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My first job is to make sure I don't push the wrong button and undo everything everybody's

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worked on this morning.

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This is Seth Shapiro from the United States.

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I can hear you.

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I can hear now.

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Alright good morning everyone.

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We'll start shortly.

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Good morning your honor.

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Good morning.

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Too many screens.

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Okay.

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On an omnibus hearing date I wouldn't take appearances, it would take too long.

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But today since it's limited parties I think it's worthwhile.

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Let me start with those who are in the courtroom.

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Let me have appearances.

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Good morning your honor.

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Richard Katowicz, Haynes-Aboone, proposed counsel for the debtors and debtors in possession

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with me as my partner Richard Anigan.

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Good morning.

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Good morning your honor Felicia Ginkol-Shots, PC, proposed counsel to the debtors as well.

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Thank you.

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Good morning.

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Good morning your honor.

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Robert Stark, I'm here with Mr. Jonas and Mr. Owlett from Brown-Brednick.

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Also Mr. Stoltz from the Genova-Burns.

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The gang's back.

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Alright.

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The gang's back.

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Proposed counsel for the official committee of unsecured creditors.

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Welcome.

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Good morning.

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Good morning your honor.

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Jeff Sponder and Lauren Bielski from the office of the United States trustee.

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Alright good morning.

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Ms. Dalton, how are you?

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Good morning your honor.

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Carol Walton of course did not appear on behalf of George Giroux on the Giroux matter.

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Alright.

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Thank you.

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Good morning your honor.

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Edward Schnitzer from Montgomery, McCracken, Walker and Rose on behalf of Samuel Bank-Nefreed.

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Good morning.

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Good morning your honor.

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Brian Gluckstein along with James Bromley from Sullivan and Cromwell on behalf of the

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FTX Trading and Affiliated Netters.

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Thank you.

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Good morning.

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Good morning your honor.

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Joshua Dorchak with me, Matthew Ziegler, Morgan Lewis and Bakia Zabalpi on behalf of Angela

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Barkhouse and Tony Shukla who are the joint provisional liquidators of the emergent FTX

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entity.

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Great.

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Emergent Fidelity Technologies Limited.

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Thank you.

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Mouthful.

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Good morning your honor.

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To raise jarredy and with me is Caitlin Walsh from Mintz-Levon on behalf of Defendant Merrick's

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Capital Markets Limited, formerly known as ED&F Capital Markets Limited.

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Great.

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Thank you.

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Thank you.

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Those who are appearing remotely, if anyone wants to enter appearance, during the course

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of the hearing if you're appearing remotely and wish to be heard just use the hand raise

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function.

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I'll do my best with my law clerks to spot you and have you be heard.

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Let me start.

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Mr. Jero, I see you.

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Your hand raised.

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I think you need your speaker on.

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I'm still not hearing.

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I hope it's, I don't know if it's on my end.

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We can hear you, Judge.

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Okay.

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Well, this may be problematic, I don't know if it's Gero or Jero, my apologies, but I'm

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not hearing you.

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I hear others on remote.

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Let me go back to others and let's see if it's yours or on our end.

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Mr. Sarota, good morning.

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Good morning your honor.

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Michael Sarota, Cold Shots PC, co-counsel for the Deggers.

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And I see Mr. Susberg, good morning.

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Good morning your honor, Joshua Susberg, Cochran Ellis, proposed counsel to the Deggers.

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I would like, if your honor is okay with it, to provide a brief status update at the outset

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and I appreciate your honor entertaining a remote appearance.

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Thank you.

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Not a problem.

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I'll get you when we're ready to start.

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Mr. Adler.

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Good morning your honor.

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David Adler from the Porter and Inglis.

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With me on the phone, I believe is also Lisa Bovdahl.

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We are proposed efficiency counsel for the official committee.

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Alright, thank you.

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Good morning.

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Mr. Pasquale, if I'm pronouncing it correct?

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You are your honor, thank you.

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Ken Pasquale for the official committee of unsecured creditors in the FTX trading case.

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I'm with the firm of Paul Hastings.

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Great, thank you.

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Good morning.

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Ms. Koski Apopper, I know I'm butchering that.

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You actually got it exactly right, your honor.

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I'm Jen Koski, Chapman Pepper, on behalf of the ad hoc committee of the loyalty account

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holders.

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Alright, great.

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And Ms. Parlin?

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Good morning your honor.

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Barbara Parlin, holiday night for Silvergate Bank.

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Thank you.

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Alright, I think I've demonstrated why we won't do that again on the bus days.

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Alright, so.

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Your honor, this is Mr. Shapiro.

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I, Steph Shapiro, we are not appearing in the adversary proceeding on behalf of the

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United States today, as we are not a party to that proceeding, but I did file a notice

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of appearance in the main case and I am here to answer whatever questions the court might

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have about the notice of asset seizure that we filed last week in the main bankruptcy.

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Thank you.

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Good, I'm glad to have your appearance.

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I certainly think it's going to be relevant.

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Alright, Mr. Jarrow, you want to try it again?

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Good morning your honor.

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I am appearing with audio via remote, the phone and on video on the computer.

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Thank you.

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Alright, thank you.

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Mr. Banker?

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Good morning your honor, David Banker, my company is cracking on behalf of the family

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of our deceased, Mr. Schmitzer has already appeared in person and he is now admitted

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to the court.

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Thank you, your honor.

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Alright, thank you.

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And I think I have everyone.

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Alright.

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Let's see.

