:47,280 --> 01:41:12,280
Thank you.

885
01:41:12,280 --> 01:41:27,280
Thank you.

886
01:41:27,280 --> 01:41:42,280
Thank you.

887
01:41:42,280 --> 01:41:55,280
That's correct.

888
01:41:55,280 --> 01:41:58,280
Thank you.

889
01:41:58,280 --> 01:41:59,280
What type of actions were you prosecuting?

890
01:41:59,280 --> 01:42:01,280
Virtually all types.

891
01:42:01,280 --> 01:42:10,280
There was accounting malpractice, legal malpractice, breach of fiduciary duty, crime.

892
01:42:10,280 --> 01:42:17,280
There was actions against insurance carriers for failure to pay.

893
01:42:17,280 --> 01:42:23,280
There was avoidance actions.

894
01:42:23,280 --> 01:42:32,280
There was no evidence of any kind of affirmative recovery that one could think of.

895
01:42:32,280 --> 01:42:45,280
Now you testified something to the effect that you did not feel that the examiner reports in Enron or RezCap were particularly useful to you in your walls.

896
01:42:45,280 --> 01:42:47,280
That's correct.

897
01:42:47,280 --> 01:42:56,280
So do you know whether the courts in those cases viewed the examiner reports as being helpful?

898
01:42:56,280 --> 01:42:57,280
No, I don't.

899
01:42:57,280 --> 01:42:59,280
You don't know either way.

900
01:42:59,280 --> 01:43:01,280
I don't know either way.

901
01:43:01,280 --> 01:43:25,280
Your Honor, since Mr. ordinarily I would not do this, but since Mr. Ray testified about his opinion as to whether these examiner reports in these other cases were helpful, I would like to bring to the courts attention what the courts stated in the confirmation order in Enron as well as a transcript in the RezCap case.

902
01:43:25,280 --> 01:43:31,280
Objection, that's not evidence.

903
01:43:31,280 --> 01:43:42,280
It's not evidence, Your Honor, but he testified about his opinion and these orders and transcripts are part of the court record and the court can take judicial notice of them.

904
01:43:42,280 --> 01:43:47,280
Well, I think you argued earlier I can take judicial notice that they were filed but not the content of those documents.

905
01:43:47,280 --> 01:43:54,280
That is true, but at least with respect to an order, an order says what it says.

906
01:43:54,280 --> 01:43:58,280
Well, if it's an order, I will take judicial notice of the order.

907
01:43:58,280 --> 01:44:03,280
If it's in a transcript, I will not take judicial notice of the transcript.

908
01:44:03,280 --> 01:44:11,280
So the order that we have is in, that one is Enron.

909
01:44:11,280 --> 01:44:15,280
It's the findings of fact and conclusions of law.

910
01:44:15,280 --> 01:44:18,280
I'm sorry, I'm sorry.

911
01:44:18,280 --> 01:44:24,280
Can I also ask are you done with the witness? No.

912
01:44:24,280 --> 01:44:30,280
I'm sorry, I apologize. I was actually going to ask the witness about it, but he's right.

913
01:44:30,280 --> 01:44:33,280
Since the witness didn't know, I can.

914
01:44:33,280 --> 01:44:51,280
I can do this later? You can do this later, yes.

915
01:44:51,280 --> 01:45:05,280
Mr. Ray, you talked about appointing directors, correct? Yes, I did.

916
01:45:05,280 --> 01:45:15,280
And your power to appoint directors came from the omnibus corporate authority that was signed by Mr. Sam Bankman-Creed, is that correct?

917
01:45:15,280 --> 01:45:19,280
In part. What's the other part?

918
01:45:19,280 --> 01:45:33,280
At that point, I was the only officer of the company, and pursuant to that power, I was able to, I had the power to nominate directors and elect them.

919
01:45:33,280 --> 01:45:38,280
So when you say the power, you mean the omnibus corporate authority? Yes.

920
01:45:38,280 --> 01:45:41,280
And that's debtors exhibit one.

921
01:45:41,280 --> 01:45:44,280
Do you have exhibit one?

922
01:45:44,280 --> 01:45:47,280
Or you know what, we can look at, do you have a binder up there?

923
01:45:47,280 --> 01:45:50,280
I do.

924
01:45:50,280 --> 01:46:03,280
If you could turn to exhibit one A, please.

925
01:46:03,280 --> 01:46:09,280
And that is the petition of West Realm Shires, Inc.

926
01:46:09,280 --> 01:46:11,280
Is he here?

927
01:46:11,280 --> 01:46:13,280
I'm sorry?

928
01:46:13,280 --> 01:46:16,280
Whoever that was kicking off.

929
01:46:16,280 --> 01:46:21,280
If you look at the top of the page, it has the ECF page numbers.

930
01:46:21,280 --> 01:46:31,280
So if you could turn to page 11 of 20, please.

931
01:46:31,280 --> 01:46:35,280
Okay, and does that say omnibus corporate authority at the top?

932
01:46:35,280 --> 01:46:36,280
Yes, it does.

933
01:46:36,280 --> 01:46:42,280
Is that the omnibus corporate authority that gave you the authority to appoint directors for the debtors?

934
01:46:42,280 --> 01:46:54,280
Yes.

935
01:46:54,280 --> 01:47:01,280
Now, you had, I'm sorry, let me rephrase.

936
01:47:01,280 --> 01:47:11,280
If an examiner is appointed, if the court appoints an examiner in this case, would you cooperate with that examiner?

937
01:47:11,280 --> 01:47:18,280
I will follow whatever orders are issued by this court.

938
01:47:18,280 --> 01:47:24,280
Assuming that you were directed to cooperate with the examiner, would you do so?

939
01:47:24,280 --> 01:47:27,280
Can you explain what you mean by cooperation?

940
01:47:27,280 --> 01:47:36,280
If the examiner needs documents, for example, that the debtors have, would you provide those documents to the examiner?

941
01:47:36,280 --> 01:47:45,280
I think there might be some caveats to that, but yes.

942
01:47:45,280 --> 01:48:09,280
Are there other things that you would not provide to the examiner if he or she asked?

943
01:48:09,280 --> 01:48:18,280
You had testified that, I believe you had testified that all, I don't want to misstate your words.

944
01:48:18,280 --> 01:48:22,280
Did you testify that all former management has been terminated?

945
01:48:22,280 --> 01:48:29,280
I said that any former management that was in a controlled position has been terminated.

946
01:48:29,280 --> 01:48:37,280
But there still are some officers currently at the debtors that were present prior to the petition date, correct?

947
01:48:37,280 --> 01:48:48,280
There are employees that are employed who were also employed prior to the petition, they're not officers of the company.

948
01:48:48,280 --> 01:48:57,280
I would point to we have a stipulated fact that there are certain officers that still remain. Are you saying that's inaccurate?

949
01:48:57,280 --> 01:49:08,280
I'm saying that you may be confusing titles with officer positions, which are different in a corporate context and sometimes get confused.

950
01:49:08,280 --> 01:49:12,280
For example, the general counsel of the company is the title.

951
01:49:12,280 --> 01:49:18,280
I've not stripped that person of their title, but they don't function as general counsel and I'm not an officer of the company.

952
01:49:18,280 --> 01:49:24,280
I certainly haven't appointed them as officer post-petition.

953
01:49:24,280 --> 01:49:31,280
So you're saying that there are some individuals who hold officer titles at the debtor that were there pre-petition?

954
01:49:31,280 --> 01:49:33,280
That are not in controlled positions in the company.

955
01:49:33,280 --> 01:49:35,280
What do you mean by controlled position?

956
01:49:35,280 --> 01:49:39,280
Positions of control.

957
01:49:39,280 --> 01:49:43,280
Could you elaborate a little further?

958
01:49:43,280 --> 01:49:54,280
Controlling the actions of the company, making decisions related to the company's business or operations.

959
01:49:54,280 --> 01:49:56,280
Is that sufficient?

960
01:49:56,280 --> 01:50:03,280
Yes, thank you.

961
01:50:03,280 --> 01:50:16,280
Are you aware that you had given some testimony regarding cooperating with various state attorney general's offices and the like, is that correct?

962
01:50:16,280 --> 01:50:18,280
Yes.

963
01:50:18,280 --> 01:50:29,280
And are you aware that certain state attorney general's offices or other state agencies have in fact joined in the U.S. trustee's motion to appoint an examiner?

964
01:50:29,280 --> 01:50:36,280
I believe there was two jointers, I think Wisconsin and one other state.

965
01:50:36,280 --> 01:50:40,280
You don't recall there was a third one more recently?

966
01:50:40,280 --> 01:50:44,280
If you say so.

967
01:50:44,280 --> 01:50:52,280
It attached a bunch of letters from other state agencies, you didn't see that?

968
01:50:52,280 --> 01:50:58,280
I'm saying, did you see that, that attached letters from other state agencies supporting the jointer?

969
01:50:58,280 --> 01:51:05,280
I don't know which ones you're referring to, I did review two of them, if there's a third, I'll take your word for it.

970
01:51:05,280 --> 01:51:07,280
I did read the two that were filed.

971
01:51:07,280 --> 01:51:17,280
There's a third, I may not have read it.

972
01:51:17,280 --> 01:51:21,280
Jointer of the Texas State Securities Board, you didn't see that?

973
01:51:21,280 --> 01:51:29,280
Can I just ask the relevance of this, we're happy to stipulate that the Texas jointer was filed.

974
01:51:29,280 --> 01:51:32,280
I've seen it too.

975
01:51:32,280 --> 01:51:44,280
He testified about how he's assisting them and I think it's relevant that they are joining in the motion.

976
01:51:44,280 --> 01:51:52,280
I get that point, but I don't know what else he can elaborate on that.

977
01:51:52,280 --> 01:51:53,280
Thank you, your honor.

978
01:51:53,280 --> 01:52:03,280
I just wanted to make sure if I said Texas, you might have said, oh yes, now I remember.

979
01:52:03,280 --> 01:52:14,280
Are you aware of any state agencies that have objected to the motion to appoint an examiner?

980
01:52:14,280 --> 01:52:18,280
I think, didn't you just say that two states, three states had objected?

981
01:52:18,280 --> 01:52:19,280
No, joined.

982
01:52:19,280 --> 01:52:20,280
Oh, joined.

983
01:52:20,280 --> 01:52:23,280
I'm asking are you aware of any that objected?

984
01:52:23,280 --> 01:52:27,280
No, I am not.

985
01:52:27,280 --> 01:52:31,280
Now, your firm is called Outhill Advisory, correct?

986
01:52:31,280 --> 01:52:35,280
That's correct.

987
01:52:35,280 --> 01:52:39,280
And are you the only employee at Outhill?

988
01:52:39,280 --> 01:52:42,280
Yes.

989
01:52:42,280 --> 01:52:55,280
So you are, among your services, some of the services you're doing relate to ongoing investigations of various pre-petition actions?

990
01:52:55,280 --> 01:52:57,280
I'm sorry, what case are you referring to?

991
01:52:57,280 --> 01:52:59,280
Oh, I'm sorry, FTX.

992
01:52:59,280 --> 01:53:10,280
FTX is one of the services you are currently performing is investigating certain actions that took place pre-petition?

993
01:53:10,280 --> 01:53:13,280
Is that something you're doing?

994
01:53:13,280 --> 01:53:23,280
Well, in my capacity as CEO of the company, I am overseeing every aspect of the company's business operations,

995
01:53:23,280 --> 01:53:30,280
including investigations related to pre-petition conduct.

996
01:53:30,280 --> 01:53:34,280
But you're not personally conducting any of that yourself?

997
01:53:34,280 --> 01:53:39,280
That depends on the topic of matters, but in some cases I am.

998
01:53:39,280 --> 01:53:44,280
Are there other employees at the debtor that are performing those functions?

999
01:53:44,280 --> 01:53:45,280
Yes.

1000
01:53:45,280 --> 01:53:47,280
And are you overseeing them?

1001
01:53:47,280 --> 01:53:50,280
Yes.

1002
01:53:50,280 --> 01:53:54,280
And you're billing on an hourly rate in this case, is that correct?

1003
01:53:54,280 --> 01:53:55,280
That's correct.

1004
01:53:55,280 --> 01:54:05,280
Do you know approximately how many, the amount of fees that your firm has incurred to date in connection with the services you perform for the debtors?

1005
01:54:05,280 --> 01:54:07,280
Through what date?

1006
01:54:07,280 --> 01:54:13,280
Through any date today, or the end of last year, or whatever date you might have information on?

1007
01:54:13,280 --> 01:54:27,280
The most recent date I would have information on is the period from November 11, which is the start of the engagement, through December 31.

1008
01:54:27,280 --> 01:54:39,280
And that approximate amount, excluding expenses, is $690,000.

1009
01:54:39,280 --> 01:54:47,280
Which is simply the number of hours spent, times the hourly rate.

1010
01:54:47,280 --> 01:54:52,280
Have you looked at the examiner's report in Celsius Network?

1011
01:54:52,280 --> 01:54:54,280
Yes, I have.

1012
01:54:54,280 --> 01:54:59,280
Are you aware of how many times that report references FTX?

1013
01:54:59,280 --> 01:55:02,280
I did not do a word count.

1014
01:55:02,280 --> 01:55:04,280
But you did notice there were references?

1015
01:55:04,280 --> 01:55:13,280
I'm sure there was the word FTX, I didn't do a word count.

1016
01:55:13,280 --> 01:55:16,280
Did you look at the examiner's report in the CRED case?

1017
01:55:16,280 --> 01:55:19,280
No, I did not.

1018
01:55:19,280 --> 01:55:22,280
Have you ever been an examiner?

1019
01:55:22,280 --> 01:55:26,280
No, I have not.

1020
01:55:26,280 --> 01:55:31,280
Have you ever represented an examiner's council?

1021
01:55:31,280 --> 01:55:53,280
No, I have not.

1022
01:55:53,280 --> 01:56:15,280
I'm sorry, Your Honor, could I have a moment please?

1023
01:56:15,280 --> 01:56:21,280
Your Honor, my cross is completed.

1024
01:56:21,280 --> 01:56:29,280
I can wait until after to deal with the order in the Enron case.

1025
01:56:29,280 --> 01:56:31,280
Let's see if there's any redirects.

1026
01:56:31,280 --> 01:56:33,280
No redirects, Your Honor.

1027
01:56:33,280 --> 01:56:34,280
Thank you.

1028
01:56:34,280 --> 01:56:35,280
Mr. Wright, thank you.

1029
01:56:35,280 --> 01:56:37,280
You may step down.

1030
01:56:37,280 --> 01:57:03,280
Your Honor, may I approach?

1031
01:57:03,280 --> 01:57:11,280
Yes.

1032
01:57:11,280 --> 01:57:33,280
Yes, effectively, yes.

1033
01:58:03,280 --> 01:58:08,280
So this is the findings of fact and conclusions of law,

1034
01:58:11,440 --> 01:58:13,940
confirming the supplemental, modified,

1035
01:58:13,940 --> 01:58:17,140
fifth amended joint plan of affiliated debtors,

1036
01:58:17,140 --> 01:58:19,920
pursuant to chapter 11 of the United States Bankruptcy Code

1037
01:58:19,920 --> 01:58:22,440
and related relief in Enron,

1038
01:58:22,440 --> 01:58:23,920
the Southern District of New York,

1039
01:58:23,920 --> 01:58:28,360
case number 01-16034.

1040
01:58:29,280 --> 01:58:30,820
And the date is,

1041
01:58:30,820 --> 01:58:33,820
I don't have the docket number on this,

1042
01:58:33,820 --> 01:58:36,260
I apologize, I don't know why.

1043
01:58:36,260 --> 01:58:38,340
I notice at the top it says not for publication.

1044
01:58:38,340 --> 01:58:39,180
Yes.

1045
01:58:39,180 --> 01:58:40,500
What's the effect of that on my ability

1046
01:58:40,500 --> 01:58:42,460
to take judicial notice at this time?

1047
01:58:44,900 --> 01:58:45,740
I understand,

1048
01:58:47,380 --> 01:58:48,220
I said I,

1049
01:58:49,860 --> 01:58:50,700
Mr.

1050
01:58:54,700 --> 01:58:56,980
Oh, my colleague tells me it is available

1051
01:58:56,980 --> 01:58:58,500
on the Bank of Secrets website,

1052
01:58:58,500 --> 01:59:00,820
I notice it's not for publication.

1053
01:59:00,820 --> 01:59:03,060
It is available on the Bank of Secrets website.

1054
01:59:03,060 --> 01:59:04,780
But not on the docket?

1055
01:59:04,780 --> 01:59:07,780
It's on the docket, is it not on the docket?

1056
01:59:10,340 --> 01:59:15,340
It predates, the problem is the date, apparently.

1057
01:59:15,860 --> 01:59:20,060
It's from 2004.

1058
01:59:20,060 --> 01:59:22,260
I think that's what the issue was, Your Honor.

1059
01:59:23,980 --> 01:59:24,820
Okay.

1060
01:59:24,820 --> 01:59:29,620
I mean, it's obviously not a written decision,

1061
01:59:29,620 --> 01:59:33,140
but again, Mr. Ray was allowed to testify

1062
01:59:33,140 --> 01:59:35,700
as to his opinion as to whether

1063
01:59:35,700 --> 01:59:38,300
the examiner report was useful.

1064
01:59:38,300 --> 01:59:40,460
And it would seem to me that the judge's opinion

1065
01:59:40,460 --> 01:59:43,700
on that matter is at least equally relevant.

1066
01:59:44,740 --> 01:59:46,660
Your Honor, we're not,

1067
01:59:46,660 --> 01:59:48,660
I don't know that this is the judge's opinion.

1068
01:59:48,660 --> 01:59:50,020
Says not for publication.

1069
01:59:51,180 --> 01:59:54,380
I don't even know what part of it's 130 pages.

1070
01:59:54,380 --> 01:59:57,780
Oh, I can, yes, yes, I would point that out.

1071
02:00:03,980 --> 02:00:05,100
So I would first,

1072
02:00:05,100 --> 02:00:18,100
I would first point out on page 101,

1073
02:00:18,100 --> 02:00:23,100
from the first full paragraph, fifth line down,

1074
02:00:37,340 --> 02:00:40,860
the court states the ENA examiner has provided

1075
02:00:40,860 --> 02:00:44,260
valuable services to the estates of ENA

1076
02:00:44,260 --> 02:00:46,180
and its subsidiaries in satisfaction

1077
02:00:46,180 --> 02:00:48,460
with his duties imposed by the court.

1078
02:00:57,260 --> 02:00:58,940
Personally, Your Honor, the report,

1079
02:00:58,940 --> 02:01:03,340
examiner reports, this references one examiner.

1080
02:01:03,340 --> 02:01:05,340
It doesn't say the report was helpful.

1081
02:01:06,580 --> 02:01:08,820
It just says the examiner's provided services.

1082
02:01:08,820 --> 02:01:10,220
We don't have it wrote this.

1083
02:01:11,780 --> 02:01:14,020
The post-finding's effect of the judicial law

1084
02:01:14,020 --> 02:01:16,100
generally is drafted by counsel.

1085
02:01:16,100 --> 02:01:18,780
We haven't had a chance to look at it.

1086
02:01:18,780 --> 02:01:20,060
We object to the use of this,

1087
02:01:20,060 --> 02:01:22,260
and we're not even sure what the use of it is for.

1088
02:01:22,260 --> 02:01:23,660
If it doesn't impeach Mr. Ray,

1089
02:01:23,660 --> 02:01:25,980
he said he hadn't seen it.

1090
02:01:28,500 --> 02:01:30,260
Your Honor, I mean, the US Justice's position

1091
02:01:30,260 --> 02:01:33,020
is that all of Mr. Ray's testimony is completely irrelevant,

1092
02:01:33,020 --> 02:01:35,580
but, and we objected obviously repeatedly

1093
02:01:35,580 --> 02:01:37,780
to him giving his opinion about whether he thought

1094
02:01:37,780 --> 02:01:39,820
the examiner reports were useful.

1095
02:01:40,820 --> 02:01:42,700
In the two cases he was involved in,

1096
02:01:42,700 --> 02:01:44,940
in Enron, it was after the fact.

1097
02:01:44,940 --> 02:01:47,140
It came in after the reports were filed.

1098
02:01:47,140 --> 02:01:52,140
So, again, if he's allowed to provide that testimony,

1099
02:01:52,620 --> 02:01:55,340
we think the court can take judicial notice

1100
02:01:55,340 --> 02:01:57,580
of an order of the court,

1101
02:01:57,580 --> 02:01:59,860
findings, facts, and conclusions of the law

1102
02:01:59,860 --> 02:02:03,060
that was signed by the judge with these findings.

1103
02:02:03,060 --> 02:02:05,660
And there are some other provisions I would read

1104
02:02:05,660 --> 02:02:08,540
about some of the other examiners.

