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All right, Bruce, ready to go?

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All right.

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All right.

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Good morning again.

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This is the BlockFi Inc. at Al matters.

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A few housekeeping matters before I start hearing from counsel.

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My chambers has received this morning several inquiries from customers, retail investors, retail customers, creditors.

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Wanting to participate in the hearing and certainly the court is going to make a commitment that voices get heard.

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Everyone's voices get heard today being the initial hearing.

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I'm reluctant to allow through zoom individuals apart from limited counsel to participate.

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Certainly, we're making the live feed available through zooms so everybody can see what's transpiring.

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We want transparency at all costs.

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But it's important in the court's view that all customers and parties and interest and creditors have the ability first to communicate with any committee that's formed and counsel for the committee.

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And have that opportunity before addressing issues with the court.

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Again, the court's going to make a commitment to make sure that any voices are heard.

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Certainly before any final hearing today is primarily interim hearings in order to ensure that the chapter 11 debtors going forward can operate effectively.

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Having said that, if you are in court, you're certainly welcome to be heard.

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If you are in court and have your laptops on, try to make sure that your sound and mic is off and also try to limit your use of the Internet.

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We anticipate because that's the way we work now.

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PowerPoint presentations, which use a lot of our Wi-Fi and we don't need anybody downloading the new Microsoft updates while this is going on.

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If you are appearing or and have been registered to speak through Zoom, please use the raise hand function.

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I will be looking. My law clerks here will be on alert to see and ensure that we reach everybody.

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Apart from that, let's start with introductions.

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Normally in these the larger cases, I ask for appearances initially, so I get to put names and faces together.

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After that, I would just ask for introductions when you're about to speak.

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Mr. Sirota, good morning, Your Honor.

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Good morning, Michael Sirota, Felicia, I can call shots PC as proposed co-counsel the debtors in possession.

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Your Honor, it's our pleasure to be working with the legal equivalent of the East Street band, including Kirkland Nellis, Josh Susberg, Christine Okiki, Haynes and Boone,

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Richard Canowitz, Jordan Chavez, as well as financial advisor extraordinaire Mark Renzi from the Berkeley Research Group.

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On behalf of the company, I'd also like to introduce the court to Zachary Prince, co-founder and CEO for Marquez, founder and co-founder and C.O.O.

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So with those very limited introductions, and after all other appearances are entered, Mr.

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Susberg will take the T box and provide his opening presentation.

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Thank you, Mr.

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Sirota. Welcome all to New Jersey.

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Let me have appearances then on behalf of other counsel who wish to enter appearances.

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Good morning, Your Honor. Jeff Sponder and Lauren Bilsky from the Office of the United States Trustee.

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Good morning.

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Morning, Your Honor. Robert Malone, Gibbons, B.C., appearing on behalf of the Encore Trust Company, the indentured trustee.

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Good morning, Mr. Malone.

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Anyone else? Mr.

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Winston on Zoom.

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Good morning, Your Honor. Eric Winston of Quinn Emmanuel on behalf of West Realm Shires and its affiliated debtors and debtors in the F.T.X.

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Bankers and Cases.

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Great. Thank you.

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Good morning, Mr.

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Winston.

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Anyone else?

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All right. Mr.

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Susberg.

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Thank you, Your Honor.

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Joshua Susberg from Kirkland and Ellis on behalf of the debtors.

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Your Honor, I believe this is your first foray into crypto.

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Yes.

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But I will tell you, and I want you to know we do our homework.

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Fearfully.

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But we'll go forward.

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We went back and we were looking at first day transcripts and back on January 28th, 2021, the octane bankruptcy, which I do like the soap, by the way.

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You made a comment that you were looking forward to your first cash management motion that utilized Bitcoin.

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Today is that day.

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The foresight I had.

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It's amazing.

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I will tell you, it's interesting because at the moment in time when you made that comment, Bitcoin was trading at $33,000 per coin.

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Very different today, but we'll get into that.

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Your Honor, if I may, we have a presentation I'd like to walk through, provide the court with some background and some context.

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Peer to peer electronic payment systems have evolved since 2009 when Satoshi Nakamoto created Bitcoin.

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And in those 13 plus years, some people have lost a tremendous amount of value and others have made a fortune.

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It's funny, I was thinking about it because my father always told me to be in the right place at the right time and to always realize that timing was everything.

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And now when I say that to my three boys and they sit there and they roll their eyes and I know it goes in one ear and out the other, you realize at some moments it actually does make a difference.

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So if we can put the presentation up.

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Technical difficulties kind of reflective of where we're at, right?

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So your.

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Slide to your honor found this interesting.

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Back in 2011, 56 gamers participated for a Starcraft competition, which is a military themed science fiction video game.

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And it was sponsored by a company called BTC Sports Bank.

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And they were one of the sponsors. And as you can see, the first place prize was $500 and it was a total of $1000 in prize money for places one through four.

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But when you got to fifth through eighth place, 25 bitcoins were available.

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Now I went and did the math and at the time Bitcoin was $1.65.

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So the 25 Bitcoin prize total was $41.25.

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Now, if those four participants still held those 25 bitcoins today, the total value of those same 25 coins is $412,345 based on the price of Bitcoin this morning, which was about $16,000.

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Now, if those four players had listened to my father and been in the right place at the right time and held those bitcoins for one decade and sold them and cashed them out on November 12th, 2021, when Bitcoin was at an all time high, $64,400.

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If you finished in fifth through eighth place, you would have had $1.6 million at that moment in time.

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Suffice it to say the volatility is both amazing and tremendously hard to reconcile.

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We want to introduce you to BlockFi today, Your Honor. And the first thing I want to start with, I want to be very clear.

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This is the antithesis of FTX, where FTX is talking about loss of controls and some of the worst governance anyone has seen in their career, including the current CEO who presided over the Enron fraud liquidation.

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This is completely 180 degrees, a different story.

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And we're going to spend some time talking about the two co-founders you met and how they approach life and how they've approached this company.

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But this has been a company that was focused on creating an opportunity for people that otherwise don't have access to the financial system to actually get that opportunity and be able to trade, borrow and participate on an exchange with even information, appropriate governance and appropriate protocols.

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And as Mr. Renzi pointed out in his declaration, paragraph 27, company was founded in 2017 and started with humble beginnings in 2018.

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But between 2019 and March 2022, trading volume grew from $2 million to more than $23 billion.

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Deployable assets grew from $345 million to $14.8 billion.

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Gross loan origination expanded from $687 million to more than $47 billion.

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And all this growth again, and we'll cover it in detail, was accompanied by mature and consistent leadership who focused on hiring the right experts and deploying the right people to make sure all the appropriate protocols and procedures were in place.

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Just want to cover what we're going to go through today.

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Going to do a little bit of a 101 on crypto just to make sure we set the landscape.

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We'll talk about key introductions, an overview of the business, events that led to these cases, the path forward and then we'll get right into the agenda.

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So what is crypto?

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And this slide is complicated and I'm going to bring it all together based on a tutorial CLE class I had for Mr. Renzi last night.

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Crypto is any form of currency that exists digitally or virtually that uses cryptography to secure transactions.

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And cryptography is a technique that uses secure communications to allow only the sender and the recipient of a message to view the contents.

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So this peer to peer electronic cash system is digital and decentralized.

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It can be used to buy and sell things.

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The first ever commercial transaction involving Bitcoin was on May 22nd, 2011.

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A computer programmer in Florida bought two Papa John's pizzas for $10,000 of Bitcoin, 10,000 Bitcoins.

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That is the reason why, Your Honor, that every May 22nd of every year it's called Bitcoin Pizza Day.

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First ever transaction.

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Now, I love pizza.

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I'm sure everyone here loves pizza.

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But $165 million for 20 slices of Papa John's.

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It's a little steep for my taking.

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But the potential of store value has caught the eye of many investors.

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Most people invest in crypto like they would in other assets like stocks and precious metals.

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Transactions, importantly, are stored in electronic checkbook ledger recorded in blocks that are then linked together on a chain.

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And that's referred to as the blockchain.

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Transfers are completed through a computer network that is not relying on any central authority like the government or a bank to uphold and maintain.

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We're going to talk a lot today about stable coins, and we're going to get to that in a little bit.

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Stable coins are cryptocurrencies that are pegged to a reserve asset to maintain price and stability.

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Because these are supposedly less volatile, stable coins are better suited for day to day commerce and routine transactions.

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They can also facilitate trade execution for any purpose with minimum volatility.

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Now, USDC is the USD coin, and that's a good example.

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It's 100 percent backed by cash and short dated US treasuries.

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So it's always one to one.

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And USDC reserves are in custody and management of leading US financial institutions.

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And in fact, each month, Grant Thornton provides third party assurance that adequate reserves are in place to support the coin.

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Now, while USD is stable and effectively regulated, other stable coins have purported to be fully backed by reserves.

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But as your honor is going to hear, they've come under fire for misleading information.

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And it's frankly caused a domino effect that has had contagion throughout the industry.

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And BlockFi was subject to that contagion.

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As far as a few of the key terms, the two main coins, and we outline this in Mr. Renzi's declaration, you'll see at the top Bitcoin and ETH.

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Those are the two most prevalent coins with the most market value.

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Mining, my first foray into crypto, I was literally thinking of people in mines figuring out where you find the coin.

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It's not the case.

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These are complicated systems that are solving mathematical equations and using high powered machinery to solve and

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figure out blocks on the blockchain to actually create the coin.

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And I am told, interestingly enough, that six new bitcoins are mined every 10 minutes.

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And that's through these mathematical equations.

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Crypto loans on the right side before NFTs, you can get cash for up to 50 percent of your assets to unlock liquidity.

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And there are tax benefits associated with that many people benefit from.

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NFTs, non-fungible tokens, this started with digital art, but it has expanded tremendously.

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And now people are tokenizing things and buying real assets.

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Crypto exchange, just think of E-Trade for crypto.

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DeFi and C5 protocols, one is decentralized, one is centralized.

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So if you want to act on a peer to peer basis and really be in control, you're on a DeFi protocol.

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If you want to be on an exchange where you have opportunity to access blockchain without any hassle of doing it on your own,

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you're in a C5 protocol.

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Couple other key terms, your honor, you're going to hear about proof of work and proof of stake.

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Proof of work was the original consensus mechanism utilized in the blockchain network.

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It is extremely energy intensive and the process is resulting in massive costs for minors as it relates to the staking

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and the charting out of the blockchain and the computers that need to solve these equations run again on a massive amount of power.

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Proof of stake is less energy intensive and it requires participants to stake the network's currency with a smart contract, much less costly.

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Two other points to make, your honor, hot wallets and cold wallets.

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I think people have been reading a lot about this.

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FTX transferred a lot of their assets to a cold wallet.

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For cold wallets, think of storage.

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It's a device that you put away and in order to get access, you have to go through a whole rigmarole to plug back in and actually be able to access

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and trade lively and freely, whereas a hot wallet is hot and you're able to plug right in and be able to trade on a daily basis.

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The hot wallets, though, are subject to risk because that's the reason why there was a hacking at FTX.

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And obviously, through the course of the Internet, over the 30 years that it's been in existence, there are always issues with phishing and hacking.

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And that becomes a concern and it's a reason why some people move to cold wallets.

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And then the only other thing I'll mention on this page, your honor, is the future.

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There's a lot of uncertainty.

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I think BlockFi has been at the forefront of working with regulators across the board and we'll talk about that.

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But the entire industry is under a microscope.

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There are congressional hearings in December and there will be discussion about governmental regulation.

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Mr. Sussberg, you're going to make, I hope you can, paper copies of these available for the court?

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We will and we will post the copy if we haven't already on the claims agent website for everyone to see.

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Great. Thank you.

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Thank you, your honor.

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Just a couple anecdotes on this slide.

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We note the active exchanges that are out there.

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These are not all of them, but these are some of the more well-known ones, Binance and Kraken, to name a few.

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We'll spend some time talking about the inactive crypto exchanges.

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Those are ones where the company has entered into an insolvency proceeding and paused the ability for certain investors to withdraw funds.

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And then finally, on the bottom, you'll see the Coinbase stock, which I believe this morning was at $42 a share.

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That's down from nearly $400 that it experienced just eight months ago.

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Your honor, if I may approach, I have a comment.

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Yeah, please.

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Great.

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Thank you.

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Last item on the crypto 101, your honor.

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We bucket these into four different types of coins.

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The payment coins are the ones that people are most familiar with.

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There's Bitcoin.

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There's ETH.

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Utility tokens.

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These are interesting.

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These are issued for a design specific purpose.

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So not necessarily in the day-to-day trading or purchasing of assets for exchanges, but for a specific utility on a specific blockchain.

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Governance tokens allow for decentralization and an ability for customers and consumers to be able to actually vote on how a certain protocol or blockchain will actually work.

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And you can acquire additional governance tokens to be able to have an outside voice.

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And then stable coins we covered and we will cover much more.

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You see on the bottom the USD coin.

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Introductions.

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Mr. Sirota mentioned our two co-founders, Mr. Prince and Ms. Marquez.

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I do want to say about these two.

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I have met them now for two weeks and I've learned a lot about them and I am incredibly impressed by both of them.

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These are self-made individuals.

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They built this company through hard work with their bare hands and they did it the right way.

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And but for some unfortunate circumstances, your honors read the numbers.

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You've heard them from me this morning.

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This company was on a rocket ship.

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Now, Mr. Prince, as far as a fun fact is concerned, was working in ad sales prior to founding the company, actually worked at a company where he turbocharged revenue for ads, sold the company to Google.

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It was one of several exits that he had at companies that he worked at.

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He was a nationally ranked youth tennis player and tells me that he likes all sports with a racket.

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Ms. Marquez, your honor, landed herself on the Forbes 30 under 30 finance list in 2021.

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Started her career in investment banking and then worked as an analyst at Oak Hill and also at Fawn Street.

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A fun fact for Ms. Marquez.

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She's the proud owner of a corgi.