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Now let me turn back to Mr. Suspert.

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We can start with the status since we are here on the second hearing in this case.

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Thank you your honor and again for the record Joshua Suspert from Corcoran Alice.

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If I could ask your honor to share the presenter role with Mr. Jacobson from my firm, we can

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put the slides on the screen.

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Alright Maria.

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Sure.

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Easier said than done.

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You're setting up an easel, Josh.

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The modern marvels of technology.

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Well, with about 150 remote appearances, it's hard to find people.

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Mr. Jacobson, you want to raise your hand?

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There he is.

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Alright Mr. Jacobson has presenter status, he needs to share it on his end.

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And your honor, as you mentioned, today was supposed to be our omnibus second day hearing.

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Unfortunately, fortunately and not criticizing, but it took several weeks for the committee

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to ultimately be appointed and that was not until December 21st.

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And obviously we want to get off to a good start with our committee.

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They need some time to digest some of the relief that has been sought.

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Some will take more time than others.

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The goal here is to be as consensual as possible, which I'll talk about.

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And as a result, we moved the hearing today and look to the relief that we were seeking

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next week and will likely be seeking another hearing from your honor for certain relief

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that I'll get to in a moment.

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Mr. Jacobson, if you could share the slides.

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My apologies, your honor.

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The Zoom is still calling me that the host is disabled participants screen sharing when

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I try and share my screen.

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Alright, we need to take a break.

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Do you want to see if we have Andrew?

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Our apologies, we're just going to take a couple minute break and get our IT person

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up here.

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Alright, we are ready to go.

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See material up on the screen.

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Mr. Susberg, it's your podium.

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Thank you, your honor.

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Again, for the record, Joshua Susberg, Kirkland and Ellis wanted to provide the court with

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a brief status update as well as a preview of some items in our syllabus and schedules

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that I think are appropriately served up best in a live conversation.

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And that's the roadmap as you'll see on slide two.

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And we'll get through this fairly quickly so that we can get to the proposed agenda

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items which there are two and Mr. Canowitz will be handing those for the company.

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So progress since the first day hearing, your honor.

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Looking at slide four.

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I think this is important.

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We talked at the first day hearing about the PAP 4 and obviously we filed a Chapter 11

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plan on a standalone basis on the very first day of the case.

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But the thesis all along has been that Mollison Company, our proposed investment bank, will

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run a comprehensive marketing process for all, substantially all, or some of the company's

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assets.

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And that process is well underway.

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As you see on the slide, 106 different parties, both internationally and here domestically,

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have been contacted and are at various stages signing confidentiality agreements and ultimately

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getting access to information.

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And as we note at the bottom of the slide, we do intend to file a motion seeking approval

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of bidding procedures so that we have a very strict and robust process that people can

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understand and look to as we market these assets.

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But importantly, and as I'll come back to in the context of committee discussions, it

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will be incumbent upon the company to demonstrate from an overall business perspective that

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there is in fact a potential standalone option.

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And the only way in which we'll be able to assess a truly value maximizing path forward

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is to understand the viability of that standalone and be able to compare it to the results of

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the auction process.

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Hence the need for bidding procedures and hence the need for a lot of work on the company

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side together with the committee.

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And that will all come in due course.

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On the next slide, Your Honor, and true to our word, we filed a motion a couple of weeks

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after the filing to return money that is in the wallet function at the company.

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We believe based on the terms of use that the proceeds and the dollars and the currency

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in those wallets is the customers.

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And as a result, our focus is on clients and getting those clients back their money.

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And we filed that motion to put a stake in the ground.

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We are closely coordinating with the committee and there are some diligence items that are

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important to navigate including a preference analysis assessment and making sure that we're

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holding onto funds that otherwise should not be leaving the system.

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And so while we very much would like to have this heard on an expedited basis, we absolutely

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respect the committee's right to better understand this, the ordinary course reconciliation and

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the like.

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And it may be more difficult than we expected to make certain distributions and not fully

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turn on this function.

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So we are going to continue to work through this with the committee with the goal of being

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before Your Honor as quickly as possible so that we can put money back into clients' pockets.

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And we understand that there have been some objections to this motion.

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We will address those in due course.

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I think they can all be reconciled and we're going to work with all deliberate speed to

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get this up and running, Your Honor, with the committee's support.

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Next slide briefly, just wanted to note we filed several second day motions as well as

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retention applications.

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Many of those will be heard next week.

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Others will be adjourned dependent upon the committee's diligence and where they stand

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as far as the relief is concerned.

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But I did want to make sure to note for Your Honor what's to come.

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There are some issues where we may have a tussle or two with the United States Trustee

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that we are prepared to move forward on all the relief that we've sought, again, on an

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expedited basis.

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As I mentioned on the next slide, the United States Trustee appointed the Client Committee

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on December 21st.

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Nine individual clients appointed to the committee.

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The committee went and quickly retained professionals, as you'll see on the next slide.

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And the committee is being represented by Brown-Rovnik and three, Alamantis and Mr.

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Adler, who I apologize, I forgot his logo on this slide.

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Mr. Stark, who I know the court is familiar with, I go back a long time with Mr. Stark.

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And we've had our fair share of disputes and disagreements, but there's never been a time

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where I haven't been able to get to a resolution with Mr. Stark.

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And we talk about this case being different than Voyager and Celsius and FTX.

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And I think true to his word, Mr. Stark is committed to working with us to make that

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a reality.