1105
02:02:09,500 --> 02:02:11,260
I started with that one.

1106
02:02:11,260 --> 02:02:14,180
Mr. Ray's testimony was a criminal testimony.

1107
02:02:14,180 --> 02:02:15,980
It's his own experience as to whether or not

1108
02:02:15,980 --> 02:02:18,260
these reports would help to put him in a job

1109
02:02:18,260 --> 02:02:21,500
that he conducted and an effort that he was supervising.

1110
02:02:22,540 --> 02:02:24,180
I'm sure that there are people who think

1111
02:02:24,180 --> 02:02:26,100
that the examiner report was helpful.

1112
02:02:26,100 --> 02:02:29,220
I think Mr. Bassin, who earned $90 million writing it,

1113
02:02:29,220 --> 02:02:31,180
probably thought it was helpful.

1114
02:02:31,180 --> 02:02:33,820
But none of that's relevant to this case.

1115
02:02:33,820 --> 02:02:36,860
I agree that none of this is relevant to this case.

1116
02:02:36,860 --> 02:02:40,540
Mr. Ray is the Chief Executive Officer of FTS.

1117
02:02:40,540 --> 02:02:41,540
All right, hold on.

1118
02:02:42,740 --> 02:02:44,820
Well, the problem I have is, one, it says not for publication.

1119
02:02:44,820 --> 02:02:46,740
I have no idea where this came from.

1120
02:02:46,740 --> 02:02:48,340
I have no testimony where it came from.

1121
02:02:48,340 --> 02:02:49,580
So it's not authenticated.

1122
02:02:50,500 --> 02:02:52,820
It has an electronic signature,

1123
02:02:52,820 --> 02:02:56,180
but that doesn't tell me much.

1124
02:02:56,180 --> 02:02:58,820
Unless I have something,

1125
02:02:58,820 --> 02:03:03,100
usually there's a web address that is identified on it,

1126
02:03:03,100 --> 02:03:04,340
or it comes from the docket,

1127
02:03:04,340 --> 02:03:11,020
and there's a docket entry identified on the document.

1128
02:03:11,020 --> 02:03:15,180
And frankly, I mean, what you just read to me is not...

1129
02:03:16,420 --> 02:03:18,580
I'll take it for what it is, what you just read to me,

1130
02:03:18,580 --> 02:03:21,420
but I don't think I can take judicial notice of this

1131
02:03:21,420 --> 02:03:23,180
given the way it's being presented.

1132
02:03:24,820 --> 02:03:27,180
I need to have some authentication of the document.

1133
02:03:27,180 --> 02:03:28,340
I don't have any.

1134
02:03:28,340 --> 02:03:30,340
Your Honor, could I just speak to my colleagues for one minute?

1135
02:03:30,340 --> 02:03:35,340
Sure.

1136
02:03:43,540 --> 02:03:46,940
Your Honor, we do have the web address where it came from.

1137
02:03:50,620 --> 02:03:53,420
Would it be helpful if we forwarded this to you?

1138
02:03:56,220 --> 02:03:58,340
I think, unfortunately, the only way to do this

1139
02:03:58,340 --> 02:04:01,780
is to have your colleague take the statement.

1140
02:04:01,780 --> 02:04:05,220
Unfortunately, this colleague did not personally download

1141
02:04:05,220 --> 02:04:06,060
the document.

1142
02:04:06,060 --> 02:04:09,260
Another colleague did that's not present in the courtroom

1143
02:04:09,260 --> 02:04:11,300
and is in another state.

1144
02:04:11,300 --> 02:04:12,300
That's a problem.

1145
02:04:14,300 --> 02:04:15,300
Okay, Your Honor.

1146
02:04:19,020 --> 02:04:23,180
So, there's nothing further to be done by this.

1147
02:04:23,180 --> 02:04:25,140
I understand that Your Honor's ruling,

1148
02:04:25,140 --> 02:04:29,260
and again, normally, I would never do anything

1149
02:04:29,260 --> 02:04:30,180
with these types of documents.

1150
02:04:30,180 --> 02:04:32,460
I think it is completely irrelevant to the issues

1151
02:04:32,460 --> 02:04:35,700
before the court, but again, because of Mr. Ray's testimony,

1152
02:04:35,700 --> 02:04:37,940
and I agree, I think there's a little bit different

1153
02:04:37,940 --> 02:04:39,700
to say, well, other people might have thought

1154
02:04:39,700 --> 02:04:42,460
that the report was helpful, but the court's opinion

1155
02:04:42,460 --> 02:04:45,220
is more important than other people's opinions.

1156
02:04:46,860 --> 02:04:48,020
I understand your point.

1157
02:04:48,020 --> 02:04:48,860
Thank you.

1158
02:04:52,180 --> 02:04:53,900
Are we moving on to final arguments?

1159
02:04:53,900 --> 02:04:55,980
Yes, do you have any other evidence?

1160
02:04:57,660 --> 02:04:59,300
I guess you are done with your evidence.

1161
02:04:59,300 --> 02:05:01,300
Do you have any other evidence, Mr. Brown?

1162
02:05:02,580 --> 02:05:03,420
No, Your Honor.

1163
02:05:04,420 --> 02:05:05,660
Any?

1164
02:05:05,660 --> 02:05:08,540
No, just one clarification before the evidence close.

1165
02:05:08,540 --> 02:05:12,180
Again, Chris Shore for the Joint Provisional Liquidators.

1166
02:05:12,180 --> 02:05:15,620
It's unclear whether to what extent the presentation

1167
02:05:15,620 --> 02:05:18,860
that was given is coming into evidence or not,

1168
02:05:18,860 --> 02:05:20,820
and normally, I wouldn't care since it would just be

1169
02:05:20,820 --> 02:05:23,180
coming in for this proceeding, but there was,

1170
02:05:23,180 --> 02:05:28,180
on that global, or the, I guess it was the first page

1171
02:05:29,580 --> 02:05:32,260
of the chart, which showed all the corporate logos

1172
02:05:32,260 --> 02:05:34,540
and the admin burn that's going on.

1173
02:05:34,540 --> 02:05:37,500
There was a line that went out that said,

1174
02:05:37,500 --> 02:05:39,740
other fiduciaries enlisted the JPLs,

1175
02:05:39,740 --> 02:05:41,260
and I want the record to be very clear.

1176
02:05:41,260 --> 02:05:43,060
I don't think the implication was being made,

1177
02:05:43,060 --> 02:05:46,340
but the chart shows it that the JPLs are fiduciaries

1178
02:05:46,340 --> 02:05:48,620
for the debtors, they're fiduciaries

1179
02:05:48,620 --> 02:05:50,860
for the Chapter 15 debtor, that's all.

1180
02:05:50,860 --> 02:05:52,940
Well, those were demonstrators, they weren't.

1181
02:05:52,940 --> 02:05:54,780
They admitted it to evidence, so they're not,

1182
02:05:54,780 --> 02:05:56,220
they're not part of the record.

1183
02:05:57,060 --> 02:05:58,500
Councilman Squalley for the Committee, Your Honor.

1184
02:05:58,500 --> 02:06:00,300
We have no additional questions.

1185
02:06:00,300 --> 02:06:01,140
Thank you.

1186
02:06:01,140 --> 02:06:01,980
Any rebuttal?

1187
02:06:04,300 --> 02:06:05,140
Ms. Sarkisian?

1188
02:06:05,140 --> 02:06:06,700
Oh, I'm sorry.

1189
02:06:06,700 --> 02:06:08,460
I'm sorry, Your Honor, I didn't hear you.

1190
02:06:08,460 --> 02:06:09,780
Any rebuttal, evidence?

1191
02:06:11,020 --> 02:06:12,460
No, no rebuttal.

1192
02:06:12,460 --> 02:06:25,700
All right, so we can go to the closing.

1193
02:06:25,700 --> 02:06:27,220
Thank you, Your Honor, again for the record,

1194
02:06:27,220 --> 02:06:29,900
Juliet Sarkisian on behalf of the U.S. Trustee.

1195
02:06:31,260 --> 02:06:33,340
Your Honor, I am going to make sure

1196
02:06:33,340 --> 02:06:36,860
I'm not repeating my opening argument,

1197
02:06:36,860 --> 02:06:41,860
but I think that we've had some evidence today,

1198
02:06:41,860 --> 02:06:43,380
and I'll speak about that in a minute,

1199
02:06:43,380 --> 02:06:46,900
but of course, U.S. Trustee's position,

1200
02:06:46,900 --> 02:06:49,020
as I did indicate, I am repeating my opening,

1201
02:06:50,180 --> 02:06:53,580
under 11, the departments for 1104C2 have been met,

1202
02:06:54,580 --> 02:06:58,780
and in fact, the only facts that could have been disputed

1203
02:06:58,780 --> 02:07:03,260
were stipulated by the debtors and the other objectors,

1204
02:07:03,260 --> 02:07:05,020
and therefore, the U.S. Trustee believes

1205
02:07:05,020 --> 02:07:09,820
that an examiner is mandated.

1206
02:07:09,820 --> 02:07:13,420
Of course, the scope of such examination will be decided.

1207
02:07:13,420 --> 02:07:15,220
If Your Honor was to appoint an examiner,

1208
02:07:15,220 --> 02:07:18,540
the scope would be dealt with after that.

1209
02:07:18,540 --> 02:07:20,620
Don't I need to do that before he?

1210
02:07:21,540 --> 02:07:25,260
How do I determine as is appropriate,

1211
02:07:25,260 --> 02:07:29,100
if I don't know what the proposed scope of the examination is?

1212
02:07:29,100 --> 02:07:31,060
Well, of course, Your Honor, the U.S. Trustee

1213
02:07:31,060 --> 02:07:33,900
does not believe that the as is appropriate

1214
02:07:33,900 --> 02:07:37,220
relates actually to the scope of the examination,

1215
02:07:37,220 --> 02:07:40,540
and not to whether an examiner should be appointed,

1216
02:07:40,540 --> 02:07:41,380
and the number of cases.

1217
02:07:41,380 --> 02:07:42,740
Well, it has to point to one,

1218
02:07:42,740 --> 02:07:44,700
it has to apply to one or the other, doesn't it?

1219
02:07:44,700 --> 02:07:45,540
I mean, yeah.

1220
02:07:45,540 --> 02:07:46,580
Yes, it's a scope, yes,

1221
02:07:46,580 --> 02:07:49,500
it applies to the scope of the investigation.

1222
02:07:49,500 --> 02:07:50,780
So that's my question.

1223
02:07:50,780 --> 02:07:55,140
I don't know what scope you're asking me to grant.

1224
02:07:55,140 --> 02:07:56,940
How would I know how to do that?

1225
02:07:56,940 --> 02:07:59,780
I can't just say I'm gonna appoint an examiner,

1226
02:07:59,780 --> 02:08:03,220
and do what?

1227
02:08:03,220 --> 02:08:06,620
Your Honor, I understand that in other cases,

1228
02:08:06,620 --> 02:08:10,100
I believe that included residential capital.

1229
02:08:11,780 --> 02:08:15,740
The court said that will be appointing the examiner,

1230
02:08:15,740 --> 02:08:20,740
and that residential capital did actually think

1231
02:08:21,860 --> 02:08:23,980
that the as is appropriate was a requirement

1232
02:08:23,980 --> 02:08:26,460
that had to be found, and they found it was appropriate,

1233
02:08:26,460 --> 02:08:28,380
but the court nevertheless said,

1234
02:08:28,380 --> 02:08:30,220
hey, the scope will be dealt with.

1235
02:08:30,220 --> 02:08:32,620
Now the parties get together, the U.S. Trustee appoints,

1236
02:08:32,620 --> 02:08:35,620
and nominates, and they go, appoints an examiner,

1237
02:08:35,620 --> 02:08:37,260
and then the examiner meets with the parties,

1238
02:08:37,260 --> 02:08:38,540
and they talk about the scope,

1239
02:08:38,540 --> 02:08:40,500
and then they come back to the court.

1240
02:08:40,500 --> 02:08:43,340
But, Your Honor, I am happy to give you,

1241
02:08:43,340 --> 02:08:47,020
I circulated last night to all the other parties,

1242
02:08:47,020 --> 02:08:50,020
because we've had a number of questions about scope.

1243
02:08:50,020 --> 02:08:53,460
So last night we said, all right, here are some examples.

1244
02:08:53,460 --> 02:08:54,500
Can't say that this is ever,

1245
02:08:54,500 --> 02:08:56,780
here are some examples of the types of things

1246
02:08:56,780 --> 02:09:02,780
that would, excuse me, an examiner could investigate.

1247
02:09:03,660 --> 02:09:06,820
So number one, the facts and circumstances

1248
02:09:06,820 --> 02:09:11,420
surrounding the misuse of customer funds, pre-petition,

1249
02:09:11,420 --> 02:09:13,740
identifying the individuals and entities

1250
02:09:13,740 --> 02:09:16,460
that were involved in that, or who knew about it,

1251
02:09:16,460 --> 02:09:18,660
or should have known about it,

1252
02:09:18,660 --> 02:09:21,300
and determining whether any of those individuals

1253
02:09:21,300 --> 02:09:24,020
remain employed at the debtors,

1254
02:09:24,020 --> 02:09:26,540
or otherwise have some continuing involvement

1255
02:09:26,540 --> 02:09:28,580
in the debtors' affairs.

1256
02:09:28,580 --> 02:09:31,620
Also, investigating any actions taken by the debtors,

1257
02:09:31,620 --> 02:09:34,180
their officers, directors, employees, or others

1258
02:09:34,180 --> 02:09:36,820
to conceal the misuse of customer funds,

1259
02:09:36,820 --> 02:09:38,540
including by way of software.

1260
02:09:38,540 --> 02:09:40,500
That was something that Mr. Rafe,

1261
02:09:40,500 --> 02:09:42,180
in his first day declaration,

1262
02:09:42,180 --> 02:09:45,460
talked about the use of software to hide,

1263
02:09:45,460 --> 02:09:48,500
to conceal the misuse of customer funds.

1264
02:09:50,300 --> 02:09:52,460
And then again, whether such individuals

1265
02:09:52,460 --> 02:09:54,300
remain employed at the debtors.

1266
02:09:54,300 --> 02:09:57,100
Also, investigating who was responsible for the debtors'

1267
02:09:57,100 --> 02:09:58,900
corporate controls and governance,

1268
02:09:58,900 --> 02:10:01,420
the gathering and maintaining of financial information,

1269
02:10:01,420 --> 02:10:04,420
systems integrity, the control of the debtors' cash,

1270
02:10:04,420 --> 02:10:07,380
maintaining the security of the debtors' digital assets,

1271
02:10:07,380 --> 02:10:09,460
maintaining the security of customer cash

1272
02:10:09,460 --> 02:10:11,500
and customer digital assets,

1273
02:10:11,500 --> 02:10:14,500
and what actions were taken or not taken by the debtors,

1274
02:10:14,500 --> 02:10:16,140
their directors, officers, employees,

1275
02:10:16,140 --> 02:10:17,660
or others in that regard,

1276
02:10:17,660 --> 02:10:20,140
and determining whether any individuals or entities

1277
02:10:20,140 --> 02:10:22,700
who were responsible for such failures

1278
02:10:22,700 --> 02:10:25,940
remain employed by the debtor or have continuing involvement

1279
02:10:25,940 --> 02:10:27,460
in the debtors' affairs.

1280
02:10:27,460 --> 02:10:29,340
And again, this is picking up on Mr. Rafe's

1281
02:10:29,340 --> 02:10:31,460
first day declaration when he talked about

1282
02:10:31,460 --> 02:10:33,860
just a complete, I believe,

1283
02:10:34,900 --> 02:10:38,020
complete lack of these various controls

1284
02:10:39,140 --> 02:10:40,940
and financial information,

1285
02:10:40,940 --> 02:10:42,660
and all of these issues that he said

1286
02:10:42,660 --> 02:10:45,460
was the worst thing he'd ever seen, even worse than online.

1287
02:10:45,460 --> 02:10:48,420
So that would be when, who was responsible for that?

1288
02:10:48,420 --> 02:10:49,860
Who turned a blind eye?

1289
02:10:49,860 --> 02:10:51,460
So that would be another area.

1290
02:10:51,460 --> 02:10:53,820
Also, just I think more generally,

1291
02:10:53,820 --> 02:10:56,300
investigating all allegations of fraud, dishonesty,

1292
02:10:56,300 --> 02:10:59,740
incompetence, misconduct, mismanagement of the debtors

1293
02:10:59,740 --> 02:11:02,540
by their officers, directors, employees, or others,

1294
02:11:02,540 --> 02:11:05,620
determining whether any individuals or entities

1295
02:11:05,620 --> 02:11:07,740
who committed fraud, dishonesty,

1296
02:11:07,740 --> 02:11:10,860
incompetence, misconduct, said remain at the debtors

1297
02:11:10,860 --> 02:11:14,020
or have continuing involvement with the debtors' affairs,

1298
02:11:14,020 --> 02:11:17,620
and then also investigating the facts and circumstances

1299
02:11:17,620 --> 02:11:22,620
revolving around all of the hacks of the debtors' exchanges

1300
02:11:22,620 --> 02:11:24,820
that occurred both before the petition date

1301
02:11:24,820 --> 02:11:26,580
and after the petition date,

1302
02:11:26,580 --> 02:11:28,780
determining what individuals or entities

1303
02:11:28,780 --> 02:11:31,140
were responsible for those hacks,

1304
02:11:31,140 --> 02:11:34,140
and separate issue, what individuals or entities

1305
02:11:34,140 --> 02:11:35,940
on behalf of the debtors were responsible

1306
02:11:35,940 --> 02:11:38,140
for preventing such hacks,

1307
02:11:38,140 --> 02:11:42,020
whether those persons, whether they were negligent

1308
02:11:42,020 --> 02:11:43,620
in the performance of their duties,

1309
02:11:45,140 --> 02:11:47,540
and whether those individuals were responsible

1310
02:11:47,540 --> 02:11:50,580
to remain employed by the debtors,

1311
02:11:50,580 --> 02:11:52,500
and then finally shedding transparency

1312
02:11:52,500 --> 02:11:54,940
into the relationship between the FTX entities

1313
02:11:54,940 --> 02:11:57,300
and the Celsius entities.

1314
02:11:57,300 --> 02:12:00,300
Again, this is not meant to be a comprehensive list,

1315
02:12:00,300 --> 02:12:02,300
but I'm providing it as I did provide

1316
02:12:02,300 --> 02:12:04,900
to the other parties yesterday evening.

1317
02:12:06,820 --> 02:12:09,700
These are the types of things that we could see

1318
02:12:09,700 --> 02:12:13,420
an examiner looking into in these particular cases.

1319
02:12:13,420 --> 02:12:14,740
So pretty much anything and everything

1320
02:12:14,740 --> 02:12:16,020
that happened before the petition,

1321
02:12:16,020 --> 02:12:17,620
that's what you're asking for.

1322
02:12:20,540 --> 02:12:22,620
Your Honor is the final determiner

1323
02:12:22,620 --> 02:12:25,540
of the scope of the examiner, not the US trustee.

1324
02:12:25,540 --> 02:12:29,500
These are just things that we think would make sense,

1325
02:12:29,500 --> 02:12:32,300
but scope could be different.

1326
02:12:33,820 --> 02:12:35,540
And I will also point out, Your Honor,

1327
02:12:35,540 --> 02:12:38,780
that there was testimony by Mr. Ray

1328
02:12:38,780 --> 02:12:43,580
about securing, having secured wallets,

1329
02:12:43,580 --> 02:12:46,940
and that having an examiner could, I guess,

1330
02:12:46,940 --> 02:12:49,820
create some type of a security risk,

1331
02:12:49,820 --> 02:12:52,500
I think was what he was saying.

1332
02:12:52,500 --> 02:12:54,980
Number one, I certainly hope there wouldn't be

1333
02:12:54,980 --> 02:12:58,060
a security risk with any examiner.

1334
02:12:58,060 --> 02:13:01,020
Obviously, you would point an appropriate person.

1335
02:13:01,020 --> 02:13:03,500
But a lot of these issues, I don't think,

1336
02:13:03,500 --> 02:13:06,360
would even involve having to look into,

1337
02:13:07,260 --> 02:13:09,660
I really don't understand a whole lot about the system,

1338
02:13:09,660 --> 02:13:10,700
Your Honor, I'll have to admit,

1339
02:13:10,700 --> 02:13:13,340
but looking into cold wallets, hot wallets,

1340
02:13:13,340 --> 02:13:15,460
any of the...

1341
02:13:15,460 --> 02:13:18,220
Well, you wanted him to investigate what happened

1342
02:13:18,220 --> 02:13:22,140
with the customer funds, which would require investigating

1343
02:13:22,140 --> 02:13:25,020
what happened with the cold wallets, the hot wallets,

1344
02:13:25,020 --> 02:13:29,260
and the entire computerized system of the debtors,

1345
02:13:29,260 --> 02:13:30,100
wouldn't it?