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I was new to crypto this summer and I must admit that I had no idea what a corgi was when she told me she had one and I had to look it up.

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But I'm glad I did.

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It's a beautiful dog.

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Your honor, Mr. Sirota mentioned, just want to echo, companies advised by Kirkland, Haynes & Boone, and Coleshots.

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BRG's our proposed financial advisor and Mr. Renzi's our first data clearance.

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The Moldis team serving as proposed investment banker led by Jared Dermont, Barack Klein, Brian Tischner, Mike Deany, and Mike Medier.

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C Street is our strategic and communications advisor.

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Team is led by John Hennis, who's in the courtroom.

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Jackie Rubin and Luke Wolf, who's also in the courtroom.

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And then Kroll is our proposed noticing and claims agent.

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And you'll hear about the Bermuda proceeding where the company is advised by Walker.

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So Mr. Canowitz will walk through that.

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Business overview.

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Straightforward, your honor, we divide the clients into two sections.

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There's the retail clients where the company maintains easily accessible web and mobile applications to make it simple for individuals and small businesses to access, trade, borrow, and store digital assets.

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And then there's institutional clients.

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And these are hedge funds, market makers, proprietary trading firms, trading desks, miners, exchanges, and corporations with bespoke financing, trading, and treasury solutions in the digital asset space.

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The company, after it was founded by Mr. Prince and Ms. Marquez, and after it got started and hired a few more individuals, it came up with four core values that embody its culture.

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And as I've become adept at understanding what this company does and the people that are there, these are four core values that any institution should think about and should incorporate.

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Pragmatic pioneering, clients, not customers.

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I think that's important in my business as well, so we'll incorporate that at Kirkland.

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Individual efforts, collective success, transparency builds trust.

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And no matter what has happened over the course of the last eight months, which has been bumpy to say the least, and we will cover, these four core principles have always held true and been at the forefront of everything that this management team has done.

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The company's business and its client-centric approach is laid out in detail in Mr. Renzi's declaration, but I did want to spend a minute, Your Honor, because I know it will be a hot topic in the case, talking about the wallet.

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You can fund a wallet by transferring supported digital assets from your personal wallet that exists outside the exchange, or to a wallet address provided by BlockFi Trading, and we'll go over the corporate structure in a moment.

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You can also transfer US dollars to BlockFi's trading account at Silvergate Bank, and you can then use that to purchase digital assets on the exchange.

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The wallet is not interest bearing. The crypto in your wallet is not rehypothecated for lending activities, and there is no commingling.

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So once you open your wallet, you can then decide that you want to direct the transfer of those assets to an interest bearing account to the extent you were able to do so.

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You can buy an exchange on the company's basis, and you can direct transfers back to your personal account, but if it's in your wallet, it's always in your wallet.

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And every day at the end of the day, the company maintains a ledger, and the ledger is balanced with the wallets to make sure that everything is accounted for, and again, there's no commingling, and everything stays in your personal wallet on the BlockFi exchange.

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Now in all the crypto cases that we have been involved, the terms of use are incredibly important, because the terms of use control.

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And you would not be surprised, Your Honor, that from exchange to exchange, the terms of use are not necessarily the same.

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In BlockFi's instance, the BlockFi wallet terms of service, and we cited this in Mr. Renzi's declaration, it says, and I'll quote, the title to the cryptocurrency held in your BlockFi wallet shall at all times remain with you and shall not transfer to BlockFi.

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We intend, Your Honor, as we noted in the pleadings, to quickly file a motion to allow customers to withdraw from their personal wallets to the extent they so wish, because we do not believe that is property of the estate.

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We will of course take that up with the committee once it is formed. I'm sure there will be a diligence exercise, but we believe it's important.

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And Mr. Prince and Ms. Marquez's founding, most important point is doing right by clients, and doing right by clients means following our agreements, and that's what we intend to do in these cases.

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Well, I think it's going to be important, just judging the tenor of the questions that are listed on the Zoom question and answer from a few of the customers, that's certainly their focal point, deservedly so.

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And we are focused on them. And to be clear, Your Honor, these cases in this case are different than typical cases.

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The committee is going to be comprised of retail and institutional clients.

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And so it's important for us to be shoulder to shoulder with that customer committee, that client committee.

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And that's exactly what we intend to do.

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And we want to look at these agreements, and we want to make sure we get people back as much of their value as we possibly can, as quickly as we can.

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As far as institutional investors, Your Honor, I just did want to note, and this goes to governance and protocols and all the things the company did right, it was a rigorous process when an institution came and wanted to participate and lend or borrow.

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And there were AML and KYC and all the various background checks that were necessary in order to get access to the custom trading services and all the benefits and the individually negotiated programs that were done with certain institutional investors.

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Your Honor, I mentioned, and I only will do this briefly, but the protocols that the company had in place and the governance and the risk were incredibly important and top of the market.

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And BlockFi had a specific design approach to risk management.

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They created an audit and risk committee directly responsible for all of the things that could potentially put the company in jeopardy.

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Reviewing policies relating to enterprise risk, considering adequacy and effectiveness and internal controls, and all of these things led to the review and the participation of the transparency reports that the company repeatedly would put out to the marketplace to show liquidity and make sure everyone understood exactly where things stood at the time, not withstanding market conditions.

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As I mentioned, Your Honor, there's four areas here, industry leading compliance. First, company never launched its own token.

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And you're going to understand why that's important and why that has been such a problem for the industry in a few moments.

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Number two, industry leader and transparency, as I mentioned, publishing regularly reports on transparency, liquidity, credit risk.

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Three, and this is pretty unbelievable, 47 licenses issued by 32 states to be a money transmitter and to be able to operate under the auspice of the law.

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There is a lot of chatter in a lot of cases about inappropriately operating without money transmission lines.

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This company did it by the book, 32 different states and the District of Columbia, as well as a license in Bermuda.

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And then finally, this is the only company to have negotiated and settled with the SEC.

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Now, the SEC inquired around the yield program where people could earn interest.

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And the question became, and it's a question that Mr. Gensler has been asking a lot of different people, is this a security?

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And the company went back and forth for a very long time, ultimately settling with the SEC, allowing the program to commit to continue in Bermuda.

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But no new investments were allowed in the United States.

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The company then worked and has been working with the SEC on a prospectus and the S1 to be able to relaunch this product.

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And we will see what happens during the course of these cases as to whether or not we move forward on that basis.

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Slide 18, Your Honor. This is a global presence.

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The company currently has 292 employees and 82 independent contractors located in more than a dozen countries as reflected on the slide.

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I do think it's important to note, however, that two-thirds of the workforce was provided with more notice just prior to the filing of these Chapter 11 cases.

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Now, this will result over time on an annual basis in $34 million of savings for the company.

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So it was a necessary, prudent, but very difficult decision for the company to make.

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I mention this because, Your Honor, the warn and the two-thirds workforce leaving necessitates the company taking immediate action to retain and motivate the remaining employees.

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And that's why we worked incredibly hard together with the company's compensation consultant, Willis Towers Watson, to design a key employee retention plan and a targeted retention plan, all for non-insider employees.

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And we filed that motion, Your Honor, yesterday, Docket 21.

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We're intending to have that heard on the yet-to-be-scheduled second day hearing.

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And that's another item that I am certain we will take up with the client committee, the customer committee, the creditors committee, however we want to define it.

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But I'm sure they're going to want to understand that, and we will walk them through in painstaking detail because there is nothing more important than maintaining the third of the workforce that remains.

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This, Your Honor, is the debtor's corporate structure.

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And you'll notice, somewhat simplistic, very much unlike the corporate structure of FTX.

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This is designed with specific purpose, where there was a business reason or a regulatory reason to form an entity, that entity was formed.

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FTX has 130 entities that they're still trying to figure out the morass and reason for why those entities were filed.

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And I think this goes and demonstrates the logic behind the way in which Mr. Prince and Ms. Marquez founded the company and operated the company.

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BlockFi International, Your Honor, is the Bermuda Incorporated Company.

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And as you have read in Mr. Renzi's declaration, in parallel with these cases, we will be seeking to appoint joint provisional liquidators under applicable law of Bermuda so that we can have the case resolved in front of Your Honor in an appropriate manner without concern for people taking action in Bermuda.

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I will highlight, Your Honor, as we note here, there are certain intercompany transactions between five different entities.

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There's BlockFi Inc., BlockFi Lending, BlockFi International, that's Bermuda.

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And then there's BlockFi Trading and BlockFi Wallet.

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Intercompany balances arise from various transactions and intercompany agreements.

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And these include agreements related to the execution of crypto trades, intercompany services agreements, and capital contribution agreements.

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Now, in order to deal with intercompany issues, we took a look at the governance system and we wanted to make sure that we had best-in-class protection and governance to be able to not only address if they need to be the intercompany claims,

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but also deal with the review and investigation of any claims related to the FTX transaction or any payments to insiders, anything and everything, because we will do it by the book.

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And as you see, Your Honor, we've appointed several independent directors to help carry out this task.

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Scott Vogel and Jennifer Hill at BlockFi Inc., they were formed to a special committee.

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Kirkland will be conducting the investigation on their behalf.

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My colleagues, Mr. Slade and Mr. Howell, two of the finest lawyers I know, are in the room and will be leading the charge.

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Mr. Tetner was appointed to BlockFi Lending.

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Mr. Carr, BlockFi Trading.

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Ms. Corey, BlockFi Wallet.

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And Ms. Frieslie, to BlockFi International.

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And she'll be handling and dealing with the Bermuda issues.

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This is the company's funded debt on the left and then the equity count on the right.

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I will note that the funded debt was all from the FTX transaction in the summer where the company needed liquidity in light of market events to ensure that customer withdrawals were backstopped.

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And I think it's important to note on this slide, Your Honor, the $400 million that was provided was junior in all respects to client obligations.

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It was there as a backstop for the withdrawals that kept coming when Celsius and Voyager and others paused their systems.

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So if people had crypto anywhere else, they got scared and they went and they withdrew their crypto.

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And at no time until just a week ago did BlockFi pause withdrawals.

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And in large part, the liquidity from FTX and the notoriety of FTX at the time certainly helped that.

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On the right side, Your Honor, is the equity interest.

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And I will note that the one special voting stock share is held by FTX that was granted to them in connection with this loan and the option agreement that they entered into to buy the company in 2023.

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Suffice it to say that transaction is not happening, but I wanted to note it so Your Honor was clear as to why there was one share.

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It's just a timeline that I'll briefly walk through, Your Honor, that shows the start to the filing.

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The company started 2017, began raising funds in 2018, and then you see the series of preferreds leading to July, August 2021, a $3.8 billion valuation.

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The SEC settlement was in early 22.

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And in May, Luna collapses, and we'll cover this in a little bit of detail because it's important because the Luna collapse really was the start of everything.

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And as you can see, as you go all the way up, all sorts of different companies were impacted by the Luna collapse, causing withdrawals, causing pauses, causing bankruptcies and contagion throughout the industry.

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Events leading to Chapter 11.

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So overall, beginning in the summer of 2022, there's been an immense pullback in crypto, and many cryptocurrencies experienced significant decline.

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As you can see, Bitcoin lost 67% year to date, going from mid 40,000s all the way down to where it was trading this morning, 16,000 a change.

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And it's gone up and down in relatively modest amounts over the course of the last couple months as it reacts to the market news and the next shoe to drop.

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And while Bitcoin was experiencing this pressure, there was literally a collapse of Luna overnight.

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And we described it in Mr. Renzi's declaration, but I think it's so important to understand that I wanted to spend a minute, if your honor is okay, kind of walking through the background.

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So, Terra is a company you've seen the name.

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It's a blockchain protocol created by Terra Labs.

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And Terra Labs created two points.

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They created Terra USD, which we call UST.

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That's a stable coin.

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And they created Luna.

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The yield on staking UST was enormous.

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Those who owned and staked their UST earned 19.5% interest.

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So at a time where you could earn 1% interest in the bank, if you had this coin and staked it, 19.5% interest.

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Nearly 75% of UST was staked.

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And staking again is a fancy way of saying you agree to lock up your crypto for an extended period of time.

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Now UST is the riskiest version of stable coin.

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I talked earlier about USDC that's backed by government securities.

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So there's very little opportunity for that to go anything but one to one.

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But UST is an algorithmic stable coin or a stable coin that's backed by another coin.

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And here UST was backed by Luna.

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A functioning algorithmic stable coin is literally the holy grail of crypto because it minimizes volatility without reference to physical assets or currency.

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UST, interestingly enough, was also backed by the Luna Foundation Guard,

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which was a $3 billion fund that was created to defend UST if a DPEG occurred.

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Now Luna had a market cap.

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You see it on the slide, $18 billion before it crashed.

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The problem, and no one knew this, was that UST was deeply undercollateralized.

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So UST maintained its PEG to Luna via an arbitrage mechanism and relied on traders to re-PEG if the prices fell one way or the other.

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So one UST was always exchangeable for $1 of Luna and vice versa.

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So when UST was exchanged for Luna, the UST was converted into Luna.

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When Luna was exchanged for UST, the Luna was converted into UST.

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So theoretically, it's supposed to mean that you're always at $1.

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If UST traded above $1, traders could buy $1 worth the Luna for $1 and exchange the Luna for one UST worth more than $1 and pocket the difference.

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That's the arbitrage.

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If it traded below $1, the traders could buy one UST for less than $1 and exchange it for $1 worth the Luna and pocket that difference.

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The Luna Foundation's $3 billion in assets was supposed to facilitate that re-PEG when one went below or one went above.

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And it traded freely, mostly on sentiment regarding the TerraSystems ecosystem.

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And it traded around $80 per coin.

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Now on May 7, 2022, $2 billion of UST was unstaked and sold.

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The unstaking was done in a limited number of large transactions, suggesting that the collapse of this coin may have been malicious.

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But the massive selling caused pressure on UST and it slid all the way to 91 cents.

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Arbitrage traders stepped in to re-PEG Luna, but they realized that as the system was set up, you could only get $100 million of UST converted into Luna in a day.