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And I am happy to have him on the other side, again, someone I know, respect, admire, and

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consider a friend.

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And we look forward to working with the committee professionals as well as the committee, because

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I will note it was important for our management team to be able to sit with the creditors

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committee at the outset here.

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And so the committee, again, appointed on December 21st, we had an in-person meeting

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this past Friday at my office.

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The entire committee was there, all of their professionals, I mean, by all accounts, everyone

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who was there thought it was a very good, constructive meeting.

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And it's the beginning of what we consider a very, very important relationship, unlike

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a typical committee-fetter relationship, because of what's at stake and how these cases work.

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And at the end of the day, we're serving our clients and they sit on this committee.

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So looking forward to working with Mr. Stark and the team, and three, but we know extremely

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well, that by Mr. Meiji and, of course, Mr. Appel.

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Next section, Your Honor, is a preview of our schedules and statements.

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We are filing sole prison schedules on the 11th of January.

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And my style, as I told Mr. Stark yesterday, is not to bury a bunch of information in thousands

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of pages and have people go on a treasure trove hunt to try to find what they may or

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may not think is important.

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And so today, Your Honor, I wanted to preview for you and for everyone else, I've previewed

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this for Mr. Stark, some items related to insiders in the SOPAs and the schedules.

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And I think it's important because, as we've seen in some of the other crypto cases, these

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issues can become lightning rods, and it sure did in Celsius.

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This case, as we've said, is unlike any of those other cases, and we are a completely

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transparent operation and want to walk, Your Honor, through exactly what happened and how

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insiders were treated and what went on.

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On the next slide, I think it's just helpful to level set.

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So this was the January to November timeframe.

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And again, remember, the company had a settlement, a historic settlement with the SEC back on

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Valentine's Day of last year, and that was then followed by the Terra Luna collapse,

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which we spent a lot of time talking about, and then the Celsius and Voyager pausing of

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withdrawals, which created mass confusion and obviously contagion throughout the industry.

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In order to avoid having to halt withdrawals, right, BlockFi entered into an agreement with

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FTX where FTX, on a junior basis, backstopped all of our client withdrawals.

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And as you'll see, that led us to the ability to process more than $3 billion of withdrawals

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between June 1st when everyone else was pausing their systems and the filing of these cases.

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The issue and the problem was FTX-related and the now known fraud of FTX.

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FTX got into a liquidity crunch.

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Its native token fell off the planet Earth, and it filed the bankruptcy on the 10th, and

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BlockFi was not long after.

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00:18:36,480 --> 00:18:44,280
On the next slide, and I think this is important, and obviously people can spend time with this.

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This will be in our schedules and statements, and again, this is a preview.

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But the management team at this company deployed their personal assets on the platform to trade,

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like all other clients, earn interest or store currencies.

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And what we decided to do in an effort to be completely transparent is put the name

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00:19:02,360 --> 00:19:08,360
of each executive and show the activity in their accounts on the BlockFi system each

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00:19:08,360 --> 00:19:11,080
month through to the file.

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And I want to note, and I don't necessarily ever like to read anything, but the quote

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00:19:14,960 --> 00:19:17,440
at the bottom is incredibly important.

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00:19:17,440 --> 00:19:23,400
No member of the BlockFi management team withdrew any cryptocurrency from the platform after

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00:19:23,400 --> 00:19:29,800
October 14th, 2022, and no member of BlockFi's management team made a withdrawal greater

292
00:19:29,800 --> 00:19:35,520
than.2 BTC in value at any time after August 17th, 2022.

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Now, for those not familiar with Bitcoin, I think the way to conceptualize this is Bitcoin

294
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was trading at $20,000,.2 BTC would be less than $4,000.

295
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And I think the important takeaway here is that there was no situation where insiders

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00:19:54,720 --> 00:20:01,160
were pulling money off the platform on the eve of or anywhere near this bankruptcy file.

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And that is super important.

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00:20:02,160 --> 00:20:08,200
One other note, and we have a footnote on this slide to this point, but in April of

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00:20:08,200 --> 00:20:15,000
2022, you'll see a rather large withdrawal by Mr. Prince, the CEO and founder, that was

300
00:20:15,000 --> 00:20:16,000
to pay taxes.

301
00:20:16,000 --> 00:20:21,800
And it makes sense, it was in April, the effectuated April 15th tax payment, but we wanted to be

302
00:20:21,800 --> 00:20:25,720
crystal clear with the activity and how everything else worked.

303
00:20:25,720 --> 00:20:31,960
The rest of the chart, when we talk about October and August, shows balances decreasing

304
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because of the value of BTC.

305
00:20:33,640 --> 00:20:41,200
As you see on the slide, how much it went down over the course of the year.

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00:20:41,200 --> 00:20:42,960
Next slide, just briefly.

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00:20:42,960 --> 00:20:51,640
I mentioned this before, but all of 2022, this company processed $7.7 billion of withdrawals

308
00:20:51,640 --> 00:20:57,480
and from June 1st through the platform pause, again, when all the other cryptocurrencies

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00:20:57,480 --> 00:21:03,840
that failed were pausing withdrawals causing mass contagion, we processed $3.3 billion

310
00:21:03,840 --> 00:21:04,840
of withdrawals.

311
00:21:04,840 --> 00:21:10,040
And to put this all in context, as we say at the top of the page, the management team's

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00:21:10,040 --> 00:21:15,280
withdrawals are a tenth of 1% of the $7.7 billion in withdrawals.