1346
02:13:31,580 --> 02:13:33,300
I'm not a technology expert, Your Honor.

1347
02:13:33,300 --> 02:13:35,180
I think that some of it could be done.

1348
02:13:35,180 --> 02:13:40,180
I also don't know what type of documentation there is of that.

1349
02:13:40,220 --> 02:13:41,840
I think some of that could be done

1350
02:13:41,840 --> 02:13:44,300
without actually getting into wallets.

1351
02:13:46,220 --> 02:13:48,500
Because there will be transfers,

1352
02:13:48,500 --> 02:13:49,940
once the money's taken from the wallets,

1353
02:13:49,940 --> 02:13:52,260
it was then transferred to Alameda, is my understanding.

1354
02:13:52,260 --> 02:13:55,180
I don't mean to be testifying, but that's my understanding.

1355
02:13:55,180 --> 02:13:58,420
And it may be that there's things that could be traced

1356
02:14:00,620 --> 02:14:02,940
as to how it got to Alameda that would not require

1357
02:14:02,940 --> 02:14:05,740
actually going into the wallets themselves.

1358
02:14:05,740 --> 02:14:09,580
But I am very...

1359
02:14:09,580 --> 02:14:13,500
I am not the type of person that could really clarify that.

1360
02:14:13,500 --> 02:14:14,340
I'm sorry, Your Honor.

1361
02:14:14,340 --> 02:14:18,020
I don't understand how that works well enough.

1362
02:14:18,020 --> 02:14:21,780
Obviously, any examiner appointed would have to be somebody

1363
02:14:21,780 --> 02:14:24,100
that was very knowledgeable about that area,

1364
02:14:24,100 --> 02:14:25,460
about cryptocurrency.

1365
02:14:25,460 --> 02:14:27,020
And we think certainly that would be appropriate

1366
02:14:27,020 --> 02:14:29,220
to have somebody as very knowledgeable of cryptocurrency.

1367
02:14:29,220 --> 02:14:33,320
But to the degree that that type of investigation is needed,

1368
02:14:33,320 --> 02:14:36,860
I feel very confident that the debtors

1369
02:14:36,860 --> 02:14:39,060
and all of their professionals will take every step

1370
02:14:39,060 --> 02:14:43,300
to make sure that there's no compromise in any system,

1371
02:14:43,300 --> 02:14:47,500
that all security that's needed is there and protected,

1372
02:14:48,340 --> 02:14:52,740
and that they would hopefully cooperate with the examiner

1373
02:14:52,740 --> 02:14:53,560
as much as possible.

1374
02:14:53,560 --> 02:14:54,940
The examiner can't get access to this

1375
02:14:54,940 --> 02:14:57,740
unless the debtors give the examiner access.

1376
02:14:57,740 --> 02:14:59,300
There's no other way for the examiner to do it.

1377
02:14:59,300 --> 02:15:03,700
So the debtors would be supervising this.

1378
02:15:03,700 --> 02:15:06,140
There should not be any type of a security risk

1379
02:15:06,140 --> 02:15:09,600
under these circumstances.

1380
02:15:09,600 --> 02:15:13,740
Let's talk about your view on the mandatory nature

1381
02:15:13,740 --> 02:15:15,940
of 1104.

1382
02:15:15,940 --> 02:15:24,020
So 1104 says that if I don't appoint a trustee,

1383
02:15:24,020 --> 02:15:31,940
that an examiner under C can be appointed.

1384
02:15:31,940 --> 02:15:40,620
And I should take into account an investigation of the debtor

1385
02:15:40,620 --> 02:15:41,500
as is appropriate.

1386
02:15:41,500 --> 02:15:43,140
So what does that mean, as is appropriate?

1387
02:15:43,140 --> 02:15:46,220
I know you say that doesn't mean if appropriate.

1388
02:15:46,220 --> 02:15:51,900
But doesn't as is appropriate also mean as is necessary?

1389
02:15:51,900 --> 02:15:53,420
Is it the same?

1390
02:15:53,420 --> 02:15:55,220
Well, that would relate to the scope.

1391
02:15:59,140 --> 02:16:00,820
Well, I guess, Your Honor, I think

1392
02:16:00,820 --> 02:16:04,220
what Your Honor is getting to, and please correct me

1393
02:16:04,220 --> 02:16:07,140
if I'm wrong, is that there are other parties here that

1394
02:16:07,140 --> 02:16:08,700
are conducting investigations.

1395
02:16:08,700 --> 02:16:09,900
And we're well aware of that.

1396
02:16:09,900 --> 02:16:11,900
The debtor's conducting investigation

1397
02:16:11,900 --> 02:16:13,500
with its professionals.

1398
02:16:13,500 --> 02:16:17,820
Presumably, I understand that the committee is doing the same.

1399
02:16:17,820 --> 02:16:20,820
And I think in that regard, what's relevant

1400
02:16:20,820 --> 02:16:28,260
is that the code talks about if these elements are met,

1401
02:16:28,260 --> 02:16:29,980
an examiner shall be appointed.

1402
02:16:29,980 --> 02:16:33,420
It doesn't say an examiner shall be appointed

1403
02:16:33,420 --> 02:16:36,100
unless the debtor is investigating itself,

1404
02:16:36,100 --> 02:16:38,220
or unless there's new management with the debtor,

1405
02:16:38,220 --> 02:16:42,580
unless there's a committee that can undertake that process.

1406
02:16:42,580 --> 02:16:44,900
My understanding is, Your Honor, in PRED,

1407
02:16:44,900 --> 02:16:47,020
there was a committee, and there was new management,

1408
02:16:47,020 --> 02:16:49,220
and Your Honor still appointed an examiner.

1409
02:16:49,220 --> 02:16:53,380
And there were other cases that we cited in our reply papers,

1410
02:16:53,380 --> 02:16:55,260
and probably our moving papers as well,

1411
02:16:55,260 --> 02:16:58,460
where there's creditors committees in most cases.

1412
02:16:58,460 --> 02:17:01,220
Clearly, the Congress was aware that the creditor committee

1413
02:17:01,220 --> 02:17:04,340
has the ability, under the code, to conduct investigations.

1414
02:17:04,340 --> 02:17:11,180
But they nevertheless approved 1104C1 and 2 and said,

1415
02:17:11,180 --> 02:17:13,860
under this circumstance, it's an examiner that has to do it.

1416
02:17:13,860 --> 02:17:15,740
It's not good enough to have a committee do it.

1417
02:17:15,740 --> 02:17:17,300
It's not good enough to have a debtor,

1418
02:17:17,300 --> 02:17:19,300
even if it has new management to do it.

1419
02:17:19,300 --> 02:17:22,860
Well, in PRED, I indicated first that I

1420
02:17:22,860 --> 02:17:26,700
didn't think it was a mandatory obligation under 1104.

1421
02:17:26,700 --> 02:17:31,060
And two, there were still the two main founders of that company

1422
02:17:31,060 --> 02:17:32,780
were still in charge.

1423
02:17:32,780 --> 02:17:36,620
They had appointed an independent director,

1424
02:17:36,620 --> 02:17:38,740
but they were still there and running things,

1425
02:17:38,740 --> 02:17:41,780
which informed my decision on whether or not

1426
02:17:41,780 --> 02:17:43,780
I should appoint an examiner in that case.

1427
02:17:43,780 --> 02:17:50,100
So let me ask you hypothetically, say a debtor meets the debt

1428
02:17:50,100 --> 02:17:57,980
threshold under 1104C2, and a week before the confirmation

1429
02:17:57,980 --> 02:18:01,580
hearing, a creditor comes in and says,

1430
02:18:01,580 --> 02:18:05,300
we want you judged to appoint an examiner,

1431
02:18:05,300 --> 02:18:08,420
because we think there was something happened at the firm.

1432
02:18:08,420 --> 02:18:09,980
We don't know exactly what it was,

1433
02:18:09,980 --> 02:18:11,500
but we think there's something wrong,

1434
02:18:11,500 --> 02:18:12,540
and we want an examiner.

1435
02:18:12,540 --> 02:18:14,380
Am I obligated to appoint an examiner

1436
02:18:14,380 --> 02:18:16,820
in that circumstance and put off confirmation

1437
02:18:16,820 --> 02:18:18,860
of the plan for however long it takes examiner

1438
02:18:18,860 --> 02:18:20,540
to do a report?

1439
02:18:23,620 --> 02:18:25,500
Your Honor, I think, first of all,

1440
02:18:25,500 --> 02:18:28,580
I don't think that the co-provision requires

1441
02:18:28,580 --> 02:18:31,300
that confirmation not go forward.

1442
02:18:31,300 --> 02:18:33,020
It doesn't say that if an examiner is,

1443
02:18:33,020 --> 02:18:35,260
but I understand why it would make sense to do that,

1444
02:18:35,260 --> 02:18:37,260
but I don't think that that's a requirement.

1445
02:18:37,260 --> 02:18:40,100
How could I confirm a plan if I've appointed an examiner

1446
02:18:40,100 --> 02:18:43,140
to let me know whether there was insiders who did something

1447
02:18:43,140 --> 02:18:44,020
wrong?

1448
02:18:44,020 --> 02:18:49,380
Well, so I think UAL Corp, which is a bankruptcy,

1449
02:18:49,380 --> 02:18:55,260
Northern District, Illinois, back in 2004, actually, I think,

1450
02:18:55,260 --> 02:18:57,780
addressed that issue.

1451
02:18:57,780 --> 02:19:00,460
They said that if you have a situation in which the case

1452
02:19:00,460 --> 02:19:03,660
with a debt exceeds the threshold,

1453
02:19:03,660 --> 02:19:07,300
and a party sought an appointment of an examiner

1454
02:19:07,300 --> 02:19:09,100
to investigate a private dispute,

1455
02:19:09,100 --> 02:19:11,820
that's how we put a private dispute, with the debtor,

1456
02:19:11,820 --> 02:19:14,500
it does not raise issues as to the quality of the debtor's

1457
02:19:14,500 --> 02:19:15,260
management.

1458
02:19:15,260 --> 02:19:17,660
The court could limit the scope of the investigation

1459
02:19:17,660 --> 02:19:19,820
to, quote, whether there is good cause

1460
02:19:19,820 --> 02:19:22,740
to engage in the inquiry suggested by the move-in,

1461
02:19:22,740 --> 02:19:24,060
close quote.

1462
02:19:24,060 --> 02:19:25,460
So, and that's three O's.

1463
02:19:25,460 --> 02:19:27,300
Well, that would be an inquiry into whether I

1464
02:19:27,300 --> 02:19:29,780
should have appointed an examiner.

1465
02:19:29,780 --> 02:19:31,300
No.

1466
02:19:31,300 --> 02:19:33,820
I think I thought what the court was saying

1467
02:19:33,820 --> 02:19:35,500
is you do appoint an examiner.

1468
02:19:35,500 --> 02:19:37,100
An examiner looks to see.

1469
02:19:37,100 --> 02:19:39,020
If somebody comes in and makes allegations

1470
02:19:39,020 --> 02:19:46,460
that seem to be motivated by a litigation tactic,

1471
02:19:46,460 --> 02:19:48,940
or something doesn't seem to be in good faith,

1472
02:19:48,940 --> 02:19:51,420
then the code provision does state

1473
02:19:51,420 --> 02:19:53,300
that an examiner still has to be appointed

1474
02:19:53,300 --> 02:19:54,460
if that threshold is met.

1475
02:19:54,460 --> 02:19:56,300
But the examiner can look into, are there

1476
02:19:56,300 --> 02:19:59,140
any grounds for these allegations?

1477
02:19:59,140 --> 02:20:00,300
Is there anything?

1478
02:20:00,300 --> 02:20:02,860
And of course, if it's found that there are, then

1479
02:20:02,860 --> 02:20:05,540
presumably, the scope would be, the court

1480
02:20:05,540 --> 02:20:08,900
would expand the scope to look into those allegations

1481
02:20:08,900 --> 02:20:12,300
that the examiner found that there might be something there.

1482
02:20:12,300 --> 02:20:16,220
What if the creditor comes in and says,

1483
02:20:16,220 --> 02:20:20,420
we think there was a $10,000 fraudulent transfer

1484
02:20:20,420 --> 02:20:22,740
to an insider accountant?

1485
02:20:22,740 --> 02:20:25,180
We want an examiner to investigate that.

1486
02:20:25,180 --> 02:20:28,940
But the debtor is on the verge of administrative insolvency.

1487
02:20:28,940 --> 02:20:30,300
And if I appoint an examiner, it's

1488
02:20:30,300 --> 02:20:32,100
going to push him over the edge.

1489
02:20:32,100 --> 02:20:35,940
Do I still have to appoint an examiner then, too?

1490
02:20:35,940 --> 02:20:38,980
And Your Honor, under the code provision, that

1491
02:20:38,980 --> 02:20:41,780
would appear to be the case.

1492
02:20:41,780 --> 02:20:45,380
We don't have that situation here, obviously.

1493
02:20:45,380 --> 02:20:49,020
Well, I'm trying to get at is, are there exceptions?

1494
02:20:49,020 --> 02:20:53,460
Which means that there is some discretion that

1495
02:20:53,460 --> 02:20:55,540
has to be applied.

1496
02:20:55,540 --> 02:21:00,700
And determining when and how to apply that discretion

1497
02:21:00,700 --> 02:21:02,260
should be on the court, should it not?

1498
02:21:02,260 --> 02:21:05,660
Not on an examiner appointed, who then tells me

1499
02:21:05,660 --> 02:21:08,060
whether or not he thinks I should appoint an examiner

1500
02:21:08,060 --> 02:21:10,500
further to investigate?

1501
02:21:10,500 --> 02:21:11,980
Well, the court does have discretion

1502
02:21:11,980 --> 02:21:17,060
if it falls under C1 of 1104.

1503
02:21:17,060 --> 02:21:19,700
And again, remember, Your Honor, the threshold is not $5 million

1504
02:21:19,700 --> 02:21:20,620
in debt.

1505
02:21:20,620 --> 02:21:23,940
It's $5 million in very particular kind of debt,

1506
02:21:23,940 --> 02:21:25,860
which is not every case.

1507
02:21:25,860 --> 02:21:26,900
But if that occurs.

1508
02:21:26,900 --> 02:21:29,940
There will be quite a few of them in this court.

1509
02:21:29,940 --> 02:21:33,940
If that occurs, if that threshold is met

1510
02:21:33,940 --> 02:21:36,220
and the other thing is that there's not a confirmed plan,

1511
02:21:36,220 --> 02:21:40,460
there's not a trustee, there is no discretion in the statute.

1512
02:21:40,460 --> 02:21:42,420
That is the US trustee's view.

1513
02:21:42,420 --> 02:21:45,460
That is the view of the only circuit court that

1514
02:21:45,460 --> 02:21:48,060
ruled on this and the few district courts that have

1515
02:21:48,060 --> 02:21:51,300
ruled, have reversed the bankruptcy court under the same,

1516
02:21:51,300 --> 02:21:52,900
there is no discretion.

1517
02:21:52,900 --> 02:21:54,380
They must be appointed.

1518
02:21:54,380 --> 02:21:57,900
Now, I certainly understand the court's concern

1519
02:21:57,900 --> 02:22:02,340
that someone might be, again, acting in an abusive manner,

1520
02:22:02,340 --> 02:22:10,140
acting for wrongful purpose.

1521
02:22:10,140 --> 02:22:12,500
Again, that's certainly not the situation.

1522
02:22:12,500 --> 02:22:15,260
I think that's one of the things that, well, wrongful purpose

1523
02:22:15,260 --> 02:22:19,900
or that they're not really asking for an examiner.

1524
02:22:19,900 --> 02:22:22,140
I mean, there's nothing to examine.

1525
02:22:22,140 --> 02:22:24,260
Like some of these cases in this district

1526
02:22:24,260 --> 02:22:27,380
where it was part of the plan confirmation

1527
02:22:27,380 --> 02:22:31,180
and a party was trying to get an examiner appointed

1528
02:22:31,180 --> 02:22:36,700
basically with legal issues, like in Malancrot

1529
02:22:36,700 --> 02:22:39,900
where there were allegations that counsel representing

1530
02:22:39,900 --> 02:22:44,980
certain tort claimants had done things that were improper

1531
02:22:44,980 --> 02:22:46,500
because that was not the debtor.

1532
02:22:46,500 --> 02:22:48,380
It has to be action by the debtor.

1533
02:22:48,380 --> 02:22:51,860
And so we do have some, it has to actually fit.

1534
02:22:51,860 --> 02:22:54,140
Somebody actually has to be asking for an examiner

1535
02:22:54,140 --> 02:22:56,780
to actually investigate the debtors,

1536
02:22:56,780 --> 02:22:59,580
the action of the debtors, not something else,

1537
02:22:59,580 --> 02:23:02,180
not a legal issue.

1538
02:23:02,180 --> 02:23:04,980
But if it does fall, if they meet all of the requirements

1539
02:23:04,980 --> 02:23:07,820
of 1104C2, the US trustee believes

1540
02:23:07,820 --> 02:23:10,780
that there is no discretion by the court,

1541
02:23:10,780 --> 02:23:13,940
that that's what Congress intended.

1542
02:23:13,940 --> 02:23:16,780
We cite and we go through the legislative history

1543
02:23:16,780 --> 02:23:18,420
in our reply brief.

1544
02:23:18,420 --> 02:23:21,140
That was what this was a compromise

1545
02:23:21,140 --> 02:23:23,740
where there were certain parties that wanted to have trustees

1546
02:23:23,740 --> 02:23:26,420
appointed automatically on all large cases.

1547
02:23:26,420 --> 02:23:27,500
That didn't happen.

1548
02:23:27,500 --> 02:23:28,540
This was the compromise.

1549
02:23:28,540 --> 02:23:32,340
That an examiner would have to be appointed

1550
02:23:32,340 --> 02:23:34,580
under these circumstances.

1551
02:23:34,580 --> 02:23:37,100
Let's talk about kind of the overall scheme of 1104.

1552
02:23:37,100 --> 02:23:41,100
Because 1104 says you don't even get to 1104C

1553
02:23:41,100 --> 02:23:45,620
unless the court decides not to appoint a trustee.

1554
02:23:45,620 --> 02:23:48,940
So why would the appointment of a trustee

1555
02:23:48,940 --> 02:23:51,740
obviate the need for an examiner?

1556
02:23:54,660 --> 02:23:56,860
Well, the trustee has the ability

1557
02:23:56,860 --> 02:24:00,100
to conduct all sorts of investigations.

1558
02:24:00,100 --> 02:24:02,620
I mean, that's part of what a trustee does.

1559
02:24:02,620 --> 02:24:04,860
And a trustee is someone who is appointed

1560
02:24:04,860 --> 02:24:08,460
who is independent, no connection with the company

1561
02:24:08,460 --> 02:24:11,900
before they file for bankruptcy.

1562
02:24:11,900 --> 02:24:16,140
All of the attributes that we have with Mr. Ray

1563
02:24:16,140 --> 02:24:18,180
and the independent directors who've been appointed

1564
02:24:18,180 --> 02:24:19,860
in this case.

1565
02:24:19,860 --> 02:24:22,500
But Your Honor, there is a difference between a trustee

1566
02:24:22,500 --> 02:24:23,860
and new management.

1567
02:24:23,860 --> 02:24:28,780
I mean, again, the code doesn't, 1104C doesn't say,

1568
02:24:28,780 --> 02:24:30,340
unless there's new management,

1569
02:24:30,340 --> 02:24:32,340
or unless there's a committee that can conduct

1570
02:24:32,340 --> 02:24:33,260
the investigation.

1571
02:24:33,260 --> 02:24:36,300
And I think that it's very important that a,

1572
02:24:37,300 --> 02:24:40,460
the difference is an examiner or a trustee,

1573
02:24:40,460 --> 02:24:42,180
certainly, let's stick with an examiner.

1574
02:24:42,180 --> 02:24:46,140
I mean, examiner has to prepare a report.

1575
02:24:46,140 --> 02:24:48,860
And that is a public facing report.

1576
02:24:49,900 --> 02:24:53,220
Is independent and does not represent any constituency.

1577
02:24:53,220 --> 02:24:57,140
Yes, Mr. Ray does not have a prior connection

1578
02:24:57,140 --> 02:24:58,220
with the debtors.

1579
02:24:58,220 --> 02:25:01,660
He was appointed by Mr. Sam Bankman-Fried.

1580
02:25:01,660 --> 02:25:04,620
And he is the CEO of the debtors.

1581
02:25:04,620 --> 02:25:07,180
He does represent a constituency.

1582
02:25:07,180 --> 02:25:08,140
That is the debtors.