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And that just simply wasn't enough.

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That amount was completely insufficient to re-PEG the coin.

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And when UST failed to re-PEG, investors panicked and sold even more.

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Additional selling pressure forced the price of UST even lower.

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And it created a death spiral.

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UST dropped in price, but arbitrage traders continued to attempt to re-PEG UST and capture the arbitrage.

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That created an oversupply of Luna, which dropped in price as well.

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And when people tried to convert their Luna into UST, created more UST, which caused that price to drop even more.

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Eventually, both these currencies that were trading at $18 billion a week before were down to a penny.

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And the Luna Foundation Guard burned through all $3 billion of the funds that it set aside to re-PEG.

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And that happened literally in one week.

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The next shoe to drop, and I appreciate your honor indulging me because I think this is a building block, was Three Arrows Capital.

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And reportedly due in large part to a massive staked position in Luna where they were unable to get out of it because it had already been committed and staked,

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they end up getting into a British Virgin Islands liquidation proceeding.

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Their founders were nowhere to be found. They had gone to different countries.

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This is still unwinding as we speak.

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But this was a massive blow to the industry because Three Arrows was somebody that everybody in crypto wanted to do business with.

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And everybody wanted to be in trading and participation with Three Arrows Capital.

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And the fall of Three Arrows was so swift.

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Next was Celsius and Voyager.

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And shortly after the Three Arrows collapse, both Celsius and Voyager's first pause withdrawals and then both commenced their respective Chapter 11 proceedings in the Southern District of New York, each within 10 days of each other.

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The impact on BlockFi was tremendous.

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Three Arrows Capital was, if not the single largest borrower client to BlockFi, the second largest borrower client.

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And its collapse led to material losses.

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But they were mitigated by BlockFi's credit policies.

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And there was security with respect to those transactions that led to those mitigation efforts.

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There are many investors and participants with Three Arrows Capital that lent on an unsecured basis and are now formed on the Creditors Committee in the British Virgin Islands.

388
00:44:09,200 --> 00:44:21,200
But all of this, the collapse of UST, along with the halting of withdrawals at Celsius and Voyager, as I mentioned, Your Honor, when those platforms paused withdrawals, everybody on every exchange got nervous.

389
00:44:21,200 --> 00:44:32,200
And you had to have significant capital to be able to manage through all of your withdrawals, which as you see on the right-hand slide, this company was able to do.

390
00:44:32,200 --> 00:44:46,200
But in order to ensure that the company could withstand the storm and satisfy its clients' withdrawal demands, it prudently sought additional liquidity to protect its clients' accounts into the indefinite future.

391
00:44:46,200 --> 00:44:52,200
And the company first looked at equity financing, which obviously was not available in the marketplace at this time.

392
00:44:52,200 --> 00:45:04,200
And then it turned to raising debt capital and spoke with many different parties and ultimately landed on FTX. And that's when they came on the scene.

393
00:45:04,200 --> 00:45:11,200
It was lauded as a phenomenal transaction, precedent-setting transaction.

394
00:45:11,200 --> 00:45:19,200
Sam Bankman Fried was the savior of Crypto and wanted to be there to make sure that the industry was stabilized.

395
00:45:19,200 --> 00:45:32,200
They offered, again, the backdrop client withdrawals, $400 million notional amount, $275 million of which was drawn, and then the option that we talked about to acquire the company as early as July 2023.

396
00:45:32,200 --> 00:45:40,200
I will note, Your Honor, that at the time, 89% blocked by shareholders voted in favor of the transaction.

397
00:45:40,200 --> 00:45:49,200
I don't think it's lost on anyone that this was a company that just a year before had been valued at $3.8 billion.

398
00:45:49,200 --> 00:46:01,200
And so fast forward in just this short time, and they're getting an option to buy the company, which resulted in hundreds of millions of dollars of equity value, at least on paper, being wiped out overnight.

399
00:46:01,200 --> 00:46:08,200
And the management team and the co-founders are still here because they're always focused on doing the right thing by their clients.

400
00:46:08,200 --> 00:46:18,200
And to their credit and the rest of the teams, they accepted this offer because it was the right thing to do to protect their clients and ensure they had funds to deal with withdrawals.

401
00:46:18,200 --> 00:46:27,200
The funds that were provided by FTX were in, it was cryptocurrency, correct? Or it wasn't fiat?

402
00:46:27,200 --> 00:46:29,200
It was cryptocurrency.

403
00:46:29,200 --> 00:46:31,200
And stablecoin?

404
00:46:31,200 --> 00:46:32,200
Yes.

405
00:46:32,200 --> 00:46:33,200
Primarily?

406
00:46:33,200 --> 00:46:34,200
Yes.

407
00:46:34,200 --> 00:46:35,200
Okay.

408
00:46:35,200 --> 00:46:46,200
I will also note that 20% of the workforce was severed at the time back when the transaction was entered into.

409
00:46:46,200 --> 00:46:57,200
In addition, there are other arrangements that exist between block by, I stand corrected, Your Honor, it was just USDC, so just stablecoin.

410
00:46:57,200 --> 00:46:58,200
That's what I thought I read.

411
00:46:58,200 --> 00:46:59,200
Okay.

412
00:46:59,200 --> 00:47:00,200
Thank you.

413
00:47:00,200 --> 00:47:02,200
Thank you.

414
00:47:02,200 --> 00:47:13,200
In addition to the loan arrangement and the $275 million that was drawn, BlockFi acted as a lender to Alameda, which is an FTX trading subsidiary.

415
00:47:13,200 --> 00:47:17,200
And they also had crypto on the FTX platform.

416
00:47:17,200 --> 00:47:32,200
Specifically, BlockFi had $671 million in outstanding loans that are defaulted to Alameda and $355 million in digital assets that unfortunately are now frozen on the FTX platform.

417
00:47:32,200 --> 00:47:38,200
And Mr. Kanowitz will be leading the charge to collect those assets from the FTX estate.

418
00:47:38,200 --> 00:47:44,200
I think that process is going to play out over a long period of time if I had to make a bet.

419
00:47:44,200 --> 00:47:48,200
And that's the basis for the adversary proceeding that was filed?

420
00:47:48,200 --> 00:47:49,200
Separate and apart.

421
00:47:49,200 --> 00:47:50,200
Separate and apart.

422
00:47:50,200 --> 00:48:05,200
The adversary proceeding relates to the collateral that was pledged that we believe is rightfully ours that's outside of the bankruptcy estate.

423
00:48:05,200 --> 00:48:09,200
So, Your Honor, I'll go through this quickly because I know you're familiar.

424
00:48:09,200 --> 00:48:24,200
Back on November 2nd, there was a report that was released and it indicated that of the $14.6 billion in assets that FTX had on its balance sheet, $5.8 billion of which was its native token, FTT.

425
00:48:24,200 --> 00:48:32,200
And that report initiated a debt spiral for FTT, very similar to the Luna and the Terra.

426
00:48:32,200 --> 00:48:37,200
And as you can see, Binance was a very large holder of that token.

427
00:48:37,200 --> 00:48:46,200
And there are a series of tweets that are out there from the CEO of Binance saying, I've learned from Luna, I am selling my entire stake of FTT.

428
00:48:46,200 --> 00:48:54,200
And that, of course, caused a run in the bank and the price of FTT to drop tremendously.

429
00:48:54,200 --> 00:49:01,200
As you can see from the highlights, the crypto world is rocked as the world's largest exchange seeks to rescue rival.

430
00:49:01,200 --> 00:49:03,200
That was short-lived.

431
00:49:03,200 --> 00:49:23,200
Binance not only sold all of its FTT and caused a run on the token, but then turned around and signed a non-binding letter of intent to acquire FTX, only to one day later say that the diligence that they reviewed could not allow them to participate in any type of transaction with this company.

432
00:49:23,200 --> 00:49:26,200
And so the debt spiral continued.

433
00:49:26,200 --> 00:49:37,200
Very soon thereafter, FTX filed for Chapter 11, Sam Bankroom Fried resigned. It's been reported that there are over one million creditors in the bankruptcy filing.

434
00:49:37,200 --> 00:49:43,200
And it was reported that there was a substantial amount of crypto that was stolen even after the Chapter 11 filing.

435
00:49:43,200 --> 00:49:52,200
And that's why, Your Honor, they moved from hot wallets to cold storage to cold wallets, all of which has led to comments coming out of the bankruptcy.

436
00:49:52,200 --> 00:50:06,200
And we highlighted this one from John Ray, who's the new CEO. Never in my career have I seen such a complete failure of corporate controls and a complete absent of trustworthy financial information as occurred here.

437
00:50:06,200 --> 00:50:21,200
And again, this is the gentleman that oversaw the Enron liquidation after enormous fraud and balance sheet financing that resulted in many, many years of unwinding.

438
00:50:21,200 --> 00:50:30,200
This was the statement that BlockFi put out in response to FTX. And I think it's important to note, Your Honor, the company was shocked and dismayed.

439
00:50:30,200 --> 00:50:38,200
We had no idea. The company did diligence on FTX. They did diligence on Alameda. They got copies of unaudited financials.

440
00:50:38,200 --> 00:50:48,200
They were told there were unencumbered assets. They were told there was value through and through. FTX was a company that provided a lifeline to BlockFi.

441
00:50:48,200 --> 00:51:01,200
They went and sought to acquire Voyager. And they were doing this all on a potentially fraudulent basis, without significant controls, with the worst governance controls that anyone has ever seen in their corporate existence.

442
00:51:01,200 --> 00:51:13,200
And as a result, in light of the defaulted $680 million on the loans to Alameda, the fact that we made a borrowing request for the remaining money, an additional $125, and that was denied.

443
00:51:13,200 --> 00:51:28,200
BlockFi needed to pause platform activity consistent with its customer agreements and said to customers that they would be back clients, excuse me, and communicate as soon as they could.

444
00:51:28,200 --> 00:51:41,200
So the path forward, Your Honor. As you will see from yesterday, we did file a Chapter 11 plan. I am not moving forward today on confirmation, Your Honor, because there were many blanks in that plan.

445
00:51:41,200 --> 00:51:44,200
We're not Texas. Go ahead.

446
00:51:44,200 --> 00:51:58,200
Touche. That plan is important to us because I think it's consistent with this company's vision that it's all about clients. And we want to move as fast as we possibly can to get them back value.

447
00:51:58,200 --> 00:52:11,200
And if there's a standalone reorganization that the clients want to support, we'll move that forward. If there's a third party alternative that Mollis and the management team can find for some or all the assets, we will move that forward.

448
00:52:11,200 --> 00:52:23,200
But this is a demonstration, I think more than anything, to our clients that we will fight to maximize value. And we will not stop at any point along the way. And it will be a 24-7 endeavor.

449
00:52:23,200 --> 00:52:38,200
And we just want to make sure that all the retail holders, the institutions, everybody out there understands and appreciates that. That's our job. And that's what Mr. Prince and Ms. Marquez have been committed to and are committed to doing.

450
00:52:38,200 --> 00:52:51,200
I did want to note this, and I think this is important for all the clients that are out there. To the extent you have questions, to the extent you have concerns, obviously the respective legal teams, you could find our information on the pleadings.

451
00:52:51,200 --> 00:53:04,200
But the best way to articulate a question or concern is to send an email to BlockFiInfo, two I's, the BlockFi I and the Info I, at ra.croll.com.

452
00:53:04,200 --> 00:53:11,200
And again, Your Honor, to the point made earlier, we will post a copy of this on Croll's website so everyone has access to the presentation.

453
00:53:11,200 --> 00:53:22,200
Thank you. Actually, I think that's incredibly important. You don't have the benefit I do of saying certain questions that are being asked remotely. They're important questions. They're significant questions.

454
00:53:22,200 --> 00:53:32,200
I will say to those who are asking those questions, the clients, not all parts of the equation are here today in court. We don't have a committee.

455
00:53:32,200 --> 00:53:45,200
We don't have a client committee or a customer or a credit committee, as pointed out, which works to further their interests. So we can't have that discussion and answer these inquiries today.

456
00:53:45,200 --> 00:53:53,200
But I think it's important. I thank you for providing access where they can direct their concerns and start the process.

457
00:53:53,200 --> 00:54:05,200
Absolutely, Your Honor. Thank you. Your Honor, unless you have questions for me, we're going to leave the agenda here and the order in which we'd like to proceed. And I'm going to cede the podium to my partner, Ms. Okike.

458
00:54:05,200 --> 00:54:06,200
That's great. Thank you.

459
00:54:06,200 --> 00:54:17,200
Thank you.

460
00:54:17,200 --> 00:54:18,200
Good afternoon, Your Honor.

461
00:54:18,200 --> 00:54:19,200
Good afternoon.

462
00:54:19,200 --> 00:54:26,200
I'm Ms. Okike of Brooklyn and Ellis, proposed co-council to the debtors. Your Honor, we're going to proceed in the order of the agenda.

463
00:54:26,200 --> 00:54:32,200
The first item on the agenda is the debtors joint administration motion filed at docket number two.

464
00:54:32,200 --> 00:54:45,200
There are nine debtors here, and we seek to have the Chapter 11 cases of the debtors jointly consolidated for procedural and administrative purposes only under the lead case in ReBlockFi Inc.

465
00:54:45,200 --> 00:54:55,200
Your Honor, if I may approach, I have a revised proposed order which incorporates certain comments from the U.S. Trustee.

466
00:54:55,200 --> 00:55:05,200
That would be great. Thank you.

467
00:55:05,200 --> 00:55:19,200
Your Honor, so this incorporates a couple of comments from the U.S. Trustee. We've deleted the proofs of claim, so we'll address proofs of claim and how they should be filed in connection with the bar date motion, which we filed at a later date.

468
00:55:19,200 --> 00:55:26,200
And then we've also noted we've deleted that we will file consolidated reports. We'll file those on an individual debtor basis.

469
00:55:26,200 --> 00:55:32,200
Those are the only changes to the order, Your Honor. We have not received any other formal or informal comments.