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So this is not the Celsius case where management extracted value on the eve of the file.

314
00:21:21,560 --> 00:21:23,440
Next slide.

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00:21:23,440 --> 00:21:31,480
This, again, we talked about this crypto winner, FTX, and the fraud that was FTX.

316
00:21:31,480 --> 00:21:36,360
Same thing happened, and I experienced it directly in the Voyager case where FTX stepped

317
00:21:36,360 --> 00:21:40,840
in to try to save Voyager, only really to try to save itself.

318
00:21:40,840 --> 00:21:46,680
But this was a deal that allowed us the ability to process withdrawals for customers all summer

319
00:21:46,680 --> 00:21:48,400
in a very confused marketplace.

320
00:21:48,400 --> 00:21:55,240
Again, this was a $400 million backstop on a junior basis that, again, allowed us to

321
00:21:55,240 --> 00:21:58,360
process those withdrawals.

322
00:21:58,360 --> 00:22:05,120
I mention this because on the next slide, the impact of the FTX transaction was significant

323
00:22:05,120 --> 00:22:09,160
on the executives, the employees, and the shareholders.

324
00:22:09,160 --> 00:22:14,800
The only way to raise money at the time was on a junior basis to protect the clients.

325
00:22:14,800 --> 00:22:20,240
The company was, in fact, pursuing equity raises and could have pursued senior capital

326
00:22:20,240 --> 00:22:26,240
on a secure basis, but it did the safest and the most viable thing, and it took the FTX

327
00:22:26,240 --> 00:22:31,320
money, which would ultimately lead, as your honor knows, to a potential FTX transaction.

328
00:22:31,320 --> 00:22:38,320
Importantly, though, the company needed to get stabilized after the FTX infusion, and

329
00:22:38,320 --> 00:22:41,600
it created massive uncertainty amongst the employees.

330
00:22:41,600 --> 00:22:47,040
And you see the 20% reduction in force, and you'll understand as we talk about it the

331
00:22:47,040 --> 00:22:52,720
value that was lost for this executive team on pieces of paper from an equity standpoint

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00:22:52,720 --> 00:22:57,120
when this company had been valued at $6 to $8 billion just a couple months before all

333
00:22:57,120 --> 00:22:58,120
of this.

334
00:22:58,120 --> 00:23:03,000
And so it became important to implement a compensation structure that kept people at

335
00:23:03,000 --> 00:23:09,720
the company so we could facilitate what we thought would be an FTX acquisition here in

336
00:23:09,720 --> 00:23:10,720
2023.

337
00:23:10,720 --> 00:23:17,240
And therefore, as you'll see the next bullet, in July of 22, the board of directors approved

338
00:23:17,240 --> 00:23:21,440
really a three-prong strategy to help retain key employees.

339
00:23:21,440 --> 00:23:25,320
In the next slide, we'll see each of the three prompts.

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00:23:25,320 --> 00:23:31,000
First, I just think it's worth noting that many employees had paid out of their own pockets

341
00:23:31,000 --> 00:23:36,920
or otherwise got financing for shares or options that were all rendered worthless by the FTX

342
00:23:36,920 --> 00:23:37,920
transaction.

343
00:23:37,920 --> 00:23:43,880
So, prong one was to make these people whole, and in some instances, grow stuff for retention.

344
00:23:43,880 --> 00:23:49,240
Number two, the board approved the retention program, as you see on the slide, offered

345
00:23:49,240 --> 00:23:52,120
an opportunity to earn cash payments.

346
00:23:52,120 --> 00:23:56,800
Because remember, most of these employees had been compensated in stock or options prior

347
00:23:56,800 --> 00:23:58,840
to the FTX transaction.

348
00:23:58,840 --> 00:24:04,520
And so up to 50% of their base salary could be earned if they not only stayed at the company

349
00:24:04,520 --> 00:24:06,360
but met certain company-wide goals.

350
00:24:06,360 --> 00:24:10,800
And as we note on the bottom, and I think this is important, that retention program

351
00:24:10,800 --> 00:24:11,800
will discontinue.

352
00:24:11,800 --> 00:24:17,360
No payments were made to insiders nor will any be made, and no insiders are included

353
00:24:17,360 --> 00:24:21,760
in our proposed court motion, which the committee is in the process of building.

354
00:24:21,760 --> 00:24:29,120
And number three, Your Honor, blocked by historically timed raises of compensation with capital

355
00:24:29,120 --> 00:24:30,120
markets activity.

356
00:24:30,120 --> 00:24:36,160
But because of the impact on the FTX transaction from a personal standpoint on all these employees,

357
00:24:36,160 --> 00:24:40,960
increases in base salaries to ensure that people were maintained and stayed in their

358
00:24:40,960 --> 00:24:42,960
seats became necessary.

359
00:24:42,960 --> 00:24:50,320
And so as you'll see on the next slide, the first column is the equity, both vested and

360
00:24:50,320 --> 00:24:54,400
unvested, that was lost at the time of the FTX transaction.

361
00:24:54,400 --> 00:24:57,920
And some of the numbers are obviously staggering.

362
00:24:57,920 --> 00:25:02,160
And it's unfortunate, but this is the reality in which we live.

363
00:25:02,160 --> 00:25:08,680
We have a second column of 2023 retention payments that were put in place as part of

364
00:25:08,680 --> 00:25:11,600
the FTX stabilization post the summer transaction.

365
00:25:11,600 --> 00:25:14,240
None of these payments will be made.