1583
02:25:08,140 --> 02:25:12,620
He is not independent, not like an examiner.

1584
02:25:12,620 --> 02:25:13,620
And even though a committee,

1585
02:25:13,620 --> 02:25:16,180
I mean, a committee also represents a constituency.

1586
02:25:16,180 --> 02:25:18,980
But again, Congress was aware,

1587
02:25:18,980 --> 02:25:22,380
gave committees the ability to do investigations.

1588
02:25:22,380 --> 02:25:24,060
They don't file reports with the courts.

1589
02:25:24,060 --> 02:25:25,580
They're different than an examiner.

1590
02:25:25,580 --> 02:25:27,380
They can settle, so can the debtor.

1591
02:25:27,380 --> 02:25:29,060
The debtor can investigate things,

1592
02:25:29,060 --> 02:25:31,460
investigate claims, and settle

1593
02:25:31,460 --> 02:25:36,460
without that investigation ever becoming public.

1594
02:25:36,940 --> 02:25:38,420
Well, they'd have to file a 90-19 motion.

1595
02:25:38,420 --> 02:25:40,220
They do have to file a 90-19 motion,

1596
02:25:40,220 --> 02:25:42,300
but it is not the same.

1597
02:25:42,300 --> 02:25:44,900
And I've seen many a 90-19 motion.

1598
02:25:44,900 --> 02:25:47,820
That is not the same thing as an examiner's report.

1599
02:25:47,820 --> 02:25:52,820
This is, again, this is what Congress decided

1600
02:25:53,340 --> 02:25:56,700
needed to be done under these circumstances.

1601
02:25:56,700 --> 02:25:59,180
And even, Your Honor, honestly,

1602
02:25:59,180 --> 02:26:02,780
even if you say, all right,

1603
02:26:02,780 --> 02:26:06,580
you're reading as is appropriate to mean if appropriate,

1604
02:26:06,580 --> 02:26:08,300
this is a case where,

1605
02:26:09,580 --> 02:26:12,020
it's hard to imagine that it's not appropriate.

1606
02:26:12,020 --> 02:26:14,540
I mean, I will use, for example, Judge Sanchi

1607
02:26:14,540 --> 02:26:19,540
in, I'm sorry, in this, in this case, in this case,

1608
02:26:23,020 --> 02:26:25,580
thank you, Judge Sanchi, in there,

1609
02:26:25,580 --> 02:26:30,380
he did not believe that C-2 was mandatory.

1610
02:26:30,380 --> 02:26:34,060
And there he said that, he also, I think, he didn't,

1611
02:26:35,940 --> 02:26:40,540
it seemed unclear as to what actually was being asked

1612
02:26:40,540 --> 02:26:42,340
of the examiner to do.

1613
02:26:42,340 --> 02:26:46,820
And I believe this was also, if it wasn't at confirmation,

1614
02:26:46,820 --> 02:26:48,180
it was close to it.

1615
02:26:48,180 --> 02:26:49,700
But Judge Sanchi said, quote,

1616
02:26:49,700 --> 02:26:52,300
"'At some point, there has to be a level of smoke,

1617
02:26:52,300 --> 02:26:53,140
"'if you will.'

1618
02:26:53,140 --> 02:26:55,700
"'Not a lot, but more than none,

1619
02:26:55,700 --> 02:26:58,140
"'more than just a whiff of smoke.'"

1620
02:26:58,140 --> 02:27:01,060
And let's compare that to what Mr. Ray said

1621
02:27:01,060 --> 02:27:03,700
in his declaration that's being admitted

1622
02:27:03,700 --> 02:27:05,980
as Exhibit 20, paragraph nine,

1623
02:27:05,980 --> 02:27:10,020
saying that FTX's situation is a dumpster fire.

1624
02:27:10,020 --> 02:27:13,020
So we don't have a situation where there doesn't really

1625
02:27:13,020 --> 02:27:14,820
seem to have been any wrongdoing,

1626
02:27:14,820 --> 02:27:18,900
that somebody's coming in and asking for an examiner

1627
02:27:18,900 --> 02:27:20,180
for an improper purpose.

1628
02:27:20,180 --> 02:27:24,060
Again, this is assuming, I'm for a moment assuming,

1629
02:27:24,060 --> 02:27:26,780
which of course, United States trustees does not agree to,

1630
02:27:26,780 --> 02:27:31,700
but if as is appropriate means it has to be appropriate,

1631
02:27:31,700 --> 02:27:33,460
we think it's very appropriate here.

1632
02:27:33,460 --> 02:27:34,940
And of course, we think for the same reasons

1633
02:27:34,940 --> 02:27:37,300
that it's in the best interest of the creditors.

1634
02:27:37,300 --> 02:27:42,260
We understand that Mr. Ray was not prior management,

1635
02:27:42,260 --> 02:27:46,100
but again, 1104C, no where, whether it's under C1 or C2,

1636
02:27:46,100 --> 02:27:48,820
it doesn't say, unless you have no management,

1637
02:27:48,820 --> 02:27:50,220
unless there's a committee,

1638
02:27:50,220 --> 02:27:53,780
unless you have federal and state agencies

1639
02:27:53,780 --> 02:27:56,340
doing their own investigation, none of that's in there.

1640
02:27:56,340 --> 02:27:59,740
None of those elements are relevant

1641
02:27:59,740 --> 02:28:03,500
to whether or not an examiner should be appointed.

1642
02:28:03,500 --> 02:28:07,060
And again, because an examiner, it is a public facing,

1643
02:28:07,060 --> 02:28:09,900
does do an, he or she does do a report.

1644
02:28:11,620 --> 02:28:13,580
I'd like to talk a little bit about,

1645
02:28:15,180 --> 02:28:17,620
hold on, just one moment, Your Honor.

1646
02:28:17,620 --> 02:28:20,180
I don't wanna go out of order and confuse things.

1647
02:28:23,260 --> 02:28:25,340
Right, so again, residential capital,

1648
02:28:25,340 --> 02:28:29,940
which again, is one of the cases that the objectors do rely

1649
02:28:29,940 --> 02:28:31,260
on is one of the written opinions

1650
02:28:31,260 --> 02:28:33,500
that says it's not mandatory.

1651
02:28:33,500 --> 02:28:35,380
But even there, the court said,

1652
02:28:35,380 --> 02:28:37,260
when it did appoint an examiner,

1653
02:28:37,260 --> 02:28:39,140
it said it must be appointed, quote,

1654
02:28:39,140 --> 02:28:42,380
not withstanding the ability of any other party

1655
02:28:42,380 --> 02:28:46,260
to effectively and expeditiously investigate the data,

1656
02:28:46,260 --> 02:28:47,780
close quote.

1657
02:28:47,780 --> 02:28:52,220
So we're not the, the fact that there is a committee

1658
02:28:52,220 --> 02:28:56,580
or are other people that can do it is not relevant

1659
02:28:56,580 --> 02:28:59,300
once the elements have been,

1660
02:28:59,300 --> 02:29:01,580
the elements below 1104C have been met.

1661
02:29:01,580 --> 02:29:06,580
And again, an examiner is required to publish a report.

1662
02:29:10,660 --> 02:29:15,660
A committee, the committee has discretionary ability

1663
02:29:15,660 --> 02:29:18,140
to investigate, it's not required,

1664
02:29:18,140 --> 02:29:21,860
and they are not, certainly not required to file any report.

1665
02:29:21,860 --> 02:29:25,180
And conducting an investigation is specifically removed

1666
02:29:25,180 --> 02:29:26,500
from the list of the debtors

1667
02:29:26,500 --> 02:29:29,980
and possession duties under 1107A.

1668
02:29:29,980 --> 02:29:32,900
So again, the fact that there's new management,

1669
02:29:32,900 --> 02:29:34,260
none of that is relevant.

1670
02:29:35,580 --> 02:29:37,580
And it's not novel to appoint an examiner

1671
02:29:37,580 --> 02:29:40,460
in situations in which you have governmental,

1672
02:29:40,460 --> 02:29:42,580
law enforcement or regulatory agencies

1673
02:29:42,580 --> 02:29:44,180
conducting their own investigation,

1674
02:29:44,180 --> 02:29:45,500
that happens all the time.

1675
02:29:45,500 --> 02:29:48,860
Those agencies will not be filing a report with this court

1676
02:29:48,860 --> 02:29:50,780
as to the results of their investigation.

1677
02:29:50,780 --> 02:29:53,020
It's a set, it's a completely separate function

1678
02:29:53,020 --> 02:29:54,420
that they are performing.

1679
02:29:54,420 --> 02:29:59,420
The debtors also talk about, again,

1680
02:30:00,820 --> 02:30:03,540
talk about the law of this district.

1681
02:30:03,540 --> 02:30:06,060
He cited a third circuit opinion,

1682
02:30:06,060 --> 02:30:08,260
say there is no such thing as law of the district,

1683
02:30:08,260 --> 02:30:10,140
that just doesn't exist.

1684
02:30:10,140 --> 02:30:13,340
He also said the bench rulings are binding precedent.

1685
02:30:13,340 --> 02:30:15,300
They're not binding precedent.

1686
02:30:15,300 --> 02:30:17,940
In fact, I mean, Judge Warrath won't even let you

1687
02:30:17,940 --> 02:30:20,540
quote back her own bench rulings to her.

1688
02:30:20,540 --> 02:30:22,000
I'm not saying that that,

1689
02:30:22,000 --> 02:30:25,000
I'm not saying that all the judges are like that,

1690
02:30:25,000 --> 02:30:29,160
but it's not binding precedents, certainly.

1691
02:30:33,360 --> 02:30:36,680
I wanna talk a little bit about the cost issue.

1692
02:30:39,280 --> 02:30:42,080
Cost is not mentioned anywhere in 1104.

1693
02:30:43,560 --> 02:30:46,000
This is not a case like Duane LeBouf,

1694
02:30:46,000 --> 02:30:47,760
in which, I mean, Your Honor asked about

1695
02:30:47,760 --> 02:30:49,040
converting to Chapter 7.

1696
02:30:49,040 --> 02:30:50,960
That was a case in which the court indicated

1697
02:30:50,960 --> 02:30:53,400
that the cost of an examiner would result in the case,

1698
02:30:53,400 --> 02:30:55,640
the debtor's case is being converted to a Chapter 7

1699
02:30:55,640 --> 02:30:59,360
and most likely becoming administratively insolvent.

1700
02:30:59,360 --> 02:31:01,680
That is absolutely not this case.

1701
02:31:01,680 --> 02:31:05,920
In fact, Exhibit 15, which is the Debtors

1702
02:31:05,920 --> 02:31:09,480
Interim Financial Update as of December 31st of last year,

1703
02:31:09,480 --> 02:31:11,840
which is, I wanna quote, is,

1704
02:31:11,840 --> 02:31:13,800
they haven't filed any monthly operating reports.

1705
02:31:13,800 --> 02:31:17,080
It was their way of filing something along those lines,

1706
02:31:17,080 --> 02:31:19,400
although it doesn't comply with the monthly operating report.

1707
02:31:19,400 --> 02:31:23,800
But on page 11, it shows the debtors having unrestricted

1708
02:31:23,800 --> 02:31:27,160
cash of over 1.2 billion.

1709
02:31:27,160 --> 02:31:29,920
That's apart from custodial cash,

1710
02:31:29,920 --> 02:31:32,240
that's apart from restricted cash.

1711
02:31:32,240 --> 02:31:35,960
So this is not a situation in which these debtor's cases

1712
02:31:35,960 --> 02:31:37,960
are gonna be converted or they're gonna become

1713
02:31:37,960 --> 02:31:40,240
administratively insolvent because there's an examiner.

1714
02:31:40,240 --> 02:31:42,920
That doesn't mean that there's no budget for the examiner.

1715
02:31:42,920 --> 02:31:46,440
Of course there's going to be a budget for the examiner.

1716
02:31:46,440 --> 02:31:48,360
But there's no reason to believe that the cost

1717
02:31:48,360 --> 02:31:50,440
of the examiner doing an investigation

1718
02:31:50,440 --> 02:31:53,240
is going to be more than the debtor's professionals

1719
02:31:53,240 --> 02:31:55,440
conducting an investigation.

1720
02:31:55,440 --> 02:31:58,720
And I point to Exhibit 10, which is a supplemental

1721
02:31:58,720 --> 02:32:01,800
declaration to Mr. Diderick of Sullivan and Cromwell.

1722
02:32:01,800 --> 02:32:05,600
It attaches the list of professionals that worked on,

1723
02:32:05,600 --> 02:32:08,000
as bill time, they haven't filed the application yet,

1724
02:32:08,000 --> 02:32:10,440
but bill time on the matter.

1725
02:32:11,300 --> 02:32:16,120
There were over 150 individuals of which 30

1726
02:32:16,120 --> 02:32:19,040
have billing rates of over $2,000 an hour.

1727
02:32:19,920 --> 02:32:23,480
So to the extent that an examiner is doing

1728
02:32:23,480 --> 02:32:26,040
certain investigations, to prevent duplication,

1729
02:32:26,040 --> 02:32:28,840
that should mean that the debtor's professionals

1730
02:32:28,840 --> 02:32:32,120
can cut back on what they're doing in that regard.

1731
02:32:33,160 --> 02:32:37,440
I will also say that the debtor's arguments

1732
02:32:37,440 --> 02:32:40,560
regarding the cost of an examiner should not be given weight

1733
02:32:40,560 --> 02:32:45,400
because the US trustee in one of its discovery requests

1734
02:32:45,400 --> 02:32:49,480
asked for documents reflecting any budget or estimate

1735
02:32:49,480 --> 02:32:52,520
of the cost of an investigation to be performed

1736
02:32:52,520 --> 02:32:55,560
by the debtor's professionals of any of the events

1737
02:32:55,560 --> 02:32:59,240
leading up to the debtors of Chapter 11 filing,

1738
02:32:59,240 --> 02:33:01,480
fraud, bad acts, et cetera.

1739
02:33:01,480 --> 02:33:05,280
The response to that was an objection to say

1740
02:33:05,280 --> 02:33:07,280
they did not provide the information,

1741
02:33:07,280 --> 02:33:10,440
and it said, quote, on the grounds that it is irrelevant

1742
02:33:10,440 --> 02:33:11,840
to the examiner motion.

1743
02:33:11,840 --> 02:33:16,160
Well, we agree, but the debtors can't have it both ways.

1744
02:33:16,160 --> 02:33:18,620
They can't say, oh, it's gonna be so costly

1745
02:33:18,620 --> 02:33:22,960
to have an examiner based on examiners in other cases,

1746
02:33:22,960 --> 02:33:26,680
but at the same time, not be willing to produce

1747
02:33:26,680 --> 02:33:29,880
their budget or estimate for what it's going to cost

1748
02:33:29,880 --> 02:33:31,620
for the debtor's professionals to do

1749
02:33:31,620 --> 02:33:33,520
the same kind of investigation.

1750
02:33:33,520 --> 02:33:37,000
Well, I can take my own experience and say,

1751
02:33:38,240 --> 02:33:41,480
given the scope of what you laid out earlier,

1752
02:33:41,480 --> 02:33:44,480
the proposed examiner investigation,

1753
02:33:45,600 --> 02:33:47,480
I can give you a ballpark of what it's gonna cost,

1754
02:33:47,480 --> 02:33:48,920
and it's gonna be in the tens of millions,

1755
02:33:48,920 --> 02:33:51,400
if not hundreds of millions of dollars

1756
02:33:51,400 --> 02:33:52,720
to do that investigation,

1757
02:33:52,720 --> 02:33:54,640
because they're gonna have to hire all the same types

1758
02:33:54,640 --> 02:33:58,520
of experts, financial advisors, cybersecurity advisors,

1759
02:33:58,520 --> 02:34:00,920
crypto advisors, who are all gonna have to do

1760
02:34:00,920 --> 02:34:03,980
the same thing that the debtor's already started to do,

1761
02:34:03,980 --> 02:34:06,560
and the committee has already started to do,

1762
02:34:06,560 --> 02:34:08,880
and the government has already started to do.

1763
02:34:08,880 --> 02:34:13,540
So it's going to be, if it's the scope

1764
02:34:13,540 --> 02:34:15,440
that you're asking me for, it's gonna be expensive,

1765
02:34:15,440 --> 02:34:17,720
or the alternative is, I have complete discretion, right?

1766
02:34:17,720 --> 02:34:19,240
I mean, I could say, okay, I'll point an examiner,

1767
02:34:19,240 --> 02:34:21,100
your budget is $10,000.

1768
02:34:22,480 --> 02:34:24,640
Are you gonna find somebody to take the job?

1769
02:34:25,800 --> 02:34:28,320
No, no, no, but I think that's effectively

1770
02:34:28,320 --> 02:34:32,120
the same thing as not appointing an examiner.

1771
02:34:32,120 --> 02:34:36,440
Doesn't that show why 1104C really doesn't make any sense

1772
02:34:36,440 --> 02:34:39,640
to be a mandatory obligation by the court,

1773
02:34:39,640 --> 02:34:41,680
that it's not subject to discretion?

1774
02:34:41,680 --> 02:34:46,680
It's kind of the same as Rule 65 injunctions.

1775
02:34:47,040 --> 02:34:50,240
There's a, I think it's 65D says,

1776
02:34:50,240 --> 02:34:51,600
if a court imposes an injunction,

1777
02:34:51,600 --> 02:34:53,960
it's different for, a little different for debtor

1778
02:34:53,960 --> 02:34:56,640
in Chapter 11, but if a court imposes an injunction

1779
02:34:56,640 --> 02:35:00,960
in Rule 65, if you read the language of Rule 65,

1780
02:35:00,960 --> 02:35:05,080
I think it's D, says you have to impose a bond,

1781
02:35:05,080 --> 02:35:07,240
but courts have almost universally said,

1782
02:35:07,240 --> 02:35:09,240
I can set the bond at whatever.

1783
02:35:09,240 --> 02:35:10,880
If I can set the bond at a dollar,

1784
02:35:10,880 --> 02:35:13,480
then certainly I can say you don't need to set a bond at all,

1785
02:35:13,480 --> 02:35:17,000
especially if you have a case where you have an individual

1786
02:35:17,000 --> 02:35:19,800
suing a major corporation, and the individual is successful

1787
02:35:19,800 --> 02:35:22,200
in getting an injunction, and you're gonna impose

1788
02:35:22,200 --> 02:35:25,280
a billion dollar bond on that party who can't do it,

1789
02:35:25,280 --> 02:35:27,840
and then they lose their case, no, you can't do that.

1790
02:35:27,840 --> 02:35:30,720
So courts have universally said that's not

1791
02:35:30,720 --> 02:35:32,880
a mandatory obligation, even though the language,

1792
02:35:32,880 --> 02:35:35,440
if you read it the way you propose it here,

1793
02:35:35,440 --> 02:35:37,200
would make it mandatory.

1794
02:35:37,200 --> 02:35:40,480
So there's always discretion by the court, right?

1795
02:35:41,520 --> 02:35:43,080
Your Honor, we would not agree.

1796
02:35:44,200 --> 02:35:47,560
And again, other cases, the district courts,

1797
02:35:47,560 --> 02:35:49,280
the few, there have not been a lot,

1798
02:35:49,280 --> 02:35:51,440
but the few district courts and the one circuit court

1799
02:35:51,440 --> 02:35:54,800
that ruled on this disagree, the district courts

1800
02:35:54,800 --> 02:35:57,960
were reversing, or the circuit court as well, I believe,

1801
02:35:57,960 --> 02:36:01,880
were reversing the determinations by the bankruptcy court

1802
02:36:01,880 --> 02:36:04,600
that there was discretion under 1104C2.

1803
02:36:04,600 --> 02:36:05,640
And I said, no, there's not.

1804
02:36:05,640 --> 02:36:07,240
It says what it says, shall mean shall.

1805
02:36:07,240 --> 02:36:08,720
This is what Congress wanted.

1806
02:36:09,960 --> 02:36:12,200
But I can set the budget of whatever I want.

1807
02:36:13,680 --> 02:36:14,520
Wow.

1808
02:36:16,000 --> 02:36:17,920
If it's set to the point is the equivalent

1809
02:36:17,920 --> 02:36:21,320
of not having an examiner, then the statute

1810
02:36:21,320 --> 02:36:23,640
really hasn't been complied with.

1811
02:36:23,640 --> 02:36:24,480
I mean, I.

1812
02:36:24,480 --> 02:36:26,320
All it says is I have to appoint an examiner.

1813
02:36:26,320 --> 02:36:28,280
It doesn't say I have to give them

1814
02:36:28,280 --> 02:36:32,360
a $100 million budget.

1815
02:36:32,360 --> 02:36:35,840
We would hope that Your Honor would not provide

1816
02:36:35,840 --> 02:36:37,880
no budget for the examiner if Your Honor

1817
02:36:37,880 --> 02:36:39,400
was to appoint an examiner.