470
00:55:32,200 --> 00:55:54,200
I apologize. One more addition was a request by the SEC with respect to in paragraph 12 that nothing in this order – and they've requested that this be added actually to all the orders – constitutes a finding under the federal securities laws as to whether crypto tokens or transactions involving crypto tokens are securities.

471
00:55:54,200 --> 00:55:56,200
And we're fine with that reservation of language.

472
00:55:56,200 --> 00:55:59,200
As I am at this juncture. Fair enough.

473
00:55:59,200 --> 00:56:17,200
Mr. Sponder, since I'm sure we're going to have a number of these, I'll look to you and assume you're in agreement with the presentation of a consensus, unless you tell me otherwise or wish to make a statement.

474
00:56:17,200 --> 00:56:27,200
That's fine, Your Honor, as well as Ms. Bilski. We both worked on these. I think with respect to this order, as long as those changes were made, the United States Trustee is fine with the order.

475
00:56:27,200 --> 00:56:31,200
Great. Thank you.

476
00:56:31,200 --> 00:56:35,200
I'm going to ask to adjust the order on just one matter.

477
00:56:35,200 --> 00:56:36,200
Sure.

478
00:56:36,200 --> 00:56:47,200
And that would be if we can turn to the case management procedures motion, only because many of the motions talk about subsequent hearings.

479
00:56:47,200 --> 00:56:48,200
Understood, Your Honor.

480
00:56:48,200 --> 00:56:50,200
And I want to get a sense of when we're going to have those hearings.

481
00:56:50,200 --> 00:56:53,200
Understood.

482
00:56:53,200 --> 00:56:54,200
If I haven't –

483
00:56:54,200 --> 00:56:55,200
Yeah, no.

484
00:56:55,200 --> 00:56:58,200
But if I will do –

485
00:56:58,200 --> 00:57:00,200
Because we're handling different orders.

486
00:57:00,200 --> 00:57:01,200
Here I go, screwing it up for you.

487
00:57:01,200 --> 00:57:08,200
But we'll do it together. Okay, great.

488
00:57:08,200 --> 00:57:25,200
And, Bruce, the first motion was number 13 on our calendar. We have our own calendar, so I'm just letting him know how to mark it.

489
00:57:25,200 --> 00:57:36,200
Let's see.

490
00:57:36,200 --> 00:57:47,200
Let's see which one on the agenda.

491
00:57:47,200 --> 00:57:56,200
And, Bruce, what we're touching on now is number 8 on our calendar.

492
00:57:56,200 --> 00:58:03,200
Oh, no, not number 8.

493
00:58:03,200 --> 00:58:07,200
Number 11, sorry.

494
00:58:07,200 --> 00:58:14,200
But the proposed case management procedures motion. Please continue. Thank you.

495
00:58:14,200 --> 00:58:19,200
Yes, Your Honor. Did you want us to make an adjustment to the case management motion?

496
00:58:19,200 --> 00:58:21,200
I just wanted to review it now.

497
00:58:21,200 --> 00:58:22,200
Oh, okay, got it.

498
00:58:22,200 --> 00:58:27,200
That's all I – I'm sorry. I just wanted to address that so we could talk about scheduling.

499
00:58:27,200 --> 00:58:28,200
Understood, yes.

500
00:58:28,200 --> 00:58:29,200
For the other –

501
00:58:29,200 --> 00:58:33,200
I guess Chavez is going to handle that much.

502
00:58:33,200 --> 00:58:40,200
Your Honor, before we proceed, it probably makes sense at this point since we're going to the substantive relief to enter the declaration, if you wouldn't mind, the first day declaration.

503
00:58:40,200 --> 00:58:41,200
That's fine.

504
00:58:41,200 --> 00:58:50,200
So we filed the declaration of Mr. Mark Renzi, managing director and head of corporate finance financial institutions group for Berkeley research group.

505
00:58:50,200 --> 00:58:59,200
It was filed at docket number 17. Mr. Renzi's declaration has been submitted in support of the Chapter 11 petitions and all of the first day relief.

506
00:58:59,200 --> 00:59:06,200
He's in the courtroom today if any party would like to cross-examine him. Otherwise, we would request admittance of his declaration.

507
00:59:06,200 --> 00:59:17,200
Thank you. Any counsel wish to cross-examine the declarant?

508
00:59:17,200 --> 00:59:23,200
No hands raised on Zoom, so we're good to go. All right, thank you.

509
00:59:23,200 --> 00:59:33,200
We'll mark that as D1.

510
00:59:33,200 --> 00:59:34,200
Good afternoon, Your Honor.

511
00:59:34,200 --> 00:59:35,200
Good afternoon.

512
00:59:35,200 --> 00:59:38,200
Jordan Chavez with Haynes and Boone on behalf of the debtors.

513
00:59:38,200 --> 00:59:49,200
We'll take up the case management order at your honor's request. That's agenda item number six. It's also docket number three and tab number two in the hard copy binder.

514
00:59:49,200 --> 01:00:00,200
We've been negotiating with the U.S. trustee on several changes to the case management procedures, which are proposed to your honor to make this complex case run smoothly.

515
01:00:00,200 --> 01:00:08,200
And the U.S. trustee has made several helpful suggestions, which we've agreed to all of them, but we were making these changes right up until the moment the hearing started.

516
01:00:08,200 --> 01:00:14,200
So I think that Mr. Sponger in the trustee's office would probably like to review this order before it gets entered.

517
01:00:14,200 --> 01:00:20,200
I have a hard copy of a clean and red line if you would like me to approach and give you those.

518
01:00:20,200 --> 01:00:24,200
That's fine. You can hand it up. Thank you.

519
01:00:24,200 --> 01:00:38,200
With all the orders, we'll wait and make sure the final versions before we put them on the docket.

520
01:00:38,200 --> 01:00:42,200
You wish to highlight the changes?

521
01:00:42,200 --> 01:00:51,200
The red line highlights all the changes. Yes. And so with respect to joint administration, you mentioned wanting to talk about I'm guessing you mean the omnibus hearing dates.

522
01:00:51,200 --> 01:00:52,200
Omnibus dates, yes.

523
01:00:52,200 --> 01:00:54,200
Are you wanting to set those dates right now?

524
01:00:54,200 --> 01:00:57,200
Well, let's talk about that.

525
01:00:57,200 --> 01:01:13,200
I'm trying to find days of the week that I can offer you all time that I think is going to be required and balance it with the other cases, which gets difficult.

526
01:01:13,200 --> 01:01:20,200
It works best for the court to have it on Mondays if that works for you all.

527
01:01:20,200 --> 01:01:27,200
And then if we try not to do it on Mondays.

528
01:01:27,200 --> 01:01:33,200
All right, we'll do Fridays. Mondays, that works well.

529
01:01:33,200 --> 01:01:47,200
So that puts us with the motion schedule of 21 days and then seven before and then replies are the day before.

530
01:01:47,200 --> 01:01:52,200
Always a thrill for us in chambers to get the reply the day before.

531
01:01:52,200 --> 01:01:56,200
We're fine with that, but that puts it on the Friday.

532
01:01:56,200 --> 01:02:03,200
Sure. So, well, unless you have an alternative, I would just ask that it be Friday by noon.

533
01:02:03,200 --> 01:02:08,200
That way somebody can send it and we can ruin all our weekends.

534
01:02:08,200 --> 01:02:11,200
So that was actually a change that the trustee's office already requested.

535
01:02:11,200 --> 01:02:15,200
And we've agreed to just make the reply deadline four days in advance of the hearings.

536
01:02:15,200 --> 01:02:18,200
Even better.

537
01:02:18,200 --> 01:02:22,200
So that should take care of that issue.

538
01:02:22,200 --> 01:02:27,200
Mr. Spada is working well with the clerks. He's currying favor with the clerks.

539
01:02:27,200 --> 01:02:34,200
One thing that it does provide, Your Honor, though, the new language is that if you were to set a different reply date, for example,

540
01:02:34,200 --> 01:02:37,200
if we had something granted on an emergency or expedited basis,

541
01:02:37,200 --> 01:02:45,200
that that expedited order or new deadline would apply to that specific motion or contested matter.

542
01:02:45,200 --> 01:02:47,200
If that's amenable to your honor, we'll keep that change.

543
01:02:47,200 --> 01:02:53,200
That's fine. All right. Thank you, Mr. Sponda.

544
01:02:53,200 --> 01:02:57,200
Yeah, so I think the consensus with the co-counsel is that Mondays work.

545
01:02:57,200 --> 01:03:06,200
We can certainly contact the clerk's office to get specific dates and times that work for your honor and enter those into further orders.

546
01:03:06,200 --> 01:03:13,200
Do we want to set the next one, which because many of these motions are looking for final hearings,

547
01:03:13,200 --> 01:03:19,200
I would think in December if we're looking for roughly 21 days or do you want to move into January?

548
01:03:19,200 --> 01:03:24,200
We're fine with January. Around the ninth would work, I think, Your Honor.

549
01:03:24,200 --> 01:03:33,200
We know the holidays are coming up and that there are some times blocked out by the court because of that, which we completely understand.

550
01:03:33,200 --> 01:03:36,200
January 9th works for me. Mr. Sponda, makes sense to you?

551
01:03:36,200 --> 01:03:40,200
Yes, Your Honor.

552
01:03:40,200 --> 01:03:43,200
Then that first date would be January 9th.

553
01:03:43,200 --> 01:03:47,200
Needless to say, if there's an emergent matter, the court will make itself available.

554
01:03:47,200 --> 01:03:50,200
We'll get you all in before that period.

555
01:03:50,200 --> 01:03:52,200
Switch at the third time, Judge.

556
01:03:52,200 --> 01:03:57,200
We'll start at 10 o'clock.

557
01:03:57,200 --> 01:04:04,200
It has nothing to do with the fact that my club is closed on Mondays.

558
01:04:04,200 --> 01:04:11,200
Well, with that, Your Honor, if you have any other questions about the case management procedures, the only comments we did receive were from the trustee's office.

559
01:04:11,200 --> 01:04:19,200
So we would ask that the court approve those procedures and enter that order after their office has a chance to review all the language that we've added.

560
01:04:19,200 --> 01:04:20,200
Mr. Sponda.

561
01:04:20,200 --> 01:04:24,200
Thank you, Your Honor. It's up to you if you want me to go over what's been changed.

562
01:04:24,200 --> 01:04:27,200
You do have the red line if you want to look at.

563
01:04:27,200 --> 01:04:30,200
Basically, there were several.

564
01:04:30,200 --> 01:04:43,200
We wanted to get rid of a couple of things such as stay relief motions, ex parte motions, settlements, the language to remove, service issues.

565
01:04:43,200 --> 01:04:47,200
We also, you know, I concurred with the objections and those deadlines.

566
01:04:47,200 --> 01:04:56,200
So as long as that's what was I haven't had a chance to look at the revisions yet, but as long as that was there, I think I know we are.

567
01:04:56,200 --> 01:05:04,200
Well, let's be clear. We'll wait until tomorrow morning to enter any of the orders and then these order today will so order from the bench.

568
01:05:04,200 --> 01:05:06,200
So it's effective that way.

569
01:05:06,200 --> 01:05:12,200
Everybody has an opportunity to look at the final language and the law will be entered in the morning.

570
01:05:12,200 --> 01:05:18,200
I'll also take a look again at the red line versions just to ensure that I don't have any questions.

571
01:05:18,200 --> 01:05:21,200
And if I do, I'll reach out for the parties.

572
01:05:21,200 --> 01:05:27,200
Your Honor, I think that will work with except for with respect to maybe cash management and wages, which will be taken up shortly.

573
01:05:27,200 --> 01:05:29,200
And we are resolved with the trustee on those issues.

574
01:05:29,200 --> 01:05:31,200
And there weren't other objections.

575
01:05:31,200 --> 01:05:33,200
That's fine. We can address those.

576
01:05:33,200 --> 01:05:38,200
Thank you, Your Honor. In terms of moving forward, would you like us to go back to our agenda now?

577
01:05:38,200 --> 01:05:40,200
I won't disrupt you. Go back to what's working for you.

578
01:05:40,200 --> 01:05:52,200
I will see the podium and what I'll do is that's fine. Thank you.

579
01:05:52,200 --> 01:05:53,200
Thank you, Your Honor.

580
01:05:53,200 --> 01:05:56,200
Christina, Kika, Brooklyn, and Ellis on behalf of the debtors, Your Honor.

581
01:05:56,200 --> 01:06:02,200
The next item on the agenda is the debtors cash management motion filed at docket number seven.

582
01:06:02,200 --> 01:06:11,200
Your Honor, by way of background, the debtors utilize a complex cash and cryptocurrency management system in the ordinary course of business,

583
01:06:11,200 --> 01:06:19,200
which is comparable to the systems used by similar cryptocurrency companies to manage the cash and digital assets on their platform.

584
01:06:19,200 --> 01:06:30,200
The cash management system is critical to the debtors business as it streamlines the debtors ability to collect, transfer and disperse cash and digital assets

585
01:06:30,200 --> 01:06:35,200
and to facilitate cash and digital asset monitoring, forecasting and reporting.

586
01:06:35,200 --> 01:06:43,200
Your Honor, as Mr. Sussberg mentioned, on November 10th, all trading and lending activities on the debtors platform were halted.

587
01:06:43,200 --> 01:06:50,200
And so while the motion describes in some detail the movement of cash and digital assets through the cash management system,

588
01:06:50,200 --> 01:06:58,200
the debtors are only seeking to maintain the system in place and not to engage in any new lending or trading at this time.

589
01:06:58,200 --> 01:07:05,200
Your Honor, the cash management system can be thought of as two systems that interact together in the ordinary course of business.

590
01:07:05,200 --> 01:07:13,200
The first system consists of the debtors operational accounts, and the second system consists of the debtors administrative accounts.