366
00:25:14,240 --> 00:25:20,960
And then we have a slide and a column talking about salary changes following the FTX transaction,

367
00:25:20,960 --> 00:25:24,720
again, to help ensure that we retain critical employees.

368
00:25:24,720 --> 00:25:30,120
And as noted at the bottom, the curve that we are seeking approval of has absolutely

369
00:25:30,120 --> 00:25:32,080
no insiders included.

370
00:25:32,080 --> 00:25:33,080
That was by design.

371
00:25:33,080 --> 00:25:34,080
Okay, slide 17.

372
00:25:34,080 --> 00:25:37,080
And Your Honor, you'll remember this timeline.

373
00:25:37,080 --> 00:25:42,880
We had attached it to Mr. Renzi's first day declaration.

374
00:25:42,880 --> 00:25:49,080
And I think this will be helpful in putting the last part of our SOFA schedule preview

375
00:25:49,080 --> 00:25:50,560
into appropriate context.

376
00:25:50,560 --> 00:25:55,960
And some of this I've covered and I won't rehash, but this timeline starts with blocked

377
00:25:55,960 --> 00:26:03,960
by success and growth back in 2018 through mid-2022 and the crypto winter, if you will,

378
00:26:03,960 --> 00:26:09,280
that led to the FTX rescue transaction and then ultimately the filing of these cases.

379
00:26:09,280 --> 00:26:13,840
And again, I want to use this as a preview for the court and other parties in interest

380
00:26:13,840 --> 00:26:18,920
as they're going to see in our schedules and statements certain litigation settlement

381
00:26:18,920 --> 00:26:19,920
payments.

382
00:26:19,920 --> 00:26:25,320
And I think this timeline, which we'll overlay, will help illustrate those litigation payments

383
00:26:25,320 --> 00:26:26,320
and the settlement.

384
00:26:26,320 --> 00:26:32,680
Because the terms of the litigation settlement that I'm talking about are confidential, I'm

385
00:26:32,680 --> 00:26:38,920
going to refer to the counterparty for the settlement as counterparty A. We will share

386
00:26:38,920 --> 00:26:40,800
copies with the committee.

387
00:26:40,800 --> 00:26:45,960
Obviously, we'll share copies with the United States trustee, but for public purposes and

388
00:26:45,960 --> 00:26:50,120
because of confidentiality, Raymond's included in our settlement agreements.

389
00:26:50,120 --> 00:26:53,520
For today, we will call it counterparty A.

390
00:26:53,520 --> 00:26:59,720
As this timeline demonstrates, blocked by successfully raised capital via four different

391
00:26:59,720 --> 00:27:02,000
rounds of preferred equity financing.

392
00:27:02,000 --> 00:27:09,160
And in July 2021, for example, blocked by series A offering was valued at 3.8 billion.

393
00:27:09,160 --> 00:27:15,760
And as we'll talk about and as I mentioned to your honor before, in January of 2022,

394
00:27:15,760 --> 00:27:19,960
blocked by received a $6 to $8 billion third party indicative valuation.

395
00:27:19,960 --> 00:27:26,120
Now, as is typical for companies like blocked by, many of the blocked by executives and

396
00:27:26,120 --> 00:27:29,720
employees have been compensated heavily in equity.

397
00:27:29,720 --> 00:27:34,640
And that equity obviously appeared to be extremely valuable, especially when you attach a $6

398
00:27:34,640 --> 00:27:36,640
to $8 billion valuation.

399
00:27:36,640 --> 00:27:44,640
So in this context, as again is typical, several different investors approach the company,

400
00:27:44,640 --> 00:27:50,040
including counterparty A, and they approach several members of the management team and

401
00:27:50,040 --> 00:27:55,520
offer different transaction structures to provide blocked by executives and employees

402
00:27:55,520 --> 00:27:58,280
with liquidity in exchange for their equity upside.

403
00:27:58,280 --> 00:28:03,600
And as your honor is familiar, this is common for early stage companies like blocked by

404
00:28:03,600 --> 00:28:07,080
and can ultimately be a win-win for both sides.

405
00:28:07,080 --> 00:28:11,520
So investors here like counterparty A are betting that the company will go public or

406
00:28:11,520 --> 00:28:12,520
be sold.

407
00:28:12,520 --> 00:28:17,360
And so they propose to employees that they take some of their equity off the table in

408
00:28:17,360 --> 00:28:21,960
exchange for liquidity, thus acquiring the equity at a material discount.

409
00:28:21,960 --> 00:28:27,720
So if the company IPO's or is sold, the counterparty stands to make a significant profit.

410
00:28:27,720 --> 00:28:31,800
And the employees in turn can reduce their exposure and get some early liquidity.

411
00:28:31,800 --> 00:28:36,520
And as a result, they're willing to suffer a discount that's demanded by the investor.

412
00:28:36,520 --> 00:28:42,320
And so these types of private security contracts are entered into directly between the employee

413
00:28:42,320 --> 00:28:43,320
and the company, and that's important.

414
00:28:43,320 --> 00:28:50,120
So as we note, and you'll see on the slide, starting at the end of 2021 and then in March

415
00:28:50,120 --> 00:28:56,400
and April of 22, blocked by board of directors approve certain current and former blocked

416
00:28:56,400 --> 00:29:02,400
by execs entering into the first set of private security contracts with counterparty A. And

417
00:29:02,400 --> 00:29:06,240
we call these on the slide PFCs on the timeline.