1818
02:36:41,200 --> 02:36:44,840
That's again, effectively not appointing an examiner.

1819
02:36:46,440 --> 02:36:48,800
But I understand the point Your Honor's making.

1820
02:36:50,840 --> 02:36:52,960
A few other things I'd like to mention.

1821
02:36:54,280 --> 02:36:56,080
Again, if Your Honor was looking under,

1822
02:36:56,080 --> 02:36:57,960
if we look for a minute under C1,

1823
02:36:57,960 --> 02:36:59,360
the best interest of the creditors,

1824
02:36:59,360 --> 02:37:02,080
or another way to say, whether, again,

1825
02:37:02,080 --> 02:37:04,120
if one was to use the as is appropriate

1826
02:37:04,120 --> 02:37:07,480
as meaning if appropriate, we do believe

1827
02:37:07,480 --> 02:37:09,080
that there's plenty here.

1828
02:37:09,080 --> 02:37:12,840
And I think part of this shows the jointers

1829
02:37:12,840 --> 02:37:17,880
that were filed to the US trustees motion

1830
02:37:17,880 --> 02:37:20,040
to appoint an examiner, there were jointers filed.

1831
02:37:20,040 --> 02:37:22,360
It was one by Texas State Securities Board

1832
02:37:22,360 --> 02:37:26,640
and Department of Banking, that's at 600 on the docket.

1833
02:37:26,640 --> 02:37:30,520
And they attached letters from state agencies

1834
02:37:30,520 --> 02:37:33,040
or attorney general's office from 15 other states,

1835
02:37:33,040 --> 02:37:35,120
NDC, supporting the jointer.

1836
02:37:35,120 --> 02:37:37,240
It's a total, when you add the other jointers

1837
02:37:37,240 --> 02:37:39,440
that were filed before 18 states

1838
02:37:39,440 --> 02:37:41,480
and the District of Columbia.

1839
02:37:41,480 --> 02:37:45,360
And what the Texas jointer said was that

1840
02:37:45,360 --> 02:37:48,560
Texas is currently undertaking an investigation

1841
02:37:48,560 --> 02:37:50,680
of the debtors for violations in connections

1842
02:37:50,680 --> 02:37:52,960
with transactions of business in Texas

1843
02:37:52,960 --> 02:37:55,080
and with Texas account holders.

1844
02:37:55,080 --> 02:37:58,240
And then they say, this will require constant access

1845
02:37:58,240 --> 02:38:00,120
to information and documentation

1846
02:38:00,120 --> 02:38:01,960
in connection with its investigation.

1847
02:38:01,960 --> 02:38:04,240
And it would benefit from working with

1848
02:38:04,240 --> 02:38:05,600
and gaining this information

1849
02:38:05,600 --> 02:38:07,920
from a neutral third party investigator

1850
02:38:07,920 --> 02:38:10,120
who focuses on investigating the debtors

1851
02:38:10,120 --> 02:38:13,440
as opposed to running the debtor's business.

1852
02:38:13,440 --> 02:38:17,760
And Mr. Ray has a lot of jobs here.

1853
02:38:17,760 --> 02:38:20,680
And we have a situation where the debtor's schedules

1854
02:38:20,680 --> 02:38:22,440
and statements have yet to be filed.

1855
02:38:22,440 --> 02:38:27,200
They filed the cases on November 11th.

1856
02:38:27,200 --> 02:38:28,640
We have no scheduled statements.

1857
02:38:28,640 --> 02:38:30,320
We have no monthly operating reports.

1858
02:38:30,320 --> 02:38:33,040
We have this, I wanna call it a faux monthly

1859
02:38:33,040 --> 02:38:34,800
operating report that they filed.

1860
02:38:35,720 --> 02:38:39,880
We have no 2015.3 rule statements.

1861
02:38:39,880 --> 02:38:41,000
They have not been filed.

1862
02:38:41,000 --> 02:38:45,480
So we're missing a lot of very basic documents

1863
02:38:45,480 --> 02:38:46,480
in this case.

1864
02:38:46,480 --> 02:38:51,480
And my hope would be that Mr. Ray could focus on doing that

1865
02:38:51,480 --> 02:38:54,760
and have the examiner focus on doing an investigation

1866
02:38:54,760 --> 02:38:56,440
as to what happened pre-petition.

1867
02:38:56,440 --> 02:38:58,960
They also examine also the hacks that happened

1868
02:38:58,960 --> 02:39:00,800
post-petition as well when Mr.,

1869
02:39:01,840 --> 02:39:04,720
shortly after Mr. Ray came on board.

1870
02:39:04,720 --> 02:39:08,560
But that I think is what these joiners are saying.

1871
02:39:08,560 --> 02:39:09,840
Let him focus on that.

1872
02:39:09,840 --> 02:39:11,160
Doing is a great idea.

1873
02:39:11,160 --> 02:39:13,800
Let the examiner focus on doing examination

1874
02:39:13,800 --> 02:39:15,040
and investigation.

1875
02:39:15,040 --> 02:39:20,040
Another thing that, I'm sorry,

1876
02:39:20,760 --> 02:39:22,720
I think I already mentioned that in the,

1877
02:39:22,720 --> 02:39:26,720
and I do wanna clarify, the list that I gave your honor

1878
02:39:26,720 --> 02:39:30,400
about possible things for the examiner to investigate

1879
02:39:30,400 --> 02:39:33,720
was simply that, it was simply examples.

1880
02:39:33,720 --> 02:39:36,480
We have not taken a position,

1881
02:39:36,480 --> 02:39:38,440
we don't feel that this is the right time.

1882
02:39:38,440 --> 02:39:39,680
We haven't taken a position, oh yes,

1883
02:39:39,680 --> 02:39:41,880
they have to do all of these things.

1884
02:39:41,880 --> 02:39:45,440
But because we were asked repeatedly by other counsel,

1885
02:39:45,440 --> 02:39:47,920
what is the scope, what do you have in mind,

1886
02:39:47,920 --> 02:39:49,680
these were some examples.

1887
02:39:49,680 --> 02:39:51,800
And your honor is the ultimate,

1888
02:39:52,760 --> 02:39:54,280
will ultimately determine that.

1889
02:39:54,280 --> 02:39:57,240
I do not wanna say that we're insisting

1890
02:39:57,240 --> 02:39:59,720
that each one of these things be investigated

1891
02:39:59,720 --> 02:40:01,680
or that these are the only things.

1892
02:40:01,680 --> 02:40:04,520
This was what we came up with to give your honor

1893
02:40:04,520 --> 02:40:08,440
and to give other folks an idea about what,

1894
02:40:08,440 --> 02:40:12,080
could be appropriate for an examiner to look into.

1895
02:40:25,960 --> 02:40:29,520
Your honor, I believe that is my argument,

1896
02:40:29,520 --> 02:40:31,920
unless your honor has any further questions.

1897
02:40:31,920 --> 02:40:33,240
No more questions, thank you very much.

1898
02:40:33,240 --> 02:40:34,080
Thank you.

1899
02:40:34,080 --> 02:40:39,080
Good afternoon, your honor, Jim Bromley of Selma and Colmell.

1900
02:40:46,800 --> 02:40:50,120
Your honor, the USTRI makes a very clear policy-driven

1901
02:40:50,120 --> 02:40:54,040
argument that the court has zero discretion

1902
02:40:54,040 --> 02:40:57,040
in the way that the examiner is looking at it.

1903
02:40:57,040 --> 02:40:59,560
And I think that's a very clear argument.

1904
02:40:59,560 --> 02:41:01,640
I think that's a very clear argument.

1905
02:41:01,640 --> 02:41:04,880
That the court has zero discretion

1906
02:41:04,880 --> 02:41:07,800
under section 1104 C2.

1907
02:41:09,360 --> 02:41:12,120
If the $5 million threshold is met,

1908
02:41:12,120 --> 02:41:16,240
which is going to be met in virtually every large case,

1909
02:41:16,240 --> 02:41:17,840
certainly in every mega case,

1910
02:41:17,840 --> 02:41:19,680
certainly in every super mega case.

1911
02:41:22,000 --> 02:41:25,680
The import of the USTRI's argument is that this court

1912
02:41:25,680 --> 02:41:29,200
and no other court has discretion to determine

1913
02:41:29,200 --> 02:41:31,680
whether or not an examiner should be appointed.

1914
02:41:33,600 --> 02:41:38,600
That is simply not a realistic or accurate reading

1915
02:41:38,600 --> 02:41:40,640
of the statute or the pressing.

1916
02:41:43,080 --> 02:41:47,680
And it is frankly, your honor, disconcerting

1917
02:41:47,680 --> 02:41:50,160
because there are two places where discretion,

1918
02:41:50,160 --> 02:41:51,480
we believe, matters.

1919
02:41:51,480 --> 02:41:53,880
One is with your honor.

1920
02:41:53,880 --> 02:41:58,880
And that 1104 and the language which phrase,

1921
02:41:59,560 --> 02:42:01,440
and particularly the phrase as appropriate,

1922
02:42:01,440 --> 02:42:02,880
provides you with discretion.

1923
02:42:03,960 --> 02:42:05,560
But frankly, your honor, in the discretion

1924
02:42:05,560 --> 02:42:07,720
to have brought this motion to begin with,

1925
02:42:07,720 --> 02:42:10,320
and that resides with the Office of the US Trustee.

1926
02:42:13,680 --> 02:42:15,560
There is zero evidence that's been put on

1927
02:42:15,560 --> 02:42:18,200
before your honor today about whether or not C1

1928
02:42:18,200 --> 02:42:22,080
has been satisfied by the movement who bears the burden.

1929
02:42:22,080 --> 02:42:24,400
Nothing but conclusory statements

1930
02:42:24,400 --> 02:42:26,920
that because Mr. Ray had put in a declaration

1931
02:42:26,920 --> 02:42:29,000
that said that there's some sort of fraud

1932
02:42:29,000 --> 02:42:32,320
that has occurred here, period, full stop.

1933
02:42:32,320 --> 02:42:36,080
It is in the best interests of creditors under C1

1934
02:42:37,040 --> 02:42:38,600
for an examiner to be appointed.

1935
02:42:39,480 --> 02:42:41,120
And keep in mind, the US Trustee moves

1936
02:42:41,120 --> 02:42:42,960
under both C1 and C2.

1937
02:42:42,960 --> 02:42:44,920
We believe there's zero evidence under C1.

1938
02:42:48,480 --> 02:42:51,200
Mr. Ray testified for over an hour, an hour and a half,

1939
02:42:51,200 --> 02:42:52,600
an hour and hour and a half.

1940
02:42:54,520 --> 02:42:57,440
The grovelment of his testimony is that it is not

1941
02:42:57,440 --> 02:43:01,040
in the best interest of creditors, stakeholders,

1942
02:43:01,040 --> 02:43:03,960
or the estate for an examiner to be appointed.

1943
02:43:06,320 --> 02:43:09,160
Mr. Ray testified that he is independent,

1944
02:43:09,160 --> 02:43:11,560
that his directors are independent,

1945
02:43:11,560 --> 02:43:16,560
that he has at his direction commanded a group

1946
02:43:16,560 --> 02:43:19,480
of highly sophisticated professionals

1947
02:43:19,480 --> 02:43:23,440
to take care of a highly technical and dangerous environment.

1948
02:43:26,880 --> 02:43:28,200
That environment was so dangerous

1949
02:43:28,200 --> 02:43:30,160
that on the day that these cases were commenced,

1950
02:43:30,160 --> 02:43:32,160
that over $400 million were stolen

1951
02:43:33,360 --> 02:43:36,040
because of the condition that the prior management left

1952
02:43:36,040 --> 02:43:38,680
the company and that security environment.

1953
02:43:40,440 --> 02:43:42,600
If it was not for the immediate action of Mr. Ray

1954
02:43:42,600 --> 02:43:45,520
and those advisors under his direction,

1955
02:43:45,520 --> 02:43:48,520
this company would have simply faded away,

1956
02:43:48,520 --> 02:43:50,440
been stolen, bled dry.

1957
02:43:52,520 --> 02:43:54,120
And yet the US Trustee stands here and says,

1958
02:43:54,120 --> 02:43:56,320
I don't really understand these technical things.

1959
02:43:57,200 --> 02:43:58,680
It's gonna be okay.

1960
02:43:58,680 --> 02:43:59,920
I'm sure they'll work on it.

1961
02:43:59,920 --> 02:44:01,120
I'm sure it'll be fine.

1962
02:44:04,200 --> 02:44:06,200
And then the US Trustee stands up today and says,

1963
02:44:06,200 --> 02:44:08,200
well, I haven't said anything about scope.

1964
02:44:08,200 --> 02:44:10,560
Now I'm going to read to you what the scope is.

1965
02:44:10,560 --> 02:44:13,080
And it's everything, everywhere all at once.

1966
02:44:13,080 --> 02:44:15,760
And it's everything, everywhere all at once.

1967
02:44:17,400 --> 02:44:18,600
We have in front of you, your honor,

1968
02:44:18,600 --> 02:44:20,880
two sets of examiner reports

1969
02:44:20,880 --> 02:44:23,360
from two other mega, super mega cases.

1970
02:44:24,760 --> 02:44:28,960
Those binders represent $200 million.

1971
02:44:28,960 --> 02:44:31,840
That's it, $200 million.

1972
02:44:31,840 --> 02:44:34,040
And the US Trustee says, well,

1973
02:44:34,040 --> 02:44:36,880
you have $1.2 billion of unrestricted cash

1974
02:44:36,880 --> 02:44:38,080
on your balance sheet.

1975
02:44:38,080 --> 02:44:43,080
You should spend some, a lot of that

1976
02:44:43,120 --> 02:44:45,600
to completely replace everything that's being done

1977
02:44:47,000 --> 02:44:48,400
with a new set of professionals

1978
02:44:48,400 --> 02:44:50,560
who are going to do the exact same thing.

1979
02:44:52,000 --> 02:44:54,000
With no evidence that any of those professionals

1980
02:44:54,000 --> 02:44:55,600
or this examiner to be appointed

1981
02:44:55,600 --> 02:44:59,880
would be any more independent, any more qualified,

1982
02:44:59,880 --> 02:45:02,560
any more able to secure these assets.

1983
02:45:02,560 --> 02:45:06,760
It's simply going to be a duplication of effort

1984
02:45:06,760 --> 02:45:09,680
and an enormous amount of expense.

1985
02:45:10,840 --> 02:45:14,000
The fact that we may have $1.2 billion

1986
02:45:14,000 --> 02:45:17,240
of unrestricted cash is not the point.

1987
02:45:17,240 --> 02:45:20,400
We need $8 billion of unrestricted cash.

1988
02:45:22,240 --> 02:45:26,560
We do not have enough money to pay back all of our creditors.

1989
02:45:26,560 --> 02:45:30,800
And the US Trustee, for pure purposes of public policy,

1990
02:45:30,800 --> 02:45:33,800
because bleach and sunshine is a public policy

1991
02:45:33,800 --> 02:45:36,440
that we need here, says that we should spend tens

1992
02:45:36,440 --> 02:45:38,680
or even hundreds of millions of dollars

1993
02:45:38,680 --> 02:45:42,280
to provide some guidance to states

1994
02:45:42,280 --> 02:45:44,440
that have written one paragraph that said,

1995
02:45:44,440 --> 02:45:46,560
we agree with what they said before.

1996
02:45:47,680 --> 02:45:50,480
And the evidence that Mr. Ray has put on

1997
02:45:50,480 --> 02:45:53,400
and is uncontradicted is that we have done nothing

1998
02:45:53,400 --> 02:45:56,400
over the past 90 days other than cooperate

1999
02:45:56,400 --> 02:45:59,960
and provide massive amounts of information

2000
02:45:59,960 --> 02:46:02,640
to regulators all around the world.

2001
02:46:02,640 --> 02:46:03,480
Well, let me ask you a question.

2002
02:46:03,480 --> 02:46:05,520
You mentioned bleach and sunshine.

2003
02:46:05,520 --> 02:46:10,040
So let me ask you about one issue that US Trustee raises,

2004
02:46:10,040 --> 02:46:13,760
which is that under 1106, if I pointed an examiner,

2005
02:46:13,760 --> 02:46:15,400
there'd be a public report file.

2006
02:46:17,320 --> 02:46:20,360
And what is the view of the debtors in this case

2007
02:46:20,360 --> 02:46:25,360
of the need to provide the creditors in this case

2008
02:46:27,920 --> 02:46:32,420
with something that shows them what's been done,

2009
02:46:32,420 --> 02:46:34,440
what investigations have been undertaken,

2010
02:46:34,440 --> 02:46:36,400
how they were undertaken,

2011
02:46:36,400 --> 02:46:39,800
and what the results of those investigations are?

2012
02:46:39,800 --> 02:46:41,640
Because under 1107, a debtor in possession

2013
02:46:41,640 --> 02:46:43,680
doesn't have that obligation.

2014
02:46:43,680 --> 02:46:45,400
Well, there are two things, Your Honor.

2015
02:46:45,400 --> 02:46:49,760
One is what we've already done and will continue to do.

2016
02:46:49,760 --> 02:46:51,760
And then there's what the Bankruptcy Code provides

2017
02:46:51,760 --> 02:46:52,600
in other sections.

2018
02:46:53,560 --> 02:46:57,840
So what we have already done is one of the exhibits,

2019
02:46:57,840 --> 02:46:59,520
which we have agreed to jointly,

2020
02:46:59,520 --> 02:47:01,720
is a very extensive presentation

2021
02:47:01,720 --> 02:47:04,520
that the debtors made to the Creditors Committee.

2022
02:47:04,520 --> 02:47:08,600
It is not normal course in a case of this size or substance

2023
02:47:08,600 --> 02:47:10,720
that when you meet with the Creditors Committee

2024
02:47:10,720 --> 02:47:14,880
that you publish the same day for the public

2025
02:47:14,880 --> 02:47:18,600
the complete contents of the presentation that we made.

2026
02:47:18,600 --> 02:47:19,420
We did that.

2027
02:47:20,240 --> 02:47:22,240
We will continue to do things like that.

2028
02:47:23,400 --> 02:47:27,220
It is the view of Mr. A and the management of the directors

2029
02:47:27,220 --> 02:47:30,520
that this is a different case.

2030
02:47:30,520 --> 02:47:32,960
We need to approach that in a different way.

2031
02:47:33,800 --> 02:47:36,040
Do we have a specific schedule of things

2032
02:47:36,040 --> 02:47:37,880
that we're going to say and at what point?

2033
02:47:37,880 --> 02:47:39,180
No.

2034
02:47:39,180 --> 02:47:42,060
But are we going to continue to follow in those footsteps

2035
02:47:42,060 --> 02:47:43,640
that we've already set forth?

2036
02:47:43,640 --> 02:47:44,640
Yes, we will.

2037
02:47:47,620 --> 02:47:49,280
In addition, Your Honor, we have an obligation

2038
02:47:49,280 --> 02:47:52,040
to put together a disclosure statement.

2039
02:47:52,040 --> 02:47:54,000
That disclosure statement in a case like this

2040
02:47:54,000 --> 02:47:57,760
is going to be a recitation of everything

2041
02:47:57,760 --> 02:47:58,840
that has taken place.

2042
02:47:58,840 --> 02:48:00,720
And it will be up to you, Your Honor, to determine

2043
02:48:00,720 --> 02:48:02,880
whether the information set forth in that disclosure

2044
02:48:02,880 --> 02:48:05,080
statement is adequate under the circumstance.

2045
02:48:06,080 --> 02:48:09,660
We believe that in order for us to confirm a plan,

2046
02:48:09,660 --> 02:48:11,680
we're going to have to put together a disclosure statement

2047
02:48:11,680 --> 02:48:15,840
that brings that bleach and sunshine to this situation.

2048
02:48:18,160 --> 02:48:22,000
So we believe that, well, and I will note,

2049
02:48:22,000 --> 02:48:27,000
1106 and 1107 and 1104 do not require in every circumstance

2050
02:48:27,000 --> 02:48:28,540
that there be a public report.

2051
02:48:30,300 --> 02:48:34,740
When we talk about the debtors furthering public policy,

2052
02:48:34,740 --> 02:48:38,220
we have spent literally tens of millions of dollars

2053
02:48:38,220 --> 02:48:43,220
complying with public policy by reporting to the Congress,

2054
02:48:43,780 --> 02:48:47,220
to the House, to the Senate, to the U.S. Attorney's Office

2055
02:48:47,220 --> 02:48:48,500
in the Southern District of New York

2056
02:48:48,500 --> 02:48:50,240
and three other districts.

2057
02:48:51,300 --> 02:48:55,380
It has led to the indictment of three individuals

2058
02:48:55,380 --> 02:48:57,320
who led the company in record time.