591
01:07:13,200 --> 01:07:20,200
The debtors and their non-debtor affiliates maintain a total of 43 bank accounts at five banks,

592
01:07:20,200 --> 01:07:25,200
and a list of the bank accounts is included on exhibit two to the proposed order.

593
01:07:25,200 --> 01:07:34,200
Your Honor, as of the petition date, the debtors have approximately $257 million in unrestricted cash on hand.

594
01:07:34,200 --> 01:07:38,200
Your Honor, I'm just going to walk through kind of the operational side and the administrative side,

595
01:07:38,200 --> 01:07:42,200
because I think it's helpful to provide context as to how the system works.

596
01:07:42,200 --> 01:07:51,200
So, Your Honor, the debtors provide retail customers and institutional investors with the ability to borrow cash or digital assets

597
01:07:51,200 --> 01:07:56,200
and the ability to buy and sell digital assets on their platform.

598
01:07:56,200 --> 01:08:04,200
Debtors BlockFi Trading LLC and BlockFi International Limited maintain five active bank accounts

599
01:08:04,200 --> 01:08:09,200
that are used to facilitate trading activity through the debtors mobile application.

600
01:08:09,200 --> 01:08:17,200
The debtors also maintain three ACH trading accounts to facilitate the deposit and withdrawal of funds

601
01:08:17,200 --> 01:08:23,200
in connection with the debtors trading activity and to protect against ACH chargebacks.

602
01:08:23,200 --> 01:08:27,200
When a customer initiates a transaction through the BlockFi app,

603
01:08:27,200 --> 01:08:34,200
it can elect to trade either by using digital assets that are transferred to or maintained in the BlockFi wallet,

604
01:08:34,200 --> 01:08:39,200
which Mr. Susberg mentioned, or by depositing cash to the BlockFi app.

605
01:08:39,200 --> 01:08:45,200
International customers may also elect to a trade through the BlockFi interest account.

606
01:08:45,200 --> 01:08:52,200
If cash is transferred to fund a trade, the customer is credited with stable coin in exchange for the cash,

607
01:08:52,200 --> 01:08:57,200
and the cash is deposited in BlockFi Trading LLC's account at Silvergate.

608
01:08:57,200 --> 01:09:05,200
That stable coin may be converted to other digital assets if requested by the customer at the time of initiating the transaction.

609
01:09:05,200 --> 01:09:09,200
And whether it is or is not transferred into other assets,

610
01:09:09,200 --> 01:09:15,200
the coin is transferred to a custodian account of BlockFi Trading LLC.

611
01:09:15,200 --> 01:09:21,200
If the customer chooses to trade on the platform using digital assets as opposed to cash,

612
01:09:21,200 --> 01:09:27,200
those digital assets are transferred to a custodian account of BlockFi Trading LLC

613
01:09:27,200 --> 01:09:32,200
and then transferred to a custodian account of BlockFi Wallet if it's a U.S. transaction

614
01:09:32,200 --> 01:09:37,200
or BlockFi International if it's an international transaction.

615
01:09:37,200 --> 01:09:43,200
In addition to trading, the debtors also engage in lending, both retail and institutional.

616
01:09:43,200 --> 01:09:49,200
Debtors BlockFi Lending LLC and BlockFi International maintain four bank accounts

617
01:09:49,200 --> 01:09:56,200
that are used to facilitate access to U.S. dollar and stable coin loans secured by digital asset collateral.

618
01:09:56,200 --> 01:10:04,200
When a retail loan is approved, digital assets designated as collateral are transferred from a BlockFi interest account

619
01:10:04,200 --> 01:10:11,200
or an external wallet to the BlockFi wallet or if there are existing digital assets in a BlockFi wallet,

620
01:10:11,200 --> 01:10:14,200
those may also be pledged as collateral.

621
01:10:14,200 --> 01:10:21,200
For retail customers borrowing cash from the debtors, once the collateral securing the loan is locked,

622
01:10:21,200 --> 01:10:26,200
the cash is then wired from BlockFi Lending LLC's account at Silicon Valley Bank,

623
01:10:26,200 --> 01:10:32,200
and I refer to that as the retail loan account, to the customer's bank account.

624
01:10:32,200 --> 01:10:38,200
If instead of cash, a customer chooses to receive loan proceeds in the form of digital assets, stable coin,

625
01:10:38,200 --> 01:10:42,200
the stable coin is transferred to the retail customer's wallet.

626
01:10:42,200 --> 01:10:50,200
And when a retail customer repays its retail loan in cash, that payment is then deposited back into the retail loan account.

627
01:10:50,200 --> 01:10:57,200
If it's an international transaction, if it's a domestic transaction, it goes to a third-party provider called Scratch.

628
01:10:57,200 --> 01:11:03,200
And if a retail customer repays its retail loan in stable coin, the stable coin is transferred to the BlockFi wallet

629
01:11:03,200 --> 01:11:06,200
and then back to the retail loan account.

630
01:11:06,200 --> 01:11:12,200
Your Honor, in addition to retail lending, the debtors also allow institutional clients to obtain loans.

631
01:11:12,200 --> 01:11:17,200
In some cases, there's collateral involved. It really depends on the counterparty.

632
01:11:17,200 --> 01:11:23,200
Institutional clients that are required to post-collateral transfer that collateral to an institutional vault,

633
01:11:23,200 --> 01:11:30,200
which is specifically named for the institutional client and which is managed by a third-party platform called Fireblocks,

634
01:11:30,200 --> 01:11:36,200
which is commonly used to hold and manage digital assets in this space.

635
01:11:36,200 --> 01:11:42,200
And then that collateral is available for redeployment in the debtors' revenue-generating activities.

636
01:11:42,200 --> 01:11:49,200
When an institutional customer repays its loan in cash, that payment is deposited into Silvergate Lending and SCN accounts,

637
01:11:49,200 --> 01:11:55,200
which are listed on the chart. And if an institutional customer repays its loan in digital assets,

638
01:11:55,200 --> 01:11:59,200
the assets are transferred to Fireblocks and then available for withdrawal.

639
01:11:59,200 --> 01:12:02,200
Your Honor, so that's the operational side of the house.

640
01:12:02,200 --> 01:12:10,200
In terms of the administrative part of the system, the debtors and non-debtors have several administrative accounts.

641
01:12:10,200 --> 01:12:16,200
So Debtor BlockFi Inc. maintains three accounts, including the BlockFi Checking account,

642
01:12:16,200 --> 01:12:23,200
and Debtor BlockFi Services maintains one account, which are used to fund the debtor's payroll and other operating expenses.

643
01:12:23,200 --> 01:12:31,200
An account also held by BlockFi Inc. automatically sweeps amounts from the BlockFi Checking account to this account

644
01:12:31,200 --> 01:12:35,200
when amounts in that exceed $1 million.

645
01:12:35,200 --> 01:12:43,200
And then funds are periodically transferred from BlockFi Inc. to a non-debtor, BlockFi PTE Limited,

646
01:12:43,200 --> 01:12:47,200
just for payroll of two employees which are at that entity.

647
01:12:47,200 --> 01:12:52,200
Your Honor, in addition to the administrative accounts, there are three collateral accounts,

648
01:12:52,200 --> 01:12:55,200
which are holding collateral for different things. One is for an office lease.

649
01:12:55,200 --> 01:13:05,200
Another is actually in favor of ANCORA, who is the trustee for the indenture, as well as assisting the company with the S1.

650
01:13:05,200 --> 01:13:15,200
And then we also hold a collateral account in connection with our JV, in which we've – it's basically to secure certain power payables

651
01:13:15,200 --> 01:13:19,200
in connection with our mining of digital assets.

652
01:13:19,200 --> 01:13:26,200
Your Honor, as Mr. Susberg noted, each customer that opens an account with the debtors is provided with a BlockFi wallet.

653
01:13:26,200 --> 01:13:30,200
And it's a non-interest-bearing account to support digital assets.

654
01:13:30,200 --> 01:13:38,200
Once a customer creates an account with the debtors, they can either transfer digital assets from their own external wallet to the BlockFi wallet,

655
01:13:38,200 --> 01:13:45,200
or they can use fiat currency to purchase digital assets to be deposited in the BlockFi wallet.

656
01:13:45,200 --> 01:13:55,200
And once a customer funds their BlockFi wallet, they can then participate in various other kind of programs and platforms on BlockFi.

657
01:13:55,200 --> 01:14:00,200
So the BlockFi wallet allows the customer to use – to do several things.

658
01:14:00,200 --> 01:14:04,200
They can open an interest-bearing account for international customers only.

659
01:14:04,200 --> 01:14:07,200
They can trade digital assets on the debtors' platform.

660
01:14:07,200 --> 01:14:12,200
They can receive U.S. and stablecoin loans for digital assets.

661
01:14:12,200 --> 01:14:19,200
And they can also use a digital asset rewards card called the BlockFi Rewards Visa Card.

662
01:14:19,200 --> 01:14:30,200
Your Honor, it's important to note, as Mr. Susberg said, assets that are in the BlockFi wallet are not used by the company for revenue-generating activities.

663
01:14:30,200 --> 01:14:36,200
And pursuant to the wallet terms of service, title to the digital assets remains with the customer at all times.

664
01:14:36,200 --> 01:14:44,200
So, Your Honor, for purposes of what I'm describing today, we really consider the BlockFi wallet to be outside of the cash management system,

665
01:14:44,200 --> 01:14:50,200
where we're not seeking – cash actually never goes in or comes out of the BlockFi wallet,

666
01:14:50,200 --> 01:14:57,200
and we're not seeking to do anything with respect to the BlockFi wallet in terms of the relief that we're seeking today.

667
01:14:57,200 --> 01:15:01,200
Your Honor, so to get to the relief that we're seeking on an interim basis,

668
01:15:01,200 --> 01:15:08,200
first to continue using and maintaining the cash management system, including pre-petition bank accounts and forms,

669
01:15:08,200 --> 01:15:16,200
without reference to the debtor status as debtor in possession, and to pay any pre-petition and post-petition amounts on account of outstanding bank fees.

670
01:15:16,200 --> 01:15:21,200
We currently have $50,000 that's outstanding on account of pre-petition bank fees.

671
01:15:21,200 --> 01:15:29,200
Second, to continue entering into inter-company transactions between debtors, consistent with our historical practice,

672
01:15:29,200 --> 01:15:35,200
on a post-petition basis, subject to certain reporting obligations which we've included in the proposed order,

673
01:15:35,200 --> 01:15:41,200
and to grant super priority administrative expense to those post-petition transactions between debtors.

674
01:15:41,200 --> 01:15:46,200
Third, we're seeking approval to continue using our corporate cards in the ordinary course of business.

675
01:15:46,200 --> 01:15:52,200
We have two providers of corporate cards, Airbus and Brex.

676
01:15:52,200 --> 01:16:01,200
And lastly, we're seeking authority that to the extent our cash management system does not comply with Section 345B of the Bankruptcy Code,

677
01:16:01,200 --> 01:16:08,200
a waiver for a period of 45 days without prejudice to seek additional waivers from the court,

678
01:16:08,200 --> 01:16:12,200
and that's something that we negotiated with the U.S. Trustee.

679
01:16:12,200 --> 01:16:19,200
Your Honor, given the complexity of the debtor's business and financial affairs and the movement of funds through the cash management system,

680
01:16:19,200 --> 01:16:26,200
we believe that this relief is not only customary but is necessary for purposes of maintaining our current system

681
01:16:26,200 --> 01:16:31,200
and making sure that our cash and digital assets remain secure.

682
01:16:31,200 --> 01:16:34,200
Your Honor, I'm happy to answer any questions.

683
01:16:34,200 --> 01:16:40,200
Otherwise, I can proceed with the revised proposed order, which includes comments from the U.S. Trustee.

684
01:16:40,200 --> 01:16:42,200
That would be fine. Thank you.

685
01:16:42,200 --> 01:16:49,200
And in the interim, either Ms. Bielski or Mr. Sponger, any concerns you have, Ms. Bielski?

686
01:16:49,200 --> 01:16:50,200
Thank you, Your Honor.

687
01:16:50,200 --> 01:16:51,200
May I approach you?

688
01:16:51,200 --> 01:16:52,200
Yes, please.

689
01:16:52,200 --> 01:16:54,200
Thank you.

690
01:16:54,200 --> 01:17:01,200
So without purporting to understand exactly how everything works, Council is correct that we did offer comments on the cash management order

691
01:17:01,200 --> 01:17:08,200
and came to an agreement on certain provisions, including, we call it a suspension of the 345 requirements for 45 days,

692
01:17:08,200 --> 01:17:13,200
as opposed to the 30 days that were, or we reached an agreement to make it 30, 45 days.

693
01:17:13,200 --> 01:17:19,200
And additionally, we added language in there to be clear that the intercompany transfers will be kept track of

694
01:17:19,200 --> 01:17:24,200
and completely and fully documented so that those can be reviewed as well.

695
01:17:24,200 --> 01:17:25,200
All right. Thank you.

696
01:17:25,200 --> 01:17:32,200
Now, my understanding is this is one of the orders that needs to be entered today in order to facilitate operations.

697
01:17:32,200 --> 01:17:37,200
Yes, Your Honor. I'm happy to walk through the changes.

698
01:17:37,200 --> 01:17:41,200
And we're providing for a final hearing on that January 9th date.

699
01:17:41,200 --> 01:17:42,200
Yes.

700
01:17:42,200 --> 01:17:47,200
23, quickly, at 10 a.m.

701
01:17:47,200 --> 01:17:56,200
Since quickly on that topic, do we want to have a, I'd like to be able to post on our court's website a second omnibus date.

702
01:17:56,200 --> 01:18:00,200
Do you want it three weeks from that Monday or four weeks?

703
01:18:00,200 --> 01:18:10,200
The three weeks would be January 30th. The fourth week would be February 6th.

704
01:18:10,200 --> 01:18:11,200
You have a sense?

705
01:18:11,200 --> 01:18:14,200
Three weeks sounds good, Your Honor.