418
00:29:06,240 --> 00:29:11,520
In the private security contracts, counterparty A promise to make immediate payments to the

419
00:29:11,520 --> 00:29:16,200
relevant individuals in exchange for some of their future rights to payment in the event

420
00:29:16,200 --> 00:29:18,200
of an IPO or sale.

421
00:29:18,200 --> 00:29:23,720
And as I mentioned, the first of these agreements were entered into in November of 2021.

422
00:29:23,720 --> 00:29:27,960
Again, this appeared to be a win-win for all.

423
00:29:27,960 --> 00:29:32,280
And this was effectively an employee benefit from the company standpoint because the company

424
00:29:32,280 --> 00:29:36,880
facilitated its employees getting value for their equity and taking some of their assets

425
00:29:36,880 --> 00:29:37,880
off the table.

426
00:29:37,880 --> 00:29:42,560
And at the time it appeared the employees were transacting at a material discount.

427
00:29:42,560 --> 00:29:49,480
In January 2022, again, a major investment bank indicated a $6 to $8 billion valuation

428
00:29:49,480 --> 00:29:50,480
for the company.

429
00:29:50,480 --> 00:29:55,800
At the same time, blocked by was seeking to raise additional capital through the series

430
00:29:55,800 --> 00:30:00,240
S for first financing that actually never was effectuated.

431
00:30:00,240 --> 00:30:06,400
More blocked by's current and former employees negotiated PFCs with counterparty A through

432
00:30:06,400 --> 00:30:08,640
April of 2022.

433
00:30:08,640 --> 00:30:10,000
And we'll see that on the next clip.

434
00:30:10,000 --> 00:30:16,400
And notably and obviously all of these transactions predated the contagion or anyone's knowledge

435
00:30:16,400 --> 00:30:21,400
of what was going to happen in this industry and that ultimately caused blocked by its

436
00:30:21,400 --> 00:30:24,920
liquidity issues and the bankruptcy bias.

437
00:30:24,920 --> 00:30:32,040
Now everything changed as we demonstrate on this slide in May of 2022 when a material

438
00:30:32,040 --> 00:30:35,120
downturn in the crypto market began.

439
00:30:35,120 --> 00:30:39,000
The collapse of three arrows capital as we talked about with your honor and we're generally

440
00:30:39,000 --> 00:30:44,640
the crypto winner caused contagion that nobody had understood or ever predicted across the

441
00:30:44,640 --> 00:30:49,520
sector and led to material withdrawals that we were able to weather through because of

442
00:30:49,520 --> 00:30:52,080
the XTX backstop.

443
00:30:52,080 --> 00:30:56,600
That sector contagion as we talked about really began in May with the Luna collapse.

444
00:30:56,600 --> 00:31:02,000
And although blocked by didn't have any direct exposure to Luna, as everybody else started

445
00:31:02,000 --> 00:31:08,040
pausing their platforms, blocked by had immediate requests and massive withdrawals and it was

446
00:31:08,040 --> 00:31:12,280
industry wide and no one was free from it.

447
00:31:12,280 --> 00:31:18,520
The deterioration of the sector had an impact obviously on blocked by's equity value and

448
00:31:18,520 --> 00:31:23,280
counterparty A's investment which had been made at the end of 2021 and in March and April

449
00:31:23,280 --> 00:31:24,280
of 2022.

450
00:31:24,280 --> 00:31:30,000
To be very clear and I think this is super important, counterparty A's recourse against

451
00:31:30,000 --> 00:31:36,080
the blocked by executives was contractually limited to blocked by shares themselves.

452
00:31:36,080 --> 00:31:41,400
The counterparty A had no buy of a claim against anyone or the employees but it certainly couldn't

453
00:31:41,400 --> 00:31:46,600
sue its contractual party because it had agreed it had no recourse against it.

454
00:31:46,600 --> 00:31:50,520
And so what happened in June of 2022?

455
00:31:50,520 --> 00:31:55,160
Counterparty came to block by and threatened to bring unfounded claims against the company

456
00:31:55,160 --> 00:31:56,160
directly.

457
00:31:56,160 --> 00:32:03,280
Generally and in our view seeking to use expensive burdensome litigation to recoup the value

458
00:32:03,280 --> 00:32:06,480
of counterparty A's unsuccessful investment.

459
00:32:06,480 --> 00:32:10,640
The theories that were articulated at the time and this predates my involvement but

460
00:32:10,640 --> 00:32:14,920
it's been conveyed to me that the theories were vague but generally suggesting that blocked

461
00:32:14,920 --> 00:32:20,640
by should have disclosed more information about the damage to its business caused by

462
00:32:20,640 --> 00:32:23,040
sector contagion than it otherwise did.

463
00:32:23,040 --> 00:32:29,000
And the counterparty theorized without evidence that blocked by knew more than it did earlier

464
00:32:29,000 --> 00:32:30,000
than it did.

465
00:32:30,000 --> 00:32:35,440
That blocked by had to assess the threats from counterparty A and at the same time it

466
00:32:35,440 --> 00:32:39,880
entered into the STX transaction to backstop those customer withdrawals.

467
00:32:39,880 --> 00:32:45,520
Now the transaction with STX remember was hugely helpful to blocked by clients but destructive

468
00:32:45,520 --> 00:32:47,000
to equity holders.

469
00:32:47,000 --> 00:32:52,880
STX agreed on that $400 million junior loan but essentially backstopping the company and

470
00:32:52,880 --> 00:32:58,400
wiping out the millions and hundreds of millions of dollars in proposed equity value that existed

471
00:32:58,400 --> 00:32:59,400
just a few months before.