2059
02:48:58,380 --> 02:48:59,980
There have been lawsuits already filed

2060
02:48:59,980 --> 02:49:01,940
by the SEC and the CFTC.

2061
02:49:04,140 --> 02:49:07,820
When you talk about the debtors dedicating assets

2062
02:49:07,820 --> 02:49:10,660
to transparency to the public process,

2063
02:49:10,660 --> 02:49:13,140
I don't think you can find a case where debtors

2064
02:49:13,140 --> 02:49:16,340
have done anything matching what these debtors have done

2065
02:49:16,340 --> 02:49:18,620
in the first 90 days of this.

2066
02:49:18,620 --> 02:49:20,260
And will we continue to do that?

2067
02:49:20,260 --> 02:49:21,100
Yes, we will.

2068
02:49:21,100 --> 02:49:25,460
What Mr. Ray testified to is that on a daily basis,

2069
02:49:25,460 --> 02:49:29,140
we receive emails that in substance say,

2070
02:49:29,140 --> 02:49:32,180
we would like you to look at these transactions,

2071
02:49:32,180 --> 02:49:37,180
these individuals, and get us this information in 24 hours.

2072
02:49:37,420 --> 02:49:39,380
And what that requires, your honor,

2073
02:49:39,380 --> 02:49:42,300
is us to actually go in, and when I say us,

2074
02:49:42,300 --> 02:49:45,700
it's the entirety of the investigations team,

2075
02:49:45,700 --> 02:49:48,300
to go into this virtual environment

2076
02:49:48,300 --> 02:49:51,300
and track down the information that's being requested

2077
02:49:51,300 --> 02:49:52,300
by the authorities.

2078
02:49:53,820 --> 02:49:56,460
It's not simply going into a warehouse

2079
02:49:56,460 --> 02:49:58,500
and picking things off of a shelf.

2080
02:49:58,500 --> 02:50:00,300
It is interpreting code.

2081
02:50:00,300 --> 02:50:04,100
It's making sure that when the code is discovered

2082
02:50:04,100 --> 02:50:06,140
and accessed, it doesn't trigger things

2083
02:50:06,140 --> 02:50:10,060
that Mr. Ray was talking about that might damage assets.

2084
02:50:10,060 --> 02:50:11,940
We don't have, there are no wallets.

2085
02:50:11,940 --> 02:50:13,340
There are no keys.

2086
02:50:13,340 --> 02:50:14,600
There are no buildings.

2087
02:50:14,600 --> 02:50:19,340
Everything we have is a series of zeros and ones.

2088
02:50:20,500 --> 02:50:24,140
And any time that environment is accessed,

2089
02:50:24,140 --> 02:50:27,780
it creates risk and damage, that damage will occur.

2090
02:50:27,780 --> 02:50:30,940
And so every time we're going into that environment,

2091
02:50:30,940 --> 02:50:35,940
the investigation exercise is also securing assets.

2092
02:50:36,940 --> 02:50:40,300
It's also figuring out whether there are claims

2093
02:50:40,300 --> 02:50:44,220
as to whether or not the issues that we're finding

2094
02:50:44,220 --> 02:50:48,500
in the environment have some explanation

2095
02:50:48,500 --> 02:50:53,500
that's other than a mistake or incompetence or inexperience.

2096
02:50:54,060 --> 02:50:55,540
Maybe it's fraud.

2097
02:50:55,540 --> 02:50:57,900
You don't know that.

2098
02:50:57,900 --> 02:50:59,900
When we talk about fraud in court,

2099
02:50:59,900 --> 02:51:02,080
we often talk about badges of fraud.

2100
02:51:03,580 --> 02:51:05,780
You don't have badges of fraud in the same way

2101
02:51:05,780 --> 02:51:10,420
when you're sitting there and having digital experts

2102
02:51:10,420 --> 02:51:13,820
in Israel and in the United States trying to figure out

2103
02:51:13,820 --> 02:51:18,140
why the code was changed from X to Y, by whom,

2104
02:51:18,140 --> 02:51:22,420
who had the right to change it, who had access to it.

2105
02:51:22,420 --> 02:51:25,200
All of that is a consolidated exercise

2106
02:51:25,200 --> 02:51:27,480
that takes place every single day.

2107
02:51:28,520 --> 02:51:32,340
So quite honestly, the idea that we are able

2108
02:51:32,340 --> 02:51:35,040
to simply hand over that environment

2109
02:51:35,040 --> 02:51:37,100
to an examiner is naive.

2110
02:51:39,180 --> 02:51:41,700
Mr. Ray said he will comply with any order of this court

2111
02:51:41,700 --> 02:51:42,940
and I know he will.

2112
02:51:42,940 --> 02:51:45,060
And I know we all will.

2113
02:51:45,060 --> 02:51:47,500
But the idea that there's going to be some ability

2114
02:51:47,500 --> 02:51:50,820
to find somebody else out there, put together a team,

2115
02:51:50,820 --> 02:51:54,700
and have that team operate as independently

2116
02:51:54,700 --> 02:51:57,740
and as effectively as the team that's in place,

2117
02:51:57,740 --> 02:52:00,780
and then write a report, simply means that we're going

2118
02:52:00,780 --> 02:52:04,420
to add on top of this months, if not years,

2119
02:52:04,420 --> 02:52:06,780
of additional time, and tens of millions,

2120
02:52:06,780 --> 02:52:09,500
if not hundreds of millions of additional cost.

2121
02:52:09,500 --> 02:52:11,580
And who bears that cost?

2122
02:52:11,580 --> 02:52:13,460
The creditors.

2123
02:52:13,460 --> 02:52:15,420
Mr. Capasquale's clients.

2124
02:52:16,740 --> 02:52:20,440
We should not be sitting here duplicating the same thing

2125
02:52:20,440 --> 02:52:22,800
that is happening every single day,

2126
02:52:22,800 --> 02:52:25,660
because the US trustee believes that there's a policy

2127
02:52:25,660 --> 02:52:29,620
point of view that 1104 says that it's mandatory

2128
02:52:29,620 --> 02:52:31,220
no matter what.

2129
02:52:31,220 --> 02:52:33,620
And the slippery slope of that mandatory argument

2130
02:52:33,620 --> 02:52:35,540
is not in this courtroom.

2131
02:52:35,540 --> 02:52:40,540
It's not because the US trustee is going to be an advocate

2132
02:52:40,540 --> 02:52:43,220
or pushing a particular agenda.

2133
02:52:43,220 --> 02:52:44,700
I don't believe that.

2134
02:52:44,700 --> 02:52:48,100
But 1104 doesn't stop at the US trustee.

2135
02:52:48,100 --> 02:52:51,740
It says party and interest for the US trustee.

2136
02:52:51,740 --> 02:52:54,300
Any case law that is established in this case

2137
02:52:54,300 --> 02:52:57,620
that says mandatory means mandatory,

2138
02:52:57,620 --> 02:53:00,540
means that every single chapter 11 case

2139
02:53:00,540 --> 02:53:04,780
with more than $5 million worth of debt

2140
02:53:04,780 --> 02:53:08,460
is going to be at risk of being held hostage

2141
02:53:08,460 --> 02:53:13,460
at confirmation, at the first disclosure statement hearing.

2142
02:53:13,820 --> 02:53:16,340
At any point in time, it will just become a weapon

2143
02:53:16,340 --> 02:53:20,460
in the arsenal of every party and interest.

2144
02:53:20,460 --> 02:53:23,580
Because if you take the discretion away from the courts,

2145
02:53:25,420 --> 02:53:27,180
the weapon's only in the hands of those

2146
02:53:27,180 --> 02:53:29,700
who are in the courtroom.

2147
02:53:31,780 --> 02:53:34,700
And the idea that we will then be reduced to saying

2148
02:53:34,700 --> 02:53:38,060
the only choice that the courts have is to say

2149
02:53:38,060 --> 02:53:42,460
no, I'm not gonna give the examiner a budget.

2150
02:53:43,500 --> 02:53:46,980
Well, I think that's, and as the courts

2151
02:53:46,980 --> 02:53:49,500
have continually ruled here in Delaware,

2152
02:53:49,500 --> 02:53:51,500
that's a silly decision to make.

2153
02:53:51,500 --> 02:53:54,460
Because the point is, it's not as if 1104

2154
02:53:54,460 --> 02:53:56,260
doesn't provide the language.

2155
02:53:56,260 --> 02:53:57,460
It does.

2156
02:53:57,460 --> 02:54:00,020
And the history of 1104, the legislative history

2157
02:54:00,020 --> 02:54:03,260
that was cited, I think, incorrectly by the US trustee

2158
02:54:04,740 --> 02:54:06,100
illustrates that point.

2159
02:54:06,100 --> 02:54:08,420
There's not a court that's really gone into this

2160
02:54:08,420 --> 02:54:09,900
in any level of detail.

2161
02:54:09,900 --> 02:54:13,180
The Revco case, with all due respect, 1990,

2162
02:54:13,180 --> 02:54:15,940
the drug store case, there's two and a half pages,

2163
02:54:15,940 --> 02:54:18,260
not much analysis, they don't mention the words

2164
02:54:18,260 --> 02:54:19,900
as is appropriate, and they don't go into

2165
02:54:19,900 --> 02:54:21,580
the legislative history.

2166
02:54:21,580 --> 02:54:23,980
That's not much of a circuit decision in my mind.

2167
02:54:25,860 --> 02:54:30,540
What happens in that situation, if you read 1104,

2168
02:54:30,540 --> 02:54:34,660
1104C says that the trustee hasn't been appointed.

2169
02:54:34,660 --> 02:54:38,580
1104E says the US trustee shall move

2170
02:54:38,580 --> 02:54:40,620
for a trustee in certain circumstances.

2171
02:54:40,620 --> 02:54:42,540
They haven't done that.

2172
02:54:42,540 --> 02:54:44,900
They have to move under 1104A.

2173
02:54:44,900 --> 02:54:47,620
No one's moved for a trustee under 1104A.

2174
02:54:47,620 --> 02:54:49,260
Why is 1104 even there?

2175
02:54:49,260 --> 02:54:50,660
Why does it bounce back and forth

2176
02:54:50,660 --> 02:54:52,500
between trustee and examiner?

2177
02:54:52,500 --> 02:54:57,100
Because the precode rule was trustees were appointed.

2178
02:54:57,100 --> 02:55:00,460
And the United States decided, to our credit,

2179
02:55:00,460 --> 02:55:02,500
that debtors in possession were a better way

2180
02:55:02,500 --> 02:55:05,700
of reorganizing companies than putting them in the hands

2181
02:55:05,700 --> 02:55:09,180
of the Securities and Exchange Commission and trustees.

2182
02:55:10,100 --> 02:55:15,100
1104 is a backstop in case things don't work out.

2183
02:55:17,580 --> 02:55:22,580
I actually think 1104 might be a leftover from the days

2184
02:55:22,580 --> 02:55:25,660
when we used to have a chapter 10 and a chapter 11.

2185
02:55:25,660 --> 02:55:27,660
I think that's right, your honor.

2186
02:55:27,660 --> 02:55:30,700
The point being is, notwithstanding the fact

2187
02:55:30,700 --> 02:55:33,220
that I think that's the legacy,

2188
02:55:33,220 --> 02:55:36,740
the introductory language, as is appropriate,

2189
02:55:36,740 --> 02:55:37,900
is not irrelevant.

2190
02:55:39,660 --> 02:55:43,060
US trustee reads shall and ignores as is appropriate.

2191
02:55:43,060 --> 02:55:46,420
Whether as is appropriate modifies investigation,

2192
02:55:46,420 --> 02:55:51,060
appoint, or examiner, this court has the discretion

2193
02:55:51,060 --> 02:55:54,260
to determine whether it's appropriate.

2194
02:55:54,260 --> 02:55:57,380
In our view, an examiner is not appropriate.

2195
02:55:57,380 --> 02:56:01,220
In our view, a report is not appropriate.

2196
02:56:01,220 --> 02:56:02,260
Thank you, your honor.

2197
02:56:03,860 --> 02:56:04,700
Mr. Pasquale?

2198
02:56:19,780 --> 02:56:20,620
Thank you.

2199
02:56:20,620 --> 02:56:21,460
Excuse me.

2200
02:56:21,460 --> 02:56:22,280
Thank you, your honor.

2201
02:56:22,280 --> 02:56:23,820
Ken Pasquale again for the committee.

2202
02:56:24,940 --> 02:56:26,940
Mr. Bromley really hit on all the key points,

2203
02:56:26,940 --> 02:56:29,940
and we couldn't agree more with all of his arguments.

2204
02:56:29,940 --> 02:56:33,020
But I do think there are a few particularly important points

2205
02:56:33,020 --> 02:56:35,180
that I'd like to reemphasize if I may.

2206
02:56:35,180 --> 02:56:36,340
Be as brief as I can.

2207
02:56:38,580 --> 02:56:40,860
The US trustee first of all concedes,

2208
02:56:40,860 --> 02:56:43,780
we heard Ms. Sarcassian in her closing say,

2209
02:56:43,780 --> 02:56:46,940
that she recognizes the committee's statutory authority

2210
02:56:46,940 --> 02:56:51,940
to do an investigation under 1103C2 of the Banker C code.

2211
02:56:52,240 --> 02:56:53,740
And as you heard Mr. Ray testify,

2212
02:56:53,740 --> 02:56:57,340
the committee has been doing that.

2213
02:56:57,340 --> 02:57:00,020
The committee was appointed on December 15th.

2214
02:57:00,020 --> 02:57:02,180
It's not even been two months yet.

2215
02:57:02,180 --> 02:57:07,060
And in that time, as Mr. Ray testified to some extent,

2216
02:57:07,060 --> 02:57:11,580
the committee has been working lockstep with the debtors

2217
02:57:11,580 --> 02:57:13,780
to understand what happened pre-petition.

2218
02:57:13,780 --> 02:57:16,940
And more importantly, perhaps, and it all ties together,

2219
02:57:16,940 --> 02:57:19,100
and it's one of the points I really want to make to the court

2220
02:57:19,100 --> 02:57:22,540
is the investigation doesn't stand alone.

2221
02:57:22,540 --> 02:57:26,020
It fits in with the rest of what this case will need to be.

2222
02:57:26,020 --> 02:57:30,420
And ultimately, what do distributions look like

2223
02:57:30,420 --> 02:57:32,740
to the creditors of these states?

2224
02:57:32,740 --> 02:57:37,740
And so the investigation informs the next steps in this case,

2225
02:57:37,740 --> 02:57:40,620
including whether there'll be what we have been calling

2226
02:57:40,620 --> 02:57:44,020
a 2.0, some type of reorganization,

2227
02:57:44,020 --> 02:57:46,500
or whether it will just be monetizing

2228
02:57:46,500 --> 02:57:47,960
the assets of this company.

2229
02:57:47,960 --> 02:57:49,740
That's all to be determined.

2230
02:57:49,740 --> 02:57:53,020
And the investigation, again, informs all of that.

2231
02:57:53,020 --> 02:57:56,220
So what have we done as a committee

2232
02:57:56,220 --> 02:57:57,940
in the less than two months

2233
02:57:57,940 --> 02:58:01,140
since the US trustee appointed the group?

2234
02:58:01,140 --> 02:58:02,380
As you heard Mr. Ray say,

2235
02:58:02,380 --> 02:58:06,080
we served extensive discovery requests on the debtor.

2236
02:58:06,080 --> 02:58:08,180
We did it informally.

2237
02:58:08,180 --> 02:58:09,620
We still don't see a need

2238
02:58:09,620 --> 02:58:11,160
to have to come to the court for that.

2239
02:58:11,160 --> 02:58:13,500
We've been working cooperatively.

2240
02:58:13,500 --> 02:58:17,240
And we have been prioritizing our requests with the debtors

2241
02:58:17,240 --> 02:58:21,220
and receiving prompt responses to what we ask.

2242
02:58:21,220 --> 02:58:25,900
Over 70,000 pages, or 70,000 documents, excuse me,

2243
02:58:25,900 --> 02:58:28,620
have been produced, as you heard Mr. Ray testify,

2244
02:58:28,620 --> 02:58:31,900
that have previously been produced to the regulators.

2245
02:58:31,900 --> 02:58:34,120
We are efficiently reviewing those documents,

2246
02:58:34,120 --> 02:58:39,120
doing targeted searches on any number of issues

2247
02:58:39,780 --> 02:58:41,820
that we become aware of or know

2248
02:58:41,820 --> 02:58:45,780
from Mr. Ray's prior testimony before Congress

2249
02:58:45,780 --> 02:58:47,160
and first day here.

2250
02:58:48,580 --> 02:58:50,940
We are evaluating with the debtors

2251
02:58:50,940 --> 02:58:54,780
their pre-petition relationships with their professionals.

2252
02:58:54,780 --> 02:58:57,620
And by that I mean their attorneys, their accountants,

2253
02:58:57,620 --> 02:58:59,780
their auditors, that were in the process

2254
02:58:59,780 --> 02:59:02,260
of coordinating with the debtors council

2255
02:59:02,260 --> 02:59:03,620
on the next steps there,

2256
02:59:03,620 --> 02:59:06,140
which will be pursuing discovery

2257
02:59:06,140 --> 02:59:08,420
and ultimately evaluating potential claims.

2258
02:59:09,440 --> 02:59:13,380
We have filed a joint 2004 motion

2259
02:59:13,380 --> 02:59:16,100
for authority to serve subpoenas on insiders

2260
02:59:16,100 --> 02:59:18,580
and related parties, I think that's on for Wednesday

2261
02:59:18,580 --> 02:59:20,000
of this week to be heard,

2262
02:59:21,300 --> 02:59:25,340
as an obvious avenue necessary for investigation.

2263
02:59:26,260 --> 02:59:28,840
And these are just some of the things of course,

2264
02:59:28,840 --> 02:59:30,820
Your Honor, but I think the last,

2265
02:59:30,820 --> 02:59:33,500
and I think this is really important,

2266
02:59:33,500 --> 02:59:34,860
and Mr. Ray testified,

2267
02:59:34,860 --> 02:59:38,060
is with respect to the cybersecurity environment.

2268
02:59:38,060 --> 02:59:43,140
The committee does not have access to the AWS

2269
02:59:43,140 --> 02:59:46,180
in the system for the very reasons Mr. Ray testified.

2270
02:59:46,180 --> 02:59:49,980
However, we have had excellent coordination

2271
02:59:49,980 --> 02:59:54,060
and cooperation from the debtors cybersecurity experts.

2272
02:59:54,060 --> 02:59:55,760
And our committee members of course,

2273
02:59:55,760 --> 02:59:58,580
are very knowledgeable in this area

2274
02:59:58,580 --> 03:00:01,180
as customers of the debtors,

2275
03:00:01,180 --> 03:00:03,240
and this is their business so to speak,

2276
03:00:04,240 --> 03:00:06,800
and are consistently bringing issues to us

2277
03:00:06,800 --> 03:00:08,500
that we bring to the debtors.

2278
03:00:08,500 --> 03:00:11,980
And we're very quickly getting answers to those inquiries.

2279
03:00:11,980 --> 03:00:13,780
And so the system is working,

2280
03:00:13,780 --> 03:00:16,380
the investigation process is working,

2281
03:00:16,380 --> 03:00:20,660
and there's in our view and as you've heard argument,

2282
03:00:20,660 --> 03:00:23,140
would not be appropriate in these circumstances

2283
03:00:23,140 --> 03:00:24,660
to appoint an examiner.

2284
03:00:24,660 --> 03:00:26,940
When things are proceeding the way the code

2285
03:00:26,940 --> 03:00:28,940
has designed them to proceed,

2286
03:00:28,940 --> 03:00:32,140
with the committee exercising its statutory authority.

2287
03:00:34,380 --> 03:00:37,440
Now I do wanna touch, Your Honor, on the cost.

2288
03:00:37,440 --> 03:00:42,200
The United States trustee said there's no evidence

2289
03:00:42,200 --> 03:00:46,560
that the cost will be more if an examiner is appointed.

2290
03:00:46,560 --> 03:00:49,000
But I think it's obvious that it would.

2291
03:00:49,000 --> 03:00:51,120
So the debtors and the committee

2292
03:00:51,120 --> 03:00:54,200
would not just sit idly by if an examiner

2293
03:00:54,200 --> 03:00:57,920
would to perform its own examination.

2294
03:00:57,920 --> 03:01:01,160
At a minimum, we'd have to work with that examiner,

2295
03:01:01,160 --> 03:01:03,400
we'd have to provide information to the examiner,

2296
03:01:03,400 --> 03:01:06,160
we'd have to coordinate with the examiner.

2297
03:01:06,160 --> 03:01:08,440
And there's obviously incremental cost

2298
03:01:08,440 --> 03:01:10,440
that would be incurred in that process.

2299
03:01:10,440 --> 03:01:13,000
There's no other way that they could proceed.