706
01:18:14,200 --> 01:18:17,200
We can always adjust it as we go as needed.

707
01:18:17,200 --> 01:18:19,200
We're trying to move quickly.

708
01:18:19,200 --> 01:18:22,200
Well, then let's keep it on for the 30th.

709
01:18:22,200 --> 01:18:29,200
Then we'll stop there and then we'll revisit dates going forward at another time.

710
01:18:29,200 --> 01:18:30,200
Thank you, Your Honor.

711
01:18:30,200 --> 01:18:34,200
Your Honor, so just to point out some of the changes in paragraph four,

712
01:18:34,200 --> 01:18:45,200
this includes the language regarding tracking intercompany transfers post petition so that they can be properly traced.

713
01:18:45,200 --> 01:18:49,200
We did add language at the end of paragraph five,

714
01:18:49,200 --> 01:19:01,200
which is just really a reservation of rights that was requested by a party that basically says that there's nothing in this order that is altering or modifying the rights of other parties to assert that

715
01:19:01,200 --> 01:19:04,200
cash or digital assets, et cetera, are not property of the estate.

716
01:19:04,200 --> 01:19:12,200
And so we've included that reservation of rights in paragraphs five.

717
01:19:12,200 --> 01:19:13,200
Your Honor, in paragraph 10,

718
01:19:13,200 --> 01:19:32,200
we've agreed to give notice to the U.S. Trustee and any statutory committee to the extent that we open a new bank account and provided further that any new bank accounts will be opened at an authorized depository.

719
01:19:32,200 --> 01:19:36,200
15 is just the intercompany transactions again.

720
01:19:36,200 --> 01:19:44,200
Paragraph 16 provides for the suspension of section 345B for the 45 days.

721
01:19:44,200 --> 01:19:50,200
We provided that we'll pay U.S. Trustees fees on a debtor by debtor basis, notwithstanding that it's a consolidated system.

722
01:19:50,200 --> 01:19:54,200
In paragraph 17,

723
01:19:54,200 --> 01:20:07,200
we've also agreed in 18 and 19 to alert those banks that are authorized depositories and those that are not to see if they're willing to sign an authorized depository form with the U.S. Trustee.

724
01:20:07,200 --> 01:20:10,200
And then, Your Honor, the last two paragraphs, 25 and 26,

725
01:20:10,200 --> 01:20:21,200
this is again language requested by the SEC with respect to federal securities laws and tokens, and it's just really a reservation of rights.

726
01:20:21,200 --> 01:20:25,200
All right.

727
01:20:25,200 --> 01:20:31,200
And the language works for the U.S. Trustee, correct?

728
01:20:31,200 --> 01:20:36,200
We had no objection to the SEC additions or the other language that's been requested.

729
01:20:36,200 --> 01:20:39,200
We haven't reviewed the current form of order.

730
01:20:39,200 --> 01:20:43,200
We can probably do that before we're done here this morning or this afternoon.

731
01:20:43,200 --> 01:20:44,200
All right.

732
01:20:44,200 --> 01:20:48,200
Then it'll be entered this afternoon unless we hear otherwise.

733
01:20:48,200 --> 01:20:50,200
Thank you very much, Your Honor.

734
01:20:50,200 --> 01:20:53,200
With that, I'll see the podium to my colleague, Mr. Petry.

735
01:20:53,200 --> 01:20:58,200
Thank you.

736
01:20:58,200 --> 01:20:59,200
Good afternoon, Your Honor.

737
01:20:59,200 --> 01:21:00,200
Good afternoon.

738
01:21:00,200 --> 01:21:03,200
For the record, Francis Petry from Kirkland on behalf of the debtors.

739
01:21:03,200 --> 01:21:07,200
It may help things go more smoothly if I am allowed to approach the podium with some red lines.

740
01:21:07,200 --> 01:21:12,200
Absolutely.

741
01:21:12,200 --> 01:21:18,200
Thank you.

742
01:21:18,200 --> 01:21:23,200
So, Your Honor, I'll be walking us through the next couple of agenda items, the next one being the employee wages and benefits motion.

743
01:21:23,200 --> 01:21:24,200
All right.

744
01:21:24,200 --> 01:21:28,200
This is agenda item number three, which was filed at docket number 16.

745
01:21:28,200 --> 01:21:41,200
Through this motion, the debtors seek entry of an order permitting the uninterrupted continuation of programs coming due to its worth of programs and payments that are coming due to their workforce, including those related to wage obligations and benefits programs.

746
01:21:41,200 --> 01:21:49,200
Your Honor, the approximately 370 individuals who are currently employed by the debtors are perhaps their most valuable asset and the heart of the company.

747
01:21:49,200 --> 01:21:54,200
They perform roles critical to preserving the debtors' business and offering them security for their assets.

748
01:21:54,200 --> 01:21:59,200
Their unique skills, knowledge, and experience are crucial to maximizing value for the estates.

749
01:21:59,200 --> 01:22:06,200
In addition, these people rely on the relief sought in this motion to pay their daily living expenses and support their families.

750
01:22:06,200 --> 01:22:12,200
Payment of the amount sought in this motion would minimize the potential hardship that this workforce would suffer.

751
01:22:12,200 --> 01:22:18,200
As noted, about two thirds of the debtors' employees have received warrant notices prior to the commencement of these cases.

752
01:22:18,200 --> 01:22:25,200
Those employees will continue to be eligible for wages and benefits for the notice period associated with the warrant notice.

753
01:22:25,200 --> 01:22:29,200
But for those who remain, being paid is also just as crucial.

754
01:22:29,200 --> 01:22:40,200
So through this motion, the debtors are seeking authority to continue to pay their wages, salaries, and reimbursable expenses and to continue benefits programs in the ordinary course of business.

755
01:22:40,200 --> 01:22:49,200
This motion does not seek authority to pay for any bonuses to insiders or anyone, any incentive amounts or severance payments.

756
01:22:49,200 --> 01:22:55,200
Note that we did separately file that retention program motion, but that's not what's up in this motion.

757
01:22:55,200 --> 01:23:01,200
We have engaged on the wages motion with the U.S. Trustee who has provided comments that we've incorporated in a revised form of order.

758
01:23:01,200 --> 01:23:15,200
The new language that we agreed upon with the U.S. Trustee summarizes that there's no bonuses contemplated, and we took language relying to complying with 503C and not cashing out on any current outstanding sick pay.

759
01:23:15,200 --> 01:23:23,200
However, we were unable to reach resolution about the changes that you see in paragraph three.

760
01:23:23,200 --> 01:23:36,200
For transparency's sake, shortly after we filed the original version of this order, it became known to us that two non-insider employees were due amounts that were owing over the $15,150 cap for pre-petition work already done.

761
01:23:36,200 --> 01:23:42,200
One of these employees is due about $1,200. The other one is due around $6,000.

762
01:23:42,200 --> 01:23:47,200
Each of these employees is not an insider. They are crucial to the debtor's operations in business.

763
01:23:47,200 --> 01:23:59,200
Both are located in Bermuda, and particularly with the ongoing ancillary proceeding that will be going on there, it is all the more important for these employees to be paid so they do not leave their jobs.

764
01:23:59,200 --> 01:24:03,200
It would be hard, if not impossible, to replace these two people, one of whom is the head of risk management.

765
01:24:03,200 --> 01:24:17,200
The other one has a regulatory role that deals with anti-money laundering, which are both crucial roles that need to be maintained, especially to maintain the integrity of the proceeding that's going on in Bermuda.

766
01:24:17,200 --> 01:24:32,200
I'm not sure if the Office of the U.S. Trustee has any comments on that, but in summary, we do believe that paying those employees those amounts at the interim stage is crucial and necessary, and the debtors respectfully ask your honor to allow that to occur.

767
01:24:32,200 --> 01:24:36,200
I'm happy to answer any questions you have about the form of order.

768
01:24:36,200 --> 01:24:39,200
Let me hear from the U.S. Trustee, Mr. Sponger.

769
01:24:39,200 --> 01:24:48,200
Thank you, your honor. Your honor, as you know, we typically allow the payment of wages up to the 507 caps outside of a plan based on priority.

770
01:24:48,200 --> 01:24:57,200
The amounts above the caps are general unsecured claims and should not be paid until a plan is confirmed and becomes effective.

771
01:24:57,200 --> 01:25:05,200
With that said, your honor, we realize the amounts are minimal, but object nonetheless. Thank you.

772
01:25:05,200 --> 01:25:13,200
Thank you, Mr. Sponger. I appreciate the U.S. Trustee's input. I recognize we're above the limits.

773
01:25:13,200 --> 01:25:21,200
The amounts, though, are somewhat nominal and balanced against the potential prejudice. The Court's going to overrule the objection. Thank you.

774
01:25:21,200 --> 01:25:23,200
Thank you, your honor.

775
01:25:23,200 --> 01:25:33,200
As noted, this is one of the time-sensitive orders. There is a payroll draw in fund that needs to take place as soon as possible, so if your honor will indulge us, it will be complicated.

776
01:25:33,200 --> 01:25:37,200
It'll be entered this afternoon. Great. Thank you. Thank you.

777
01:25:37,200 --> 01:25:45,200
Okay, so that will take us to the next item on the agenda, the debtors' equity trading motion. It's agenda item number four and filed at docket number 14.

778
01:25:45,200 --> 01:26:00,200
The debtors believe that they currently have a variety of tax attributes, including approximately $566 million of federal net operating losses, which under certain circumstances may be used to reduce future tax payments or carry back to offset taxable income.

779
01:26:00,200 --> 01:26:06,200
These tax attributes can become subject to significant limitation under the tax code if an ownership change occurs.

780
01:26:06,200 --> 01:26:14,200
So the purpose of the relief that we seek in this motion is to minimize the risk that an ownership change will occur before the conclusion of these restructuring cases.

781
01:26:14,200 --> 01:26:29,200
By this motion, we request the court to seek to maximize the values of the estates by implementing procedures by which the debtors can monitor and object to certain transfers of the debtors' common and preferred stock to ensure that the tax attributes and NOLs are preserved.

782
01:26:29,200 --> 01:26:38,200
We engaged with the U.S. trustee about this form of order and included their requested language, which relates to the form and matter of notice by which equity holders will receive this motion.

783
01:26:38,200 --> 01:26:45,200
I'm happy to answer any questions that your honor has. Otherwise, I respectfully ask the court to grant the relief requested on an interim basis.

784
01:26:45,200 --> 01:26:52,200
The debtor has is able to identify those equity holders that meet the four and a half percent criteria.

785
01:26:52,200 --> 01:26:58,200
We are and we and they will be noticed on this for the final hearing. Yes, indeed. All right.

786
01:26:58,200 --> 01:27:05,200
Mr. Sponder or Ms. Bielski. I apologize now if I go to the wrong person.

787
01:27:05,200 --> 01:27:10,200
With regards to the changes that we requested, those are maybe of no objection.

788
01:27:10,200 --> 01:27:20,200
All right. The court has reviewed the proposed order in advance, notwithstanding the changes, the court has no issue and will enter the order.

789
01:27:20,200 --> 01:27:31,200
Thank you. There's no reason why this can't be entered today, correct? It's the final version? Yes, that is the final version. We also emailed all of these to chambers, though I understand it happened while your honor was on the bench.

790
01:27:31,200 --> 01:27:40,200
I don't expect you to have to have to review those. We're good. We're just not that good. All right. Thank you, your honor. That concludes my part of the agenda. I'll turn the podium over to my colleagues at Haynes and Boone.

791
01:27:40,200 --> 01:27:50,200
Thank you.

792
01:27:50,200 --> 01:27:55,200
Good afternoon again, your honor. Good. Gordon Chavez with Haynes and Boone on behalf of the debtors.

793
01:27:55,200 --> 01:28:09,200
I have a few remaining items to address on the agenda. The first is agenda number five is the cold retention application that was filed at docket number 15 and is tab 13 in the hard copy binder.

794
01:28:09,200 --> 01:28:26,200
With respect to the filing, we did attach two exhibits. Exhibit A was the engagement letter between Kroll and the debtors and exhibit B is the declaration of Benjamin Steele, who's the managing director at Kroll. And I would ask at this time that your honor admit those into evidence.

795
01:28:26,200 --> 01:28:30,200
Any objection?

796
01:28:30,200 --> 01:28:39,200
We'll mark the declaration of Mr. Steele as D2 and the agreement is D3.

797
01:28:39,200 --> 01:28:41,200
Thank you, your honor.

798
01:28:41,200 --> 01:29:01,200
As your honor, I'm sure is aware of the purpose of retaining claims and noticing agent is to really take a lot of the administrative burden off the debtors during this stressful time as well as the clerk's office and to streamline the process for communicating with creditors and constituents and to ensure proper service on all the parties in interest in this case.

799
01:29:01,200 --> 01:29:20,200
We received a couple of comments to our form of order from the trustees office, and we accepted all of those comments. In addition, we also received a request from anchor the indentured trustee to authorize crawl to just directly serve those individuals that are the US via clients that Mr.

800
01:29:20,200 --> 01:29:32,200
Steele explained earlier, we've added that language to the order. So, with that I believe that we're resolved on all issues and if your honor would like to see a red line copy I can provide that. That's fine.

801
01:29:32,200 --> 01:29:34,200
Do you also have the final version.

802
01:29:34,200 --> 01:29:39,200
Yes, your honor.

803
01:29:39,200 --> 01:29:40,200
Great.

804
01:29:39,200 --> 01:29:46,200
Thank you.

805
01:29:46,200 --> 01:29:51,200
Next to be heard.

806
01:29:51,200 --> 01:30:01,200
We have not seen the final order. We understand that all of our revisions are being incorporated just ask I don't think it's necessary to have it entered this afternoon that it can stay till tomorrow morning.

807
01:30:01,200 --> 01:30:10,200
Let us have a look at it and hopefully there will be no problem. We'll put this one aside till tomorrow.