472
00:32:59,400 --> 00:33:06,280
And as a result of that STX transaction STX had appointed an observer to block by board

473
00:33:06,280 --> 00:33:07,280
of directors.

474
00:33:07,280 --> 00:33:12,960
And from STX's perspective what STX said both publicly and privately and I was witness

475
00:33:12,960 --> 00:33:19,280
to this in multiple different arenas a key benefit of the deal with blocked by from STX

476
00:33:19,280 --> 00:33:24,760
perspective was stabilizing not only blocked by but the sector more broadly.

477
00:33:24,760 --> 00:33:30,000
And that was STX's goal and Sanpain has stated it over and over again he wanted to be the

478
00:33:30,000 --> 00:33:36,200
white knight to try to save the industry when in reality he was someone in a much darker

479
00:33:36,200 --> 00:33:38,160
place trying to save himself.

480
00:33:38,160 --> 00:33:43,800
But that being said the board observer was very concerned that mitigation around this

481
00:33:43,800 --> 00:33:49,960
issue with counterparty would be distracting and potentially impair our ability to not

482
00:33:49,960 --> 00:33:56,640
only stabilize the business close to $400 million junior funding but affect the STX

483
00:33:56,640 --> 00:33:57,640
transaction.

484
00:33:57,640 --> 00:34:03,920
And as a result with the money funded from the STX transaction the board considered ways

485
00:34:03,920 --> 00:34:10,240
in which a settlement could be effectuated with counterparty given that the lawsuit itself

486
00:34:10,240 --> 00:34:14,880
could cause harm both to the business and to the employees and at the same time drain

487
00:34:14,880 --> 00:34:16,880
resources of the company.

488
00:34:16,880 --> 00:34:22,640
So as a result the threats from counterparty were resolved in a confidential settlement

489
00:34:22,640 --> 00:34:28,200
agreement that we note was entered into on August 23rd 2022.

490
00:34:28,200 --> 00:34:33,720
It was between counterparty block by and each of the executives that were involved.

491
00:34:33,720 --> 00:34:39,000
The settlement was brought to and approved by block by then board of directors including

492
00:34:39,000 --> 00:34:42,240
disinterested directors at the time.

493
00:34:42,240 --> 00:34:47,000
The claims that were advanced as I mentioned your honor were directed against block by

494
00:34:47,000 --> 00:34:52,720
and that block by had allegedly provided misleading information or not enough information.

495
00:34:52,720 --> 00:34:58,040
We all disagree and dispute we thought these claims were specious but again counterparty

496
00:34:58,040 --> 00:35:02,920
had no recourse against the individuals and all they could do was make noise.

497
00:35:02,920 --> 00:35:09,360
Due to the structure of the settlement certain payments your honor were rooted through the

498
00:35:09,360 --> 00:35:13,120
executives and ultimately made to counterparty.

499
00:35:13,120 --> 00:35:17,840
The payments also created tax liabilities for the executives even though they did not

500
00:35:17,840 --> 00:35:18,840
keep the funds.

501
00:35:18,840 --> 00:35:24,240
So as you'll see on this slide and it's essential to understand this the recipients

502
00:35:24,240 --> 00:35:28,800
name on this slide did not keep any funds.

503
00:35:28,800 --> 00:35:34,680
The company agreed to make these settlement payments in some instances directly to the

504
00:35:34,680 --> 00:35:40,360
employee but the employee then would pay the taxes associated with the amounts and then

505
00:35:40,360 --> 00:35:42,880
distribute the rest to counterparty bank.

506
00:35:42,880 --> 00:35:47,640
So when the schedules are filed on Wednesday there will be a spreadsheet of all payments

507
00:35:47,640 --> 00:35:52,360
made and some of those payments will have the numbers on this slide and will say litigation

508
00:35:52,360 --> 00:35:53,360
settlement.

509
00:35:53,360 --> 00:35:59,160
The executives again themselves were mere conduits of those payments to fulfill a settlement

510
00:35:59,160 --> 00:36:03,040
were blocked by settle claims made by counterparty A.

511
00:36:03,040 --> 00:36:08,560
And suffice it to say we the team at Hayes and Boone and Cole shops and now together

512
00:36:08,560 --> 00:36:13,480
with the committee will be looking at all recourse we have with respect to the approximately

513
00:36:13,480 --> 00:36:19,600
15 million dollars of payments that were made to counterparty A and rest assured your honor

514
00:36:19,600 --> 00:36:24,800
that we will do everything we can to make sure these states are whole and spared from

515
00:36:24,800 --> 00:36:26,800
specious litigation claims.

516
00:36:26,800 --> 00:36:31,760
But I did think this was important enough to spend a few minutes walking the court through

517
00:36:31,760 --> 00:36:36,240
walking our stakeholders through and what is giving everybody a preview of what would

518
00:36:36,240 --> 00:36:39,040
otherwise be buried in schedules and statements.

519
00:36:39,040 --> 00:36:41,080
We think this is incredibly important.

520
00:36:41,080 --> 00:36:42,720
We think this case is different.

521
00:36:42,720 --> 00:36:46,800
We think this management team is different and case in point I think up spending the

522
00:36:46,800 --> 00:36:52,080
time being transparent and laying out that there really is nothing for people to see

523
00:36:52,080 --> 00:36:56,920
when you understand that feel that the onion was important from our perspective.