2300
03:01:23,500 --> 03:01:25,720
And I think I did mention this in the opening, Your Honor,

2301
03:01:25,720 --> 03:01:27,560
but I do wanna mention it again.

2302
03:01:27,560 --> 03:01:29,280
Given the capital structure here,

2303
03:01:29,280 --> 03:01:32,240
where there is no other creditor group

2304
03:01:32,240 --> 03:01:36,440
that our unsecured creditors would be competing with,

2305
03:01:36,440 --> 03:01:38,440
there's no incentive for our committee

2306
03:01:38,440 --> 03:01:41,560
to do anything but what I will call it,

2307
03:01:43,600 --> 03:01:45,400
an unbiased investigation.

2308
03:01:45,400 --> 03:01:47,400
The investigation is not going to be used

2309
03:01:47,400 --> 03:01:49,820
for any adversarial purpose,

2310
03:01:49,820 --> 03:01:52,580
which again was argued by the US trustee in the motion.

2311
03:01:57,840 --> 03:02:00,440
Continuing with the issue of the cost, Your Honor,

2312
03:02:00,440 --> 03:02:03,560
we do think it's entirely inappropriate

2313
03:02:03,560 --> 03:02:06,960
for an examiner to be appointed in order to,

2314
03:02:06,960 --> 03:02:09,220
for the purpose of issuing a report

2315
03:02:09,220 --> 03:02:14,220
that satisfies some public interest outside of these cases.

2316
03:02:14,620 --> 03:02:17,440
For the very simple reason, as Mr. Brownlee mentioned,

2317
03:02:17,440 --> 03:02:20,160
the cost of an examiner will come out

2318
03:02:20,160 --> 03:02:22,160
of the unsecured creditor's recoveries.

2319
03:02:23,040 --> 03:02:26,000
There's no denying that the work that we're doing

2320
03:02:26,000 --> 03:02:30,700
is that there is a significant cost to that work,

2321
03:02:30,700 --> 03:02:32,880
but it's necessary work.

2322
03:02:32,880 --> 03:02:35,960
And the exam, excuse me, an examiner's investigation

2323
03:02:35,960 --> 03:02:39,960
would just be over and above what is already being done

2324
03:02:39,960 --> 03:02:42,880
and those costs that are being incurred.

2325
03:02:42,880 --> 03:02:45,800
I think Judge Walrath in the Washington Mutual case

2326
03:02:45,800 --> 03:02:48,120
said it well on that particular point,

2327
03:02:48,120 --> 03:02:50,920
not only acknowledging that the committee

2328
03:02:50,920 --> 03:02:54,200
was well positioned to do the investigation,

2329
03:02:54,200 --> 03:02:57,000
but quote, excuse me, not quote yet,

2330
03:02:57,000 --> 03:02:59,120
that it would not be, and here's the quote,

2331
03:02:59,120 --> 03:03:01,800
it would not be fair to the creditors in this case

2332
03:03:01,800 --> 03:03:04,640
to be saddled with the cost of an investigation

2333
03:03:04,640 --> 03:03:07,720
into systematic problems that would only benefit

2334
03:03:07,720 --> 03:03:12,720
future parties but not benefit the parties in this case.

2335
03:03:12,720 --> 03:03:15,120
And that's exhibit D to our objection,

2336
03:03:15,120 --> 03:03:19,920
it's the transcript, page 98, starting at line 12.

2337
03:03:19,920 --> 03:03:22,560
That's exactly the situation here.

2338
03:03:22,560 --> 03:03:24,800
Given the investigations already going on

2339
03:03:24,800 --> 03:03:29,800
by the congressional committees, CFTC, SEC, the prosecutors,

2340
03:03:31,640 --> 03:03:34,200
the public interest is being well served

2341
03:03:34,200 --> 03:03:35,640
in all of those ways.

2342
03:03:35,640 --> 03:03:39,840
Our purpose here is to investigate for the benefit

2343
03:03:39,840 --> 03:03:41,840
of the stakeholders in these estates.

2344
03:03:41,840 --> 03:03:46,840
I think the only other thing I really wanted to mention,

2345
03:03:52,760 --> 03:03:54,480
Your Honor, if I may, is just with respect

2346
03:03:54,480 --> 03:03:57,120
to Your Honor's question about the report.

2347
03:03:57,120 --> 03:03:59,520
Mr. Bromley mentioned entirely correctly,

2348
03:03:59,520 --> 03:04:02,360
there will be a disclosure statement in this case.

2349
03:04:02,360 --> 03:04:04,320
That disclosure statement will detail

2350
03:04:05,200 --> 03:04:06,960
the results of the investigation.

2351
03:04:06,960 --> 03:04:10,120
We, as the creditors committee, have an obligation

2352
03:04:10,120 --> 03:04:13,760
in that context to make a recommendation to creditors

2353
03:04:13,760 --> 03:04:16,000
as to the provisions of the plan

2354
03:04:16,000 --> 03:04:18,400
that that disclosure statement will describe.

2355
03:04:18,400 --> 03:04:21,760
And we, of course, take that obligation seriously.

2356
03:04:21,760 --> 03:04:26,360
That document will explain the results of the investigation.

2357
03:04:26,360 --> 03:04:27,840
I'll mention also, of course,

2358
03:04:27,840 --> 03:04:29,920
as is the committee's obligation,

2359
03:04:30,840 --> 03:04:34,760
to the extent that we're able, subject to confidentiality

2360
03:04:34,760 --> 03:04:37,560
and other privileges and the like,

2361
03:04:37,560 --> 03:04:41,000
the committee will be providing information on its website,

2362
03:04:41,000 --> 03:04:42,200
which is now up and running,

2363
03:04:42,200 --> 03:04:46,000
and to the extent practicable on social media as well.

2364
03:04:46,000 --> 03:04:48,760
So we will take all necessary steps

2365
03:04:48,760 --> 03:04:51,840
to inform creditors of what's transpiring,

2366
03:04:51,840 --> 03:04:53,640
again, with the obvious limitations

2367
03:04:53,640 --> 03:04:58,040
around confidentiality and keeping in mind work product

2368
03:04:58,040 --> 03:05:01,520
and the fact that this investigation will be used

2369
03:05:01,520 --> 03:05:04,280
to evaluate claims going forward

2370
03:05:04,280 --> 03:05:09,280
to maximize recoveries to creditors.

2371
03:05:09,920 --> 03:05:11,400
I think that's all I have, Your Honor, for now,

2372
03:05:11,400 --> 03:05:12,440
unless you have any questions.

2373
03:05:12,440 --> 03:05:13,520
No questions, thank you.

2374
03:05:13,520 --> 03:05:14,360
Thank you.

2375
03:05:17,000 --> 03:05:17,840
Mr. Schor.

2376
03:05:19,000 --> 03:05:19,840
Thank you, Your Honor.

2377
03:05:19,840 --> 03:05:21,960
Chris Schor from Whiten Case for the JPL.

2378
03:05:21,960 --> 03:05:23,800
I'll try not to be duplicative here.

2379
03:05:23,800 --> 03:05:26,440
At the end of the day, what's before the court?

2380
03:05:26,440 --> 03:05:28,200
Questions of law and questions of fact,

2381
03:05:28,200 --> 03:05:30,320
but it's kind of hard to ignore that,

2382
03:05:30,320 --> 03:05:32,200
based upon the U.S. Trustee's brief

2383
03:05:32,200 --> 03:05:34,520
in the first half of Mr. Ray's testimony,

2384
03:05:34,520 --> 03:05:36,920
that the policy implications of this

2385
03:05:36,920 --> 03:05:40,280
are coming to the fore in what we do about examiners

2386
03:05:40,280 --> 03:05:41,120
in big cases.

2387
03:05:41,120 --> 03:05:43,040
I'm gonna start with a simple proposition.

2388
03:05:43,040 --> 03:05:46,160
There is, in fact, zero policy reason

2389
03:05:46,160 --> 03:05:49,680
to support the U.S. Trustee's interpretation of the statute.

2390
03:05:51,280 --> 03:05:52,760
According to the U.S. Trustee,

2391
03:05:54,040 --> 03:05:55,240
you get outside of C-1.

2392
03:05:55,240 --> 03:05:56,600
The court's already determined

2393
03:05:56,600 --> 03:05:59,000
that it is not in the best interest of the estate

2394
03:05:59,000 --> 03:06:00,160
to have an examiner.

2395
03:06:00,160 --> 03:06:01,960
We move into C-2 land.

2396
03:06:01,960 --> 03:06:05,840
In every case with $5 million of funded debt,

2397
03:06:05,840 --> 03:06:08,960
a party in interest, including the U.S. Trustee,

2398
03:06:08,960 --> 03:06:12,840
who would have no economic stake in the outcome of the case,

2399
03:06:12,840 --> 03:06:15,360
needs to file a motion,

2400
03:06:15,360 --> 03:06:18,320
and everybody in the case

2401
03:06:18,320 --> 03:06:20,840
must have an evidentiary hearing like this.

2402
03:06:20,840 --> 03:06:22,280
This is not free.

2403
03:06:22,280 --> 03:06:25,800
And there must be an examiner appointed,

2404
03:06:25,800 --> 03:06:28,080
and we'll all figure it out later.

2405
03:06:28,080 --> 03:06:32,440
In fact, none of the case law supports that.

2406
03:06:32,440 --> 03:06:36,000
All the cases dispose of that issue,

2407
03:06:36,000 --> 03:06:38,520
the way your honor was asking questions,

2408
03:06:38,520 --> 03:06:39,920
in one of two ways.

2409
03:06:39,920 --> 03:06:44,920
They use the word as is appropriate to modify must appoint,

2410
03:06:46,720 --> 03:06:51,720
or they say as is appropriate modifies investigation.

2411
03:06:52,080 --> 03:06:53,240
On the mandatory point,

2412
03:06:53,240 --> 03:06:56,080
I'm not gonna repeat what Councilor Murray said on that,

2413
03:06:56,080 --> 03:07:00,000
except to say in the reply brief,

2414
03:07:00,000 --> 03:07:02,680
the U.S. Trustee charges that the JPL's

2415
03:07:02,680 --> 03:07:07,160
wrongly quote the legislative history in HR 95-595.

2416
03:07:07,160 --> 03:07:08,200
That's not accurate.

2417
03:07:08,200 --> 03:07:11,400
We, in fact, wrote down exactly what it said there.

2418
03:07:11,400 --> 03:07:13,240
I think their point is

2419
03:07:13,240 --> 03:07:15,560
that it's not binding legislative history,

2420
03:07:15,560 --> 03:07:16,680
which again is wrong.

2421
03:07:16,680 --> 03:07:20,600
If you look at 92 STAT 2688,

2422
03:07:20,600 --> 03:07:23,120
which lists the legislative history,

2423
03:07:23,120 --> 03:07:26,800
HR 595 is listed there.

2424
03:07:26,800 --> 03:07:30,120
I think what the U.S. Trustee is arguing is

2425
03:07:30,120 --> 03:07:32,200
that because of the debates on the floor

2426
03:07:32,200 --> 03:07:34,880
after the initial bill,

2427
03:07:34,880 --> 03:07:38,160
somehow that's the binding legislative history here,

2428
03:07:38,160 --> 03:07:39,640
but I'll make very clear,

2429
03:07:39,640 --> 03:07:41,760
no legislative history at all

2430
03:07:41,760 --> 03:07:44,680
that addresses the point that they're trying to make.

2431
03:07:44,680 --> 03:07:47,200
That whether you call it weaponizing

2432
03:07:47,200 --> 03:07:50,880
or empowering parties in interest

2433
03:07:50,880 --> 03:07:53,040
or someone with no economic stake in a case,

2434
03:07:53,040 --> 03:07:56,760
to bring a case to a halt, nobody,

2435
03:07:56,760 --> 03:07:59,480
none of these senators or representatives

2436
03:07:59,480 --> 03:08:01,120
were saying that on the floor.

2437
03:08:01,120 --> 03:08:04,160
So there is no support for this kind of policy idea

2438
03:08:04,160 --> 03:08:05,680
that shall mean shall.

2439
03:08:05,680 --> 03:08:09,800
It's gonna have to come down to the text of the statute,

2440
03:08:09,800 --> 03:08:13,840
and I'll focus on the, an examination as is appropriate.

2441
03:08:14,720 --> 03:08:17,840
U.S. Trustee bears the burden of showing

2442
03:08:17,840 --> 03:08:21,000
what a examination is,

2443
03:08:21,000 --> 03:08:23,720
and an investigation is appropriately.

2444
03:08:23,720 --> 03:08:26,480
Give you the contours of what's gonna go on,

2445
03:08:26,480 --> 03:08:28,800
and we can have a debate about

2446
03:08:28,800 --> 03:08:30,480
whether or not that is appropriate.

2447
03:08:30,480 --> 03:08:33,880
In fact, the motion, as we point out in our papers,

2448
03:08:33,880 --> 03:08:36,680
just says I want it to the fullest extent

2449
03:08:36,680 --> 03:08:41,680
of the statute as written.

2450
03:08:43,080 --> 03:08:45,080
Now courts have not accepted that.

2451
03:08:45,080 --> 03:08:48,440
Courts generally look to what I list as five things

2452
03:08:48,440 --> 03:08:49,880
when they're trying to figure out

2453
03:08:49,880 --> 03:08:52,360
what an appropriate examination is.

2454
03:08:52,360 --> 03:08:54,480
They ask first, is there really a need

2455
03:08:54,480 --> 03:08:55,760
for an examination here?

2456
03:08:55,760 --> 03:08:58,120
I'll get to the smoke point in a bit.

2457
03:08:58,120 --> 03:09:01,640
What is the scope of what the examiner's gonna be doing?

2458
03:09:01,640 --> 03:09:06,640
What is the cost of the examination on the estate?

2459
03:09:06,720 --> 03:09:09,320
What is the appropriate duration of it?

2460
03:09:09,320 --> 03:09:12,200
And then ultimately we get to a report,

2461
03:09:12,200 --> 03:09:14,280
how are we gonna be using it in the case?

2462
03:09:14,280 --> 03:09:16,480
And how do we deal with issues like privilege,

2463
03:09:16,480 --> 03:09:18,200
and whether it's hearsay or not,

2464
03:09:18,200 --> 03:09:20,120
all those kind of issues get resolved.

2465
03:09:20,120 --> 03:09:23,560
Again, the US trustee is silent on that.

2466
03:09:23,560 --> 03:09:24,680
And of course I got some problems.

2467
03:09:24,680 --> 03:09:27,200
First of all, it seems easy to say in this case,

2468
03:09:27,200 --> 03:09:28,960
we need an examiner report.

2469
03:09:28,960 --> 03:09:30,840
There's a dumpster fire.

2470
03:09:30,840 --> 03:09:33,440
No, we're all standing around right now

2471
03:09:33,440 --> 03:09:37,120
in a building that is burnt to the ground,

2472
03:09:37,120 --> 03:09:39,680
and two of the three principals of the company

2473
03:09:39,680 --> 03:09:41,940
have pleaded guilty to arson.

2474
03:09:41,940 --> 03:09:45,280
So do we really need to spend $100 million

2475
03:09:45,280 --> 03:09:48,400
for an examiner to come in and say the building burned down?

2476
03:09:48,400 --> 03:09:49,520
We know it burned down.

2477
03:09:49,520 --> 03:09:51,640
We know there were no corporate controls.

2478
03:09:51,640 --> 03:09:56,520
We know based upon the pleas of two of the three principals

2479
03:09:56,520 --> 03:09:58,360
that frauds occurred here.

2480
03:09:58,360 --> 03:10:01,320
So the US trustee has done nothing

2481
03:10:01,320 --> 03:10:04,080
other than posit that there is smoke

2482
03:10:04,080 --> 03:10:07,940
without really answering the question, so who cares?

2483
03:10:07,940 --> 03:10:10,440
Obviously there needs to be an investigation

2484
03:10:10,440 --> 03:10:13,480
to determine who's responsible for that,

2485
03:10:13,480 --> 03:10:15,800
and I trust that the US trustee and the debtors

2486
03:10:15,800 --> 03:10:18,280
are working on that, and if monies need to be clawed back,

2487
03:10:18,280 --> 03:10:19,520
they'll be clawed back,

2488
03:10:19,520 --> 03:10:22,560
but we don't need to really know the why here.

2489
03:10:22,560 --> 03:10:24,700
Second, appropriate scope.

2490
03:10:24,700 --> 03:10:25,560
I agree with you, Your Honor.

2491
03:10:25,560 --> 03:10:27,160
How can you appoint an examiner,

2492
03:10:27,160 --> 03:10:29,760
especially on the topics we're talking about,

2493
03:10:29,760 --> 03:10:32,000
unless we know what the scope is,

2494
03:10:32,000 --> 03:10:33,480
or how can the US trustee do it?

2495
03:10:33,480 --> 03:10:35,140
Should there be an accountant?

2496
03:10:35,140 --> 03:10:37,920
Should it be a cryptocurrency guru?

2497
03:10:37,920 --> 03:10:40,320
Should it be a cyber crimes investigator?

2498
03:10:40,320 --> 03:10:44,360
Should it be a corporate controls expert?

2499
03:10:44,360 --> 03:10:46,880
How do you get to the issue of an appointment

2500
03:10:46,880 --> 03:10:49,560
without knowing what the scope's gonna be?

2501
03:10:49,560 --> 03:10:53,320
I don't think I've ever seen a blank check case

2502
03:10:53,320 --> 03:10:55,560
with basically being posited here,

2503
03:10:55,560 --> 03:10:57,720
where the court directed the US trustee

2504
03:10:57,720 --> 03:11:00,360
just point somebody who's examinary,

2505
03:11:00,360 --> 03:11:03,060
and then we'll figure out what he or she's gonna be doing.

2506
03:11:03,060 --> 03:11:05,920
There has to be real context around this,

2507
03:11:05,920 --> 03:11:08,380
particularly when we're talking about the next point,

2508
03:11:08,380 --> 03:11:10,960
which is cost and duration.

2509
03:11:10,960 --> 03:11:13,160
There are cases, I was in ResCap,

2510
03:11:13,160 --> 03:11:15,520
where Judge Glenn kicked the can down the road,

2511
03:11:15,520 --> 03:11:17,360
and there were reasons for that.

2512
03:11:17,360 --> 03:11:19,800
There are three reasons why you can't kick the can

2513
03:11:19,800 --> 03:11:21,320
down the road here.

2514
03:11:21,320 --> 03:11:24,500
Without giving the examiner what you said.

2515
03:11:24,500 --> 03:11:27,000
If it's gonna be a $10,000 investigation,

2516
03:11:27,000 --> 03:11:28,680
an examiner needs to know that

2517
03:11:28,680 --> 03:11:33,200
when picking up the charge first,

2518
03:11:33,200 --> 03:11:37,200
with respect to the $1.2 billion in cash.

2519
03:11:37,200 --> 03:11:38,640
I think that's a little misleading.

2520
03:11:38,640 --> 03:11:42,080
As the US trustee points out in the reply,

2521
03:11:42,080 --> 03:11:43,720
or actually in the moving papers,

2522
03:11:43,720 --> 03:11:46,400
there is an issue as to what this is customer funds,

2523
03:11:46,400 --> 03:11:49,240
and where the customers are, and everything else.

2524
03:11:49,240 --> 03:11:53,000
So it's not fair to say that the debtors

2525
03:11:53,000 --> 03:11:56,720
have in fact free access to use all the cash

2526
03:11:56,720 --> 03:11:59,240
their listing is unrestricted.

2527
03:11:59,240 --> 03:12:04,240
Second on this, assume it is $1.2 billion of cash

2528
03:12:04,240 --> 03:12:07,160
that can pay admin claims.

2529
03:12:07,160 --> 03:12:10,320
That first chart is breathtaking.

2530
03:12:10,320 --> 03:12:13,320
The number of individuals who are already involved,

2531
03:12:13,320 --> 03:12:16,960
that didn't list the committee advisors, right?

2532
03:12:16,960 --> 03:12:19,320
This case is burning super hot.

2533
03:12:19,320 --> 03:12:21,120
We'll find out just how super hot

2534
03:12:21,120 --> 03:12:23,600
when the fee apps start coming in.

2535
03:12:23,600 --> 03:12:26,520
But the comfort that there's going to be

2536
03:12:26,520 --> 03:12:29,560
$1.2 billion in available cash

2537
03:12:29,560 --> 03:12:31,400
doesn't answer the question of how much

2538
03:12:31,400 --> 03:12:34,320
distributable value is there going to be in this case,

2539
03:12:34,320 --> 03:12:36,920
and how is $100 million examination

2540
03:12:36,920 --> 03:12:38,600
going to relate to that.