808
01:30:10,200 --> 01:30:25,200
Next your honor is item number seven which is the motion to consolidate creditors and redact certain personal identifiable information and information about clients. This was filed at docket number four and it's tab number three in the hard copy binder.

809
01:30:25,200 --> 01:30:41,200
And we're seeking authority to file the top 50 creditors list we recognize that this is a complex case with several creditors so we upfront offered to file a top 50 list rather than say 20 or 30 and we're seeking to redact personal information, specifically

810
01:30:41,200 --> 01:30:54,200
names and addresses and information like that and client names and we did receive a couple of comments from the US trustee with respect to the name redactions, and we were not able to reach an agreement on that issue.

811
01:30:54,200 --> 01:31:06,200
We, we would like to point out for your honor and we offered this to the trustee that this is an interim order, and we could preserve the trustees rights until the final order is addressed at a later time.

812
01:31:06,200 --> 01:31:25,200
This is a very important issue for the client, and for obvious purposes there's a number of clients in this case, and it's, it really addresses for individuals you know personal information in terms of safety and security issues, as well as the clients, our clients

813
01:31:25,200 --> 01:31:37,200
proprietary information and how they have spent years building a client base. So we would ask that your honor make the judgment call to allow us to keep those names redacted. And with that I will.

814
01:31:37,200 --> 01:31:42,200
I'll see the podium to the trustee to make their comments and then would ask a brief moment to respond.

815
01:31:42,200 --> 01:31:53,200
Thank you.

816
01:31:53,200 --> 01:31:55,200
Thank you your honor.

817
01:31:55,200 --> 01:31:59,200
United States trustee does not object to a top 50 consolidated list.

818
01:31:59,200 --> 01:32:14,200
The US trustee also with that said does not agree to an entry of this interim order that allows the redaction of names and addresses of individuals and names of clients, including businesses that are located in the United States and Europe.

819
01:32:14,200 --> 01:32:24,200
The debtors here seek to redact this information from the consolidated creditor matrix, the top 50 lists schedules and statements, and any other document filed with the court.

820
01:32:24,200 --> 01:32:35,200
During this interim period, at the very least, the dares will file the consolidated creditor matrix, the top 50 list, as well as any host of other pleadings that would include such redactions.

821
01:32:35,200 --> 01:32:48,200
Your honor, I am prepared to argue this motion today and ask if I should proceed, or if your honor is going to push this off to the final hearing, but I am ready to argue it.

822
01:32:48,200 --> 01:32:52,200
I appreciate your position.

823
01:32:52,200 --> 01:33:00,200
My colleagues in the southern district and in Delaware have addressed these same issues.

824
01:33:00,200 --> 01:33:18,200
And they're difficult issues were balancing the interest of the particular clients at issue versus the interest of transparency and how best to assist the state and maximizing its value the data maximizing values.

825
01:33:18,200 --> 01:33:30,200
I'm not prepared on this limited record and with limited opportunity to digest the argument to to rule one way or the other.

826
01:33:30,200 --> 01:33:47,200
I think it's appropriate to allow the interim order and to consider this matter in the fuller context of I'm not going to say additional briefing, but additional time for the court to digest the briefing at the final hearing.

827
01:33:47,200 --> 01:34:01,200
So, I appreciate your readiness, but I'm going to permit the interim relief, because I don't see any prejudice to the estate to the debtor.

828
01:34:01,200 --> 01:34:14,200
But the threat of prejudice to these parties, and certainly prudence dictates further consideration before opening the barn and not being able to bring the horse back in.

829
01:34:14,200 --> 01:34:28,200
All right, understood your honor I just with respect to the order the interim order that is going to be submitted, because the consolidated list is going to be filed as well as the top 50 and for us to get in preparation for pointing a committee.

830
01:34:28,200 --> 01:34:37,200
Just want to make sure that the order and I think it will have the language in there that the United States trustee will get an unredacted copy of those of all those documents.

831
01:34:37,200 --> 01:34:48,200
My understanding is the court gets an unredacted version, and the US trustee and subject to further scrutiny other parties in interest who request it.

832
01:34:48,200 --> 01:35:04,200
Yes, Jordan Chavez your honor that's correct. And that's what the proposed form of order already contemplated in addition to that we received a request this morning from the SEC to also receive that information and we've agreed to that so that the order will reflect that as well.

833
01:35:04,200 --> 01:35:08,200
All right, of course prepared to enter that order.

834
01:35:08,200 --> 01:35:12,200
With the changes that you've referenced.

835
01:35:12,200 --> 01:35:21,200
Do you have a final version. Yes, your honor may I approach and Mr. Sponder Have you seen the dispersion. I have not seen it.

836
01:35:21,200 --> 01:35:30,200
I've seen the other versions but I don't think it's necessary to, again, for today. I'll take a look at them this afternoon and get back to counsel on them.

837
01:35:30,200 --> 01:35:37,200
All right. Again, this will be in the batch that will be entered tomorrow morning.

838
01:35:37,200 --> 01:35:52,200
All right, thank you.

839
01:35:52,200 --> 01:35:54,200
You may proceed.

840
01:35:54,200 --> 01:36:12,200
Thank you, your honor. The next item is number eight, which is the debtors motion for an entry of an order extending the time to file the schedules and statements. This was filed at docket number five in this tab for in the binder.

841
01:36:12,200 --> 01:36:26,200
We requested a 30 day extension for the debtors to file their schedules and statements. There are nine debtors with multiple responsibilities in this case that have been working around the clock on multiple important issues that Mr. Sussberg highlighted this morning.

842
01:36:26,200 --> 01:36:34,200
We've discussed our proposed new deadline with the US trustees office and they've agreed to the January 11 extension.

843
01:36:34,200 --> 01:36:49,200
We did make one change to this order, which is that we removed the language that referenced the consolidation order that your honor has continued into a final hearing.

844
01:36:49,200 --> 01:36:58,200
So because it's sort of redundant, we are fine with still keeping that language out of this order. And so that's the only change and we've we've shown that to the trustees office.

845
01:36:58,200 --> 01:37:04,200
So if I could approach and yes, I do with that. Thank you.

846
01:37:04,200 --> 01:37:10,200
And Mr. Sponder, you're comfortable with the January 11 date is Bill Ski.

847
01:37:10,200 --> 01:37:14,200
Thank you.

848
01:37:14,200 --> 01:37:23,200
We're going to leave that date to the extent that debtor can actually get it in an advance. We're coming back January 9th. It probably would be helpful.

849
01:37:23,200 --> 01:37:31,200
So I'll just implore the debtor to see what they can do and move it up by a couple of days, but we'll leave it in the order of January 11.

850
01:37:31,200 --> 01:37:35,200
Thank you, your honor noted, and we will work hard at getting those completed.

851
01:37:35,200 --> 01:37:41,200
All right. The last item I have to address is number nine on the agenda, which is the utilities motion.

852
01:37:41,200 --> 01:37:46,200
I was filed a docket number 10 and is tab eight in the hard copy binder.

853
01:37:46,200 --> 01:37:56,200
With respect to the utilities motion, it's fairly straightforward. As I'm sure your honor noticed, it's a pretty low exposure amount given the nature of the debtors business here.

854
01:37:56,200 --> 01:38:06,200
We discussed with the U.S. trustee and we've agreed to their proposed language with respect to a couple of changes involving any return of the deposit.

855
01:38:06,200 --> 01:38:18,200
So we put some language in paragraph by age to that effect. And those were the only other comments we received or what's reflected in the red line from the trustee's office.

856
01:38:18,200 --> 01:38:27,200
So we didn't receive any other informal comments other than the general protective order language that the SEC requested, which is reflected in the order.

857
01:38:27,200 --> 01:38:35,200
So unless your honor has any questions about utilities, I would ask that you grant the motion and enter the interim order.

858
01:38:35,200 --> 01:38:43,200
All right. We were just we were just referencing for utilities, I think. Yeah.

859
01:38:43,200 --> 01:38:48,200
There's yes, your honor. There's not very many. And among them are Internet providers, et cetera.

860
01:38:48,200 --> 01:38:56,200
Yes, it's mainly Internet and telecom providers. And then the debtors pay their electricity through their landlord.

861
01:38:56,200 --> 01:39:02,200
And so even though they do that, we've agreed to segregate 50 percent of that amount into a deposit account.

862
01:39:02,200 --> 01:39:07,200
All right. That was my question. I didn't see the landlord listed. It's a separate list. OK.

863
01:39:07,200 --> 01:39:14,200
All right. The party. OK. All right. Anyone wish to be heard?

864
01:39:14,200 --> 01:39:17,200
The court will. Yes. That's accurate.

865
01:39:17,200 --> 01:39:19,200
Reflection will be agreed to.

866
01:39:19,200 --> 01:39:21,200
There is red line language in there.

867
01:39:21,200 --> 01:39:35,200
Thank you, Miss Bilski. I appreciate it. All right. And again, we'll also include in those dates the January 9th date for the final hearing.

868
01:39:35,200 --> 01:39:43,200
Yes, your honor. We'll include that and submit an updated copy to chambers of this one. Can't be. Is that this can be entered?

869
01:39:43,200 --> 01:39:47,200
Oh, yes, they can. Are you going to fill in the dates? Oh, appreciated. Thank you, your honor.

870
01:39:47,200 --> 01:39:53,200
We can do that. Appreciate it. Thank you. That concludes my presentation. Thank you for your time.

871
01:39:53,200 --> 01:40:00,200
And I'll see the city and for the remaining agenda issues to Mr. Cano. Thank you.

872
01:40:00,200 --> 01:40:09,200
Good afternoon, Your Honor. May it please the court. Richard Cano. It's a hands and bones proposed council to the debtors, obviously, co-counseling Kirkland.

873
01:40:09,200 --> 01:40:18,200
I can jump around a little because I'll address the two matters that there are no objections by the trustee, so therefore the former lawyer is consistent.

874
01:40:18,200 --> 01:40:28,200
The first is the insurance policy surety bond motion, which is tab nine, docket 11. Basically, a straight forward motion allowing for flexibility.

875
01:40:28,200 --> 01:40:33,200
The one thing that I would point out for the record, we are talking about lending licenses and bonds here.

876
01:40:33,200 --> 01:40:41,200
We are not talking about the monetary transmission bonds. The motion does not address that to the extent we need to address it with the court.

877
01:40:41,200 --> 01:40:45,200
Will be a separate motion. There's no pre-petition amounts.

878
01:40:45,200 --> 01:40:49,200
We're talking about the minimum payments given the scope of how big this organization is.

879
01:40:49,200 --> 01:40:57,200
However, these are very important assets to maintain and to be able to sell the business, for example, to have the lending bonds in place if necessary.

880
01:40:57,200 --> 01:41:00,200
We would ask that the court grant the motion. There has been no objection.

881
01:41:00,200 --> 01:41:10,200
We did get the comment from a counterparty on the bonds requesting that clarification in the order that this does not apply to the monetary transmission bonds.

882
01:41:10,200 --> 01:41:15,200
All right. Anyone wish to be heard?

883
01:41:15,200 --> 01:41:22,200
Court had no issue with the relief being sought. That's included among the revised orders that have been forwarded to chambers?

884
01:41:22,200 --> 01:41:23,200
I believe so, yes.

885
01:41:23,200 --> 01:41:28,200
All right. We'll pick that one out and the court gets granted. Thank you.

886
01:41:28,200 --> 01:41:37,200
Sure. And the next one is a no objection motion, the worldwide stay motion. That's Dr. 12, tab 12. This is a pretty standard motion.

887
01:41:37,200 --> 01:41:42,200
Nothing in 30 years works as well as a court order explaining people's rights and what to do and what not to do.

888
01:41:42,200 --> 01:41:49,200
So we would ask your honor to enter it. We have a lot of obviously non-U.S. customers, clients, counterparties.

889
01:41:49,200 --> 01:41:54,200
To the extent that we have the right letters, it's just easier to put this out there.

890
01:41:54,200 --> 01:42:04,200
This is maintaining the status quo. This is not seeking any type of extra ordinary relief, extending the automatic stake to any particular party.

891
01:42:04,200 --> 01:42:08,200
Like I say a lot, it is what it is. We would ask your honor to enter it, please.

892
01:42:08,200 --> 01:42:14,200
The court has entered these orders in the past, recognizing it's a comfort order.

893
01:42:14,200 --> 01:42:25,200
The only proviso that I like to make sure all parties are aware of, the value of having it in order as you're aware, is that it allows for the enforcement through contempt.

894
01:42:25,200 --> 01:42:30,200
As opposed to essentially just regurgitating the code in the order.

895
01:42:30,200 --> 01:42:37,200
Before I would hold the party in contempt, I would need to be assured by separate motion that they've been served and had notice of the order.

896
01:42:37,200 --> 01:42:41,200
Absolutely, your honor. We are not going to try to jam anybody with this order.

897
01:42:41,200 --> 01:42:44,200
I appreciate that. The order will be entered. Thank you.

898
01:42:44,200 --> 01:42:48,200
Thank you. The next motion is the tax motion, tab 7, docket 9.

899
01:42:48,200 --> 01:42:55,200
This is on interim and final relief. Very minor comments to the proposed order by the U.S. Trustee's office.

900
01:42:55,200 --> 01:42:58,200
It's talking to make clarifications. They're not even substantive.

901
01:42:58,200 --> 01:43:02,200
I have a copy of the order if you want to see, but we can hand it up later.

902
01:43:02,200 --> 01:43:03,200
They are de minimis.

903
01:43:03,200 --> 01:43:11,200
Again, this is, I would say, an ordinary course motion. To the extent we have sales and use tax and other types of things we need to pay in the ordinary course.

904
01:43:11,200 --> 01:43:14,200
I don't believe we're talking about significant amounts here.

905
01:43:14,200 --> 01:43:19,200
The motion recites $450,000 on a post-petition basis for 12 months.

906
01:43:19,200 --> 01:43:25,200
So that's what we're looking at. Or customer garnishments, for example, in the amount of $12,000.

907
01:43:25,200 --> 01:43:35,200
So, again, really no objection, some minor comments from the U.S. Trustee. We'll submit the order to your honor for review and we ask to get granted.

908
01:43:35,200 --> 01:43:40,200
That's fine. Anyone wish to comment? Council? Ms. Bielski?

909
01:43:40,200 --> 01:43:47,200
Thank you, Senator. Mayor Bielski with the U.S. Trustee's office. No objections to the substance relief that was just minor comments to the order.

910
01:43:47,200 --> 01:43:49,200
All right. So that will be order to be provided?

911
01:43:49,200 --> 01:43:55,200
Yes, your honor. All of them will be provided. I'll rely on the Chavez to make sure that I don't mess everything up.

912
01:43:55,200 --> 01:43:57,200
I have no doubt it will be fine. Thank you.

913
01:43:57,200 --> 01:44:02,200
Thank you, your honor. The next one is Table 11, Docket 13. This is the critical vendor motion.

914
01:44:02,200 --> 01:44:07,200
Again, interim and final orders. We've taken the U.S. Trustee's language and put it in the order.

915
01:44:07,200 --> 01:44:11,200
If I may approach, your honor, because to the extent you want to do see a red line.

916
01:44:11,200 --> 01:44:12,200
Yes, please.

917
01:44:12,200 --> 01:44:22,200
I would approach. I also have a schedule of the various different vendors that we anticipate paying. We submitted this to the U.S. Trustee's office this morning.

918
01:44:22,200 --> 01:44:27,200
We've had productive conversations, but I'll hear what they have to say after I review this quickly with your honor.

919
01:44:27,200 --> 01:44:37,200
I did. Thank you. Please. I did have a question on reference shippers and I was wondering what you're shipping.

920
01:44:37,200 --> 01:44:38,200
Good question.

921
01:44:38,200 --> 01:44:42,200
These aren't digital ships for digital coins?

922
01:44:42,200 --> 01:44:53,200
Just a good question. In abundance of caution, these type of things, to the extent there's equipment or any other types of things that are relied upon by us, goods, merchandise, equipment, mining equipment, for example.

923
01:44:53,200 --> 01:44:56,200
I'm not saying there is. It's just to the extent there is.

924
01:44:56,200 --> 01:44:57,200
To the extent there is.

925
01:44:57,200 --> 01:44:58,200
Right, exactly.

926
01:44:58,200 --> 01:44:59,200
All right.

927
01:44:59,200 --> 01:45:08,200
So, really, we thank the U.S. Trustee for their comments based last night in the discussion this morning. We've been back to the company, really scrubbed the critical vendor list.

928
01:45:08,200 --> 01:45:15,200
We actually are reducing the amount that we're seeking in the interim period to about 900,000 from the number that was in the motion.

929
01:45:15,200 --> 01:45:22,200
Likewise, the number goes down for the final. So we're not seeking everything today. We're seeking a lot of it today.

930
01:45:22,200 --> 01:45:26,200
And as you can see from the list that we gave you, your honor, we're talking about big ticket items.

931
01:45:26,200 --> 01:45:36,200
This is a crypto tech company. We cannot go dark. We cannot have a fight with Google. We cannot have a fight with Amazon. We cannot have a fight with Microsoft, among others, Bloomberg.

932
01:45:36,200 --> 01:45:40,200
Just giving you the taste of the types of things we're looking to pay.

933
01:45:40,200 --> 01:45:46,200
In fact, one of our vendors actually terminated us, and that was for engineering support.

934
01:45:46,200 --> 01:45:55,200
So we take our obligation seriously to only pay what is necessary, and I think the relief is sought as appropriate and supported by the record.

935
01:45:55,200 --> 01:46:04,200
And I ask your honor to again approve this. It's an interim basis. If to the extent the US trustee has concerns, we'll make the full record, if you will, at the final hearing.

936
01:46:04,200 --> 01:46:08,200
But more importantly, we're going to work with them to make sure that we are paying the right people.

937
01:46:08,200 --> 01:46:15,200
The company has a vested interest in making sure the money doesn't go out the door. This is for the benefit of the estate and for our clients.

938
01:46:15,200 --> 01:46:23,200
We ask you to grant the motion. Ms. Bielski? Thank you.

939
01:46:23,200 --> 01:46:32,200
With regards to the critical vendor motion, we appreciate that it was pared down and that we received the vendor list this morning.

940
01:46:32,200 --> 01:46:36,200
In the first instance, it's our preference that this is just held at the final hearing.

941
01:46:36,200 --> 01:46:43,200
But overall, our concern is that the debtors, other than indicating that one vendor had already terminated service,

942
01:46:43,200 --> 01:46:53,200
we don't know that the vendors on that list have actually made any kind of indication that they would not continue to provide service but for getting paid the pre-petition amounts.

943
01:46:53,200 --> 01:46:58,200
And we believe that without that, the debtors have not met their burden.

944
01:46:58,200 --> 01:47:15,200
And part of what we ask is if, because the order provides that the debtors are authorized but not directed to make these payments, that before any such payment is made, that they be responding to a threat by these vendors that they would not continue to provide services.

945
01:47:15,200 --> 01:47:25,200
I don't think that's been agreed to. So without that bit of information that there's actually been some indication that they would cease doing business, we do not think it's appropriate to make these payments.

946
01:47:25,200 --> 01:47:28,200
All right, thank you. Thank you, Your Honor. Response?

947
01:47:28,200 --> 01:47:31,200
Just very simply, Your Honor. This is ordinary course of business. Business strategy prevails.

948
01:47:31,200 --> 01:47:38,200
The whole idea of this motion is to avoid calamity, not to run into court and stop someone from doing something that could cause harm to the estate.

949
01:47:38,200 --> 01:47:47,200
We ask again, on an interim basis, you authorize it, to the extent we still are in disagreement with the U.S. Trustee because we added other parties that we need to pay.

950
01:47:47,200 --> 01:47:53,200
We'll make a full record at the final hearing. But for today's purposes, the evidence supports you granting the interim learning.

951
01:47:53,200 --> 01:47:56,200
All right, thank you.

952
01:47:56,200 --> 01:48:07,200
Again, I respect the U.S. Trustee's position as a matter of law, certainly.

953
01:48:07,200 --> 01:48:18,200
There's support for limiting payment of unsecured debt through this fashion. Other courts have taken issue with it.

954
01:48:18,200 --> 01:48:28,200
But not this court. It's important. I think it's too late to push the vendors to the precipice and then draw them back.

955
01:48:28,200 --> 01:48:44,200
The court looks at a roughly $900,000 sought in the scheme of the case where its liability is referenced on the petition, where $1 billion to $10 billion, that's a lot of zeros and $900,000 pales in importance.

956
01:48:44,200 --> 01:48:51,200
The harm and the prejudice to the operations don't warrant doing so.

957
01:48:51,200 --> 01:49:03,200
And again, I respect the U.S. Trustee's position, but when a company has provided war notices to two-thirds of its workforce, it's not looking to throw away money.

958
01:49:03,200 --> 01:49:14,200
At least I don't view it that way. Every dollar is critical. So I will approve it on an interim basis, and we'll have a fuller exploration of the issues at the final hearing.

959
01:49:14,200 --> 01:49:21,200
Thank you, Your Honor. This really concludes the agenda, but there are two important items for Your Honor to hear about, just briefly.

960
01:49:21,200 --> 01:49:24,200
Let me just – is this the final order?

961
01:49:24,200 --> 01:49:26,200
Yes, Your Honor.

962
01:49:26,200 --> 01:49:29,200
All right.

963
01:49:29,200 --> 01:49:34,200
And all the language with respect to the FCC is in all these orders, so I believe that's as well.

964
01:49:34,200 --> 01:49:41,200
And Ms. Bielski, Mr. Sponda, notwithstanding the objections, the language is it you're comfortable with?

965
01:49:41,200 --> 01:49:42,200
Yes.

966
01:49:42,200 --> 01:49:46,200
All right. Thank you.

967
01:49:46,200 --> 01:49:47,200
May I proceed, Your Honor?

968
01:49:46,200 --> 01:49:47,200
Yes.

969
01:49:47,200 --> 01:49:55,200
Thank you. Just to alert Your Honor's attention to the fact that there was an adversary proceeding filed, Mr. Sussberg touched on it briefly.

970
01:49:55,200 --> 01:50:00,200
I noticed that Eric Winston of Quinn Emanuel, who represents the FDX estate, is on the phone.

971
01:50:00,200 --> 01:50:10,200
We're not looking to jam anyone again, and I use that word, because this process needs to unfold correctly for the benefit of the clients.

972
01:50:10,200 --> 01:50:21,200
We want to have little, if no, litigation involved in this case, but to the extent we are going to have it, it's going to be transparent, it's going to be fully documented and properly put before Your Honor.

973
01:50:21,200 --> 01:50:29,200
There is nothing on for today. We filed our turnover motion. It's against two non-debtor entities.

974
01:50:29,200 --> 01:50:36,200
We believe we have the proper foundation, evidentiary-wise, legally, to get the relief we are seeking.

975
01:50:36,200 --> 01:50:42,200
That motion will be heard on, I guess, the second day hearing, which is January 9th.

976
01:50:42,200 --> 01:50:48,200
If we need emergency relief because parties are not acting appropriately, we will come before Your Honor. I don't anticipate that.

977
01:50:48,200 --> 01:50:53,200
I don't anticipate that for two reasons. One, we've been in communication with Sullivan and Cromwell last night.

978
01:50:53,200 --> 01:50:58,200
They asked us about the motion and the allegations sent forth, Aaron.

979
01:50:58,200 --> 01:51:06,200
We are going to try to have as many constructive calls with the FDX estate as possible, including Mr. Winston of Quinn, to the extent he's involved.

980
01:51:06,200 --> 01:51:13,200
So we're going to try our best to be commercial at all times and recognize every dollar we spend is the client's money.

981
01:51:13,200 --> 01:51:16,200
I'm sure the FDX estate understands that as well.

982
01:51:16,200 --> 01:51:24,200
We also spoke to Mince Levin, EDF demands counsel. We're trying to get information from them. We're cooperating with them.

983
01:51:24,200 --> 01:51:30,200
Unfortunately, we had to bring the action to protect what we view is a critical, critical asset of this estate.

984
01:51:30,200 --> 01:51:34,200
I'll leave it at that unless Your Honor has questions.

985
01:51:34,200 --> 01:51:41,200
I feel it would be premature for me. Mr. Winston, did you wish to be heard? I know you popped in.

986
01:51:41,200 --> 01:51:50,200
Yes, Your Honor. Very briefly, for the record, Eric Winston of Quinn and Manuel for West Realm Shires, Alameda, and the other affiliated FDX debtors.

987
01:51:50,200 --> 01:51:56,200
Your Honor, we're very glad to hear counsel's comments and, of course, nothing used on for today.

988
01:51:56,200 --> 01:52:06,200
We're here to monitor the block-by cases and to ensure that the stakeholders of the FDX debtors, which include West Realm Shires and Alameda, are protected.

989
01:52:06,200 --> 01:52:11,200
In that regard, we're continuing to investigate and reserve all rights in that respect.

990
01:52:11,200 --> 01:52:19,200
And in respect of the adversary proceeding, we do believe that one or more of the debtors of the state have an interest in what counsel has previously called the collateral,

991
01:52:19,200 --> 01:52:27,200
what's referred to as collateral in the adversary proceeding, and we likewise reserve all rights in that respect. We'll deal with it at the appropriate time.

992
01:52:27,200 --> 01:52:29,200
All right. Thank you, Mr. Winston.

993
01:52:29,200 --> 01:52:30,200
Thank you, Your Honor.

994
01:52:30,200 --> 01:52:38,200
And then lastly, Your Honor, just an update on the Bermuda proceedings. This morning, before Chief Hargon, I hope I have his name right,

995
01:52:38,200 --> 01:52:50,200
the joint provisional liquidator order that was negotiated between the company, the board, management, with Walker's and all of our teams here in the United States was entered.

996
01:52:50,200 --> 01:52:56,200
So we have two provisional liquidators in the Bermuda proceedings, which is called a light touch proceeding.

997
01:52:56,200 --> 01:52:58,200
I noted that.

998
01:52:58,200 --> 01:53:03,200
The order that was entered, however, doesn't seem to be so light. That's all I'll say.

999
01:53:03,200 --> 01:53:10,200
We have Joel Edwards from ENY Bermuda and Eleanor Fisher of ENY Cayman. Those are the joint provisional liquidators.

1000
01:53:10,200 --> 01:53:18,200
We're going to be working through Walker's as well as the Blocked by International Board and Management to try to be as cooperative and productive with them.

1001
01:53:18,200 --> 01:53:24,200
We had a great call yesterday. I say great because there was 30 people on the call and it went an hour and it was seamless.

1002
01:53:24,200 --> 01:53:31,200
I think everyone did a very good job trying to promote cooperation and not stepping on each other's toes.

1003
01:53:31,200 --> 01:53:38,200
We expect them from time to time to be involved in these proceedings here in the U.S. and likewise to the extent we need to will be in Bermuda.

1004
01:53:38,200 --> 01:53:45,200
But I see something going very well and not any hiccups or problems yet.

1005
01:53:45,200 --> 01:53:50,200
Yes. I don't remember the word yet. All right. Thank you for the update.

1006
01:53:50,200 --> 01:53:57,200
Yes, Your Honor. Unless you have anything further from me, I think this concludes the hearing. And we thank you for your honor's time and attention.

1007
01:53:57,200 --> 01:54:01,200
Thank you, counsel. I appreciate your efforts and the professionalism of all.

1008
01:54:01,200 --> 01:54:10,200
Let me ask, is there anyone appearing through Zoom? Do they wish to be heard?

1009
01:54:10,200 --> 01:54:15,200
Anyone else in the courtroom wish to weigh in on any issues?

1010
01:54:15,200 --> 01:54:19,200
Then we are adjourned. Thank you very much.

1011
01:54:19,200 --> 01:54:21,200
Travel safely.