524
00:36:56,920 --> 00:37:02,640
And again I appreciate your honor allowing me to time and to appear via remotely.

525
00:37:02,640 --> 00:37:04,040
Thank you.

526
00:37:04,040 --> 00:37:06,000
Thank you.

527
00:37:06,000 --> 00:37:10,720
Bear with me.

528
00:37:10,720 --> 00:37:26,080
Mr. Sussberg is there anything additional on the status you wish to say before I go

529
00:37:26,080 --> 00:37:30,040
to others in and outside of the courtroom.

530
00:37:30,040 --> 00:37:31,040
That is all your honor.

531
00:37:31,040 --> 00:37:32,040
Thank you.

532
00:37:32,040 --> 00:37:33,040
Okay great.

533
00:37:33,040 --> 00:37:34,040
Thank you.

534
00:37:34,040 --> 00:37:38,680
And we'll take down the slide.

535
00:37:38,680 --> 00:37:39,680
Thank you.

536
00:37:39,680 --> 00:37:41,360
All right.

537
00:37:41,360 --> 00:37:44,960
Let me turn to counsel who are in the present.

538
00:37:44,960 --> 00:37:47,680
Committee counsel wish to be heard on the status.

539
00:37:47,680 --> 00:37:50,440
I did have a few remarks I wanted to make.

540
00:37:50,440 --> 00:37:54,640
Mr. Sussberg stole a little bit of my thunder but then he went off into a whole lot of really

541
00:37:54,640 --> 00:37:58,360
interesting things that I don't have anything to comment on about now as I'm learning about

542
00:37:58,360 --> 00:37:59,520
them.

543
00:37:59,520 --> 00:38:00,520
As we all are.

544
00:38:00,520 --> 00:38:02,520
Can I have a few minutes please?

545
00:38:02,520 --> 00:38:03,520
Absolutely.

546
00:38:03,520 --> 00:38:04,520
Just to give you our perspective.

547
00:38:04,520 --> 00:38:05,520
Yes.

548
00:38:05,520 --> 00:38:06,520
Thank you.

549
00:38:06,520 --> 00:38:10,880
I'm going to hand over to the proposed counsel to the official committee of unsecured creditors.

550
00:38:10,880 --> 00:38:14,920
And I do want to thank Mr. Sussberg and I'll talk a little bit more about him and their

551
00:38:14,920 --> 00:38:15,920
approach in a minute.

552
00:38:15,920 --> 00:38:18,920
But I do think that's helpful.

553
00:38:18,920 --> 00:38:19,920
I'm thankful for it.

554
00:38:19,920 --> 00:38:26,240
As Mr. Sussberg said and put on the slide on December 21, so just before the holiday

555
00:38:26,240 --> 00:38:31,160
week, the official committee of unsecured creditors was appointed.

556
00:38:31,160 --> 00:38:34,000
We do have nine individuals.

557
00:38:34,000 --> 00:38:39,800
They are thoughtful, intelligent individuals with real life experiences.

558
00:38:39,800 --> 00:38:42,280
They're sophisticated on all matters related to crypto.

559
00:38:42,280 --> 00:38:45,880
I'm learning an awful lot from the time that we haven't had a lot of time together but

560
00:38:45,880 --> 00:38:50,680
they're very good at teaching and I'm learning an awful lot from them already.

561
00:38:50,680 --> 00:38:51,680
And they're varied.

562
00:38:51,680 --> 00:38:56,880
They were varied in their investments in terms of the currencies that they invested in and

563
00:38:56,880 --> 00:38:59,120
the kinds of accounts they had at BlockFi.

564
00:38:59,120 --> 00:39:02,720
So they're a good representative group and they are working awfully hard.

565
00:39:02,720 --> 00:39:08,360
And I wanted to give your honor and frankly, if you'll allow me to use the bully pulpit,

566
00:39:08,360 --> 00:39:13,080
all those who are listening in, we have a good representative, hardworking, intelligent

567
00:39:13,080 --> 00:39:18,320
committee and we're working well together.

568
00:39:18,320 --> 00:39:22,520
And I'll continue to update the court if there's any issues but I don't anticipate any looking

569
00:39:22,520 --> 00:39:26,440
at this group as I have already.

570
00:39:26,440 --> 00:39:31,200
We have an attitude or an approach to this case and again, not only for your honor but

571
00:39:31,200 --> 00:39:34,000
for everyone who is listening.

572
00:39:34,000 --> 00:39:35,800
We're in a new industry here.

573
00:39:35,800 --> 00:39:42,080
We're in a new industry for bankruptcy here but there have been a couple of crypto platform

574
00:39:42,080 --> 00:39:47,480
bankruptcies that are prelude for what we're doing here at BlockFi and we've studied them

575
00:39:47,480 --> 00:39:49,520
and we've learned from them.

576
00:39:49,520 --> 00:39:51,800
Some are good, some are not so good.

577
00:39:51,800 --> 00:39:56,680
One of the lessons that we've learned is that financial platforms as a general matter, perhaps

578
00:39:56,680 --> 00:40:03,480
cryptocurrency specific today, don't age well in bankruptcy like a fine line.

579
00:40:03,480 --> 00:40:05,640
They can be over-processed.

580
00:40:05,640 --> 00:40:12,160
And so moving thoughtfully, diligently but quickly, being aware of the cost, being aware

581
00:40:12,160 --> 00:40:18,440
of the burden, being decisive and