2541
03:12:38,600 --> 03:12:40,720
Third, and I agree with Mr. Pasquale,

2542
03:12:40,720 --> 03:12:43,000
the concept of deduping,

2543
03:12:43,000 --> 03:12:44,120
we'll just point an examiner

2544
03:12:44,120 --> 03:12:45,360
and everybody else is going to sit.

2545
03:12:45,360 --> 03:12:47,000
That never happens.

2546
03:12:47,000 --> 03:12:48,440
The committees continue to work,

2547
03:12:48,440 --> 03:12:49,680
the debtors continue to work,

2548
03:12:49,680 --> 03:12:53,540
and actually if you focused on Mr. Ray's testimony

2549
03:12:53,540 --> 03:12:56,480
about that second and third demonstrative

2550
03:12:56,480 --> 03:12:58,720
where he lists all the work they're doing

2551
03:12:58,720 --> 03:13:00,820
to coordinate with the requests,

2552
03:13:00,820 --> 03:13:02,720
that's what's going to happen with an examiner too.

2553
03:13:02,720 --> 03:13:04,680
The request is going to come in, Mr. Bromley,

2554
03:13:04,680 --> 03:13:07,680
I need 70,000 documents.

2555
03:13:07,680 --> 03:13:09,040
They're going to go through and say,

2556
03:13:09,040 --> 03:13:10,240
what do we do with the privilege?

2557
03:13:10,240 --> 03:13:11,720
What do we do with these documents?

2558
03:13:11,720 --> 03:13:16,720
How do we control the data so that it's secure?

2559
03:13:18,400 --> 03:13:21,200
And it's just all going to continue to build.

2560
03:13:21,200 --> 03:13:24,080
In other words, the $100 million is additive,

2561
03:13:24,080 --> 03:13:27,480
not subtractive from other work that goes on.

2562
03:13:27,480 --> 03:13:31,680
And finally, appropriate form and use.

2563
03:13:34,200 --> 03:13:35,640
There is, in my experience,

2564
03:13:35,640 --> 03:13:38,040
no evidentiary value to an examiner's report.

2565
03:13:38,040 --> 03:13:39,360
It just kind of comes out,

2566
03:13:39,360 --> 03:13:40,840
and whether your honor would feel

2567
03:13:40,840 --> 03:13:42,880
that that was important or not,

2568
03:13:42,880 --> 03:13:44,680
I don't know how important it is

2569
03:13:44,680 --> 03:13:48,320
when we're not dealing with a case with insiders in situ,

2570
03:13:48,320 --> 03:13:51,120
and rather we have a whole new group coming in.

2571
03:13:51,120 --> 03:13:53,360
Sometimes it helps courts with doing things

2572
03:13:53,360 --> 03:13:55,480
like has the plan been proposed and good fit,

2573
03:13:55,480 --> 03:13:56,680
but things like that.

2574
03:13:56,680 --> 03:13:58,920
I just haven't heard anything articulated

2575
03:13:58,920 --> 03:14:03,840
by the United States Trustee that would go to that issue.

2576
03:14:03,840 --> 03:14:08,840
It's not going to, as the US Trustee seemed to posit,

2577
03:14:09,480 --> 03:14:10,840
going to lead to an indictment.

2578
03:14:10,840 --> 03:14:13,000
The court can't indict anybody here,

2579
03:14:13,000 --> 03:14:15,720
nor can an examiner indict anybody here,

2580
03:14:15,720 --> 03:14:17,320
so the government authorities

2581
03:14:17,320 --> 03:14:18,840
who are doing their investigations

2582
03:14:18,840 --> 03:14:22,320
aren't going to get any help out of the report.

2583
03:14:22,320 --> 03:14:23,680
And then finally, on this point

2584
03:14:23,680 --> 03:14:27,680
of important public interest in looking at this,

2585
03:14:27,680 --> 03:14:31,680
this is not a case in which governments are sitting behind.

2586
03:14:31,680 --> 03:14:33,760
In other words, there's not somebody out there

2587
03:14:33,760 --> 03:14:35,640
protecting the public, as seen,

2588
03:14:35,640 --> 03:14:37,080
the Congress is looking at it,

2589
03:14:37,080 --> 03:14:42,080
the CFTC, the SEC, the IRS, all the state governments.

2590
03:14:42,080 --> 03:14:44,960
They don't need to outsource their work

2591
03:14:44,960 --> 03:14:46,360
to the creditors of the debtor,

2592
03:14:46,360 --> 03:14:48,840
because the irony of the position here

2593
03:14:48,840 --> 03:14:51,360
is that the creditors who are just gonna want

2594
03:14:51,360 --> 03:14:54,160
to get their fiat currency and crypto back

2595
03:14:54,160 --> 03:14:58,320
are gonna be forced to bear the cost of an examination

2596
03:14:58,320 --> 03:15:02,400
that's only going to tell them the who, when, where,

2597
03:15:02,400 --> 03:15:04,160
and why they lost money,

2598
03:15:04,160 --> 03:15:05,840
but not actually give them money back.

2599
03:15:05,840 --> 03:15:08,680
You can't tax them to answer questions

2600
03:15:08,680 --> 03:15:11,040
that no creditor is coming forward

2601
03:15:11,040 --> 03:15:12,920
and saying we want answers to.

2602
03:15:12,920 --> 03:15:17,920
We're willing to pay as customers for an investigation

2603
03:15:17,920 --> 03:15:22,400
into this work.

2604
03:15:22,400 --> 03:15:25,280
If the US trustee or other government agencies

2605
03:15:25,280 --> 03:15:28,200
want work, it looks like, or want answers,

2606
03:15:28,200 --> 03:15:30,520
it looks like they're getting the participation

2607
03:15:30,520 --> 03:15:32,360
they need from the debtors,

2608
03:15:32,360 --> 03:15:33,800
and I'm sure that will continue.

2609
03:15:33,800 --> 03:15:36,800
So from the perspective of the JPLs,

2610
03:15:38,240 --> 03:15:39,960
whether you look at it mandatory

2611
03:15:39,960 --> 03:15:42,400
or an appropriate investigation,

2612
03:15:42,400 --> 03:15:44,720
I don't think the US trustee has met their burden here

2613
03:15:44,720 --> 03:15:49,720
to really explain why we should all be paying for that.

2614
03:15:50,280 --> 03:15:51,120
Thank you.

2615
03:15:52,040 --> 03:15:52,880
Mr. Key, rebut.

2616
03:15:58,560 --> 03:15:59,400
Is this your code?

2617
03:16:03,120 --> 03:16:05,160
I think that was actually my code.

2618
03:16:05,160 --> 03:16:06,160
Called it, too.

2619
03:16:09,240 --> 03:16:10,080
Thank you, your honor.

2620
03:16:10,080 --> 03:16:11,560
Again, for the record, Julian Sarkis,

2621
03:16:11,560 --> 03:16:13,000
on behalf of the US trustee,

2622
03:16:13,000 --> 03:16:15,000
I have a few points to reply to.

2623
03:16:15,000 --> 03:16:17,760
I think they're all mostly comments

2624
03:16:17,760 --> 03:16:19,840
that the debtors council made.

2625
03:16:20,840 --> 03:16:23,600
So winding back the clock a few minutes.

2626
03:16:24,480 --> 03:16:27,160
So one thing that debtors council indicated

2627
03:16:27,160 --> 03:16:29,880
was that the US trustee had put in no evidence

2628
03:16:30,800 --> 03:16:34,520
to show that we comply with 1104C1.

2629
03:16:34,520 --> 03:16:38,720
So our evidence is the declarations of Mr. Ray.

2630
03:16:38,720 --> 03:16:40,440
Now, we didn't put him on the stand

2631
03:16:40,440 --> 03:16:42,840
and have him go through and make those statements,

2632
03:16:42,840 --> 03:16:44,600
but those are in evidence.

2633
03:16:44,600 --> 03:16:49,280
And paragraph five of his first day declaration says,

2634
03:16:49,280 --> 03:16:51,800
quote, never in my career have I seen

2635
03:16:51,800 --> 03:16:54,440
such a complete failure of corporate controls

2636
03:16:54,440 --> 03:16:56,360
and such a complete absence

2637
03:16:56,360 --> 03:16:59,520
of trustworthy financial information as occurred here.

2638
03:16:59,520 --> 03:17:01,480
From compromised systems integrity,

2639
03:17:01,480 --> 03:17:03,960
faulty regulatory oversight abroad,

2640
03:17:03,960 --> 03:17:05,480
to the concentration of control

2641
03:17:05,480 --> 03:17:07,760
in the hands of a very small group of inexperienced,

2642
03:17:07,760 --> 03:17:10,960
unsophisticated, and potentially compromised individuals,

2643
03:17:10,960 --> 03:17:14,480
this situation is unprecedented, close quote.

2644
03:17:14,480 --> 03:17:17,560
And that's just one piece of what he says

2645
03:17:17,560 --> 03:17:19,560
in this one declaration.

2646
03:17:19,560 --> 03:17:22,400
And it also of course is testimony before Congress.

2647
03:17:22,400 --> 03:17:24,000
So that is all in evidence,

2648
03:17:24,000 --> 03:17:26,840
even if we didn't put on a live witness today.

2649
03:17:30,400 --> 03:17:33,480
And that goes to the best interest of the creditors.

2650
03:17:33,480 --> 03:17:38,480
And again, if one is looking at the as is appropriate,

2651
03:17:38,860 --> 03:17:40,920
the way that certain cases have looked at it

2652
03:17:40,920 --> 03:17:42,920
and your honor has looked at it in the past,

2653
03:17:42,920 --> 03:17:46,000
it also establishes that it is appropriate

2654
03:17:47,280 --> 03:17:48,400
to have an examiner.

2655
03:17:48,400 --> 03:17:50,640
This is not a case where, you know,

2656
03:17:50,640 --> 03:17:54,320
there's not a whip of smoke about wrongdoing.

2657
03:17:54,320 --> 03:17:57,540
There's, as Mr. Ray said, a dumpster fire.

2658
03:17:59,320 --> 03:18:02,280
Debtors' Council also mentioned this report

2659
03:18:02,280 --> 03:18:03,920
that they gave to the creditors

2660
03:18:03,920 --> 03:18:06,600
that was then filed on the court docket,

2661
03:18:06,600 --> 03:18:08,920
which is our joint exhibit nine.

2662
03:18:08,920 --> 03:18:12,680
And yes, they are correct that they did file it

2663
03:18:12,680 --> 03:18:13,520
on the docket.

2664
03:18:13,520 --> 03:18:16,000
It's 20 pages, it's a PowerPoint.

2665
03:18:16,000 --> 03:18:18,680
There is a lot of charts and pictures.

2666
03:18:18,680 --> 03:18:20,560
I'm not saying there's no information in it,

2667
03:18:20,560 --> 03:18:22,520
but it doesn't compare to something

2668
03:18:22,520 --> 03:18:24,080
like an examiner's report.

2669
03:18:27,400 --> 03:18:30,240
So the debtor, both the debtor and I believe

2670
03:18:30,240 --> 03:18:33,480
some other counsel are referring to, you know,

2671
03:18:33,480 --> 03:18:35,400
$5 million worth of debt.

2672
03:18:35,400 --> 03:18:39,320
Any case, you know, the US trustee going to be required

2673
03:18:39,320 --> 03:18:41,400
to file a motion for an examiner in any case

2674
03:18:41,400 --> 03:18:43,240
with $5 million worth of debt.

2675
03:18:44,280 --> 03:18:46,560
It's not just $5 million worth of debt.

2676
03:18:46,560 --> 03:18:48,160
There's a lot of restrictions,

2677
03:18:49,000 --> 03:18:52,960
and that is not every case with $5 million worth of debt.

2678
03:18:52,960 --> 03:18:55,160
But in addition, I just wanna be clear.

2679
03:18:55,160 --> 03:18:58,000
The US trustee is not required to file a motion

2680
03:18:58,000 --> 03:18:59,000
for an examiner.

2681
03:18:59,000 --> 03:19:02,080
It is under 1104E, there are certain situations

2682
03:19:02,080 --> 03:19:04,120
in which the US trustee would be required

2683
03:19:04,120 --> 03:19:06,800
to file a motion for a trustee,

2684
03:19:07,640 --> 03:19:09,800
but there is nothing requiring it.

2685
03:19:09,800 --> 03:19:12,240
The code says we can, we can file a motion,

2686
03:19:12,240 --> 03:19:14,760
but we're not required to.

2687
03:19:14,760 --> 03:19:18,200
And I think that, you know, one could see

2688
03:19:18,200 --> 03:19:20,960
throughout the years, the US trustee is not filing

2689
03:19:20,960 --> 03:19:23,560
examiner motions in every case in which the debt

2690
03:19:23,560 --> 03:19:25,240
is over $5 million.

2691
03:19:26,960 --> 03:19:29,240
Again, any debt or specific debt.

2692
03:19:30,160 --> 03:19:32,920
It is discretionary, the US trustee does,

2693
03:19:32,920 --> 03:19:35,400
when it feels it's the right thing to do.

2694
03:19:43,520 --> 03:19:46,600
One counsel cited to Washington Mutual Transcript

2695
03:19:46,600 --> 03:19:48,040
of page 98.

2696
03:19:49,120 --> 03:19:53,440
In that case, Judge Walrath said that the debtors

2697
03:19:53,440 --> 03:19:57,320
had been quote, investigated to death, close quote,

2698
03:19:57,320 --> 03:19:59,680
and that she could not imagine in any examiner

2699
03:19:59,680 --> 03:20:02,360
finding one unturned stone.

2700
03:20:02,360 --> 03:20:05,400
That's page nine, excuse me, Transcript 98,

2701
03:20:05,400 --> 03:20:07,200
lines 12 to 17.

2702
03:20:07,200 --> 03:20:09,960
That is not where we are in this case.

2703
03:20:09,960 --> 03:20:13,320
The debtors just, you know, filed a few months ago,

2704
03:20:13,320 --> 03:20:16,800
US trustee filed a motion to appoint an examiner

2705
03:20:16,800 --> 03:20:19,600
11 days after the first day hearing,

2706
03:20:19,600 --> 03:20:21,760
20 days after the petition date.

2707
03:20:21,760 --> 03:20:24,320
The debtors, even at this point, are nowhere near

2708
03:20:24,320 --> 03:20:25,960
being investigated to death.

2709
03:20:28,000 --> 03:20:31,760
Also, the debtors counsel and some other counsels

2710
03:20:31,760 --> 03:20:35,880
brought up that there will be a disclosure statement filed

2711
03:20:35,880 --> 03:20:39,400
at some point, possibly, depending on what happens.

2712
03:20:39,400 --> 03:20:43,240
A disclosure statement is not a report

2713
03:20:43,240 --> 03:20:45,000
of an independent examiner.

2714
03:20:45,000 --> 03:20:47,440
I mean, there's no comparison to those two things.

2715
03:20:47,440 --> 03:20:50,200
Clearly, Congress knew that in Chapter 11 cases,

2716
03:20:50,200 --> 03:20:52,360
debtors filed disclosure statements.

2717
03:20:52,360 --> 03:20:56,280
Again, 1104, C doesn't say, unless the debtor has

2718
03:20:56,280 --> 03:20:58,800
or may file a disclosure statement, what it says is,

2719
03:20:58,800 --> 03:21:02,360
after the plan is confirmed, you can't make the motion.

2720
03:21:02,360 --> 03:21:05,520
I mean, well, it wouldn't meet the requirements.

2721
03:21:05,520 --> 03:21:08,320
But there isn't a disclosure statement here,

2722
03:21:08,320 --> 03:21:10,680
and it's irrelevant to 1104C.

2723
03:21:20,120 --> 03:21:24,120
And, Your Honor, there's two other things

2724
03:21:24,120 --> 03:21:25,840
I wanna point out.

2725
03:21:25,840 --> 03:21:29,320
At the end of Mr. Romley's argument,

2726
03:21:29,320 --> 03:21:33,960
he said, the debtor's view is a report is not appropriate.

2727
03:21:33,960 --> 03:21:36,320
We just want that to be very clear

2728
03:21:36,320 --> 03:21:40,200
that the debtors have no intention of filing any report

2729
03:21:40,200 --> 03:21:43,360
as to whatever investigation they may be doing,

2730
03:21:43,360 --> 03:21:47,240
whereas, of course, an examiner is required to do that.

2731
03:21:47,240 --> 03:21:51,160
And finally, Your Honor, it is, U.S. Trustee agrees

2732
03:21:51,160 --> 03:21:54,320
that Your Honor has the discretion to set the scope

2733
03:21:54,320 --> 03:21:57,120
and a budget for any examiner,

2734
03:21:57,120 --> 03:21:59,080
if you were to appoint an examiner.

2735
03:21:59,080 --> 03:22:02,640
But the court should not abuse discretion

2736
03:22:02,640 --> 03:22:06,720
in such a way that it completely eviscerates 1104C2

2737
03:22:06,720 --> 03:22:08,840
as it's been approved by Congress.

2738
03:22:10,960 --> 03:22:12,000
Thank you, Your Honor.

2739
03:22:12,000 --> 03:22:12,840
Thank you.

2740
03:22:14,120 --> 03:22:17,240
All right, I'm gonna take a recess here,

2741
03:22:17,240 --> 03:22:21,000
and I'd like to see counsel for the four parties

2742
03:22:21,000 --> 03:22:24,320
and chambers in the conference room over here,

2743
03:22:24,320 --> 03:22:51,320
and then I'll come back on the record after that.

2744
03:22:54,320 --> 03:22:55,160
Thank you.

2745
03:23:24,320 --> 03:23:25,280
All right.

2746
03:23:25,280 --> 03:23:26,720
Thank you.

2747
03:23:26,720 --> 03:23:28,720
Move it to the other side.

2748
03:23:28,720 --> 03:23:33,260
There's still company.

2749
03:23:33,260 --> 03:23:36,360
And now, we have a recess here.

2750
03:23:36,360 --> 03:23:44,140
These are 정말

2751
03:23:44,140 --> 03:23:46,140
Nazis are present.

2752
03:23:46,140 --> 03:23:48,020
Show us your cards, please.

2753
03:23:48,020 --> 03:23:49,440
Thank you, Your Honor.

2754
03:23:49,440 --> 03:23:50,600
Thank you.

2755
03:23:50,600 --> 03:23:53,680
Now, we have a few more changes of the agenda sorry,

2756
03:23:53,680 --> 03:24:00,680
I think we're missing a few folks still.

2757
03:24:23,680 --> 03:24:33,680
Back on the record, Jermaine?

2758
03:24:33,680 --> 03:24:36,680
Okay. Back on the record.

2759
03:24:36,680 --> 03:24:49,680
So, I requested to see the parties in chambers just to have a brief discussion about whether there was a way to find a path towards a consensual resolution of this motion.

2760
03:24:49,680 --> 03:24:56,680
And the parties have indicated they want to discuss that and come back to me later.

2761
03:24:56,680 --> 03:25:05,680
So, I'm encouraging them to do that. In the meantime, I'm going to take the matter under advisement and we'll wait to hear from the parties.

2762
03:25:05,680 --> 03:25:13,680
I think we have another hearing scheduled on Wednesday, and maybe by then the parties can give me a status report on where this issue is.

2763
03:25:13,680 --> 03:25:22,680
And I've told them to ensure that there's no concern about my being upset about somebody who holds up the process.

2764
03:25:22,680 --> 03:25:28,680
I've told them if anybody objects to resolving it, I will rule on it.

2765
03:25:28,680 --> 03:25:37,680
They should contact chambers, let my judicial assistant or my courtroom deputy know that there has been an objection.

2766
03:25:37,680 --> 03:25:46,680
Better counsel can do that. Don't tell me who's objected. Just tell me there's been an objection and then I will go forward with ruling on the underlying motion.

2767
03:25:46,680 --> 03:25:54,680
So, with that, do we have, I think we have some other housekeeping issues before we adjourn.

2768
03:25:54,680 --> 03:25:57,680
Just to make sure. Retention apps that need to be moved, potentially moved.

2769
03:25:57,680 --> 03:26:07,680
Your Honor, we will, Adam Landis for the record, we will file an amended agenda for the hearing on Wednesday, but we believe it's only one matter that we need to go forward.

2770
03:26:07,680 --> 03:26:10,680
Okay. That's the objection to the 2004 amendment?

2771
03:26:10,680 --> 03:26:11,680
That's correct, Your Honor.

2772
03:26:11,680 --> 03:26:13,680
And that's, I assume there's no witnesses for that?

2773
03:26:13,680 --> 03:26:19,680
There are none. We would ask the court's indulgence to do that virtually.

2774
03:26:19,680 --> 03:26:24,680
Yes, that can be done virtually. There's no witnesses. It can be done virtually.

2775
03:26:24,680 --> 03:26:27,680
Anything else then before we adjourn?

2776
03:26:27,680 --> 03:26:55,680
All right. Well, thank you all very much. I appreciate the arguments. It was an interesting argument. Thank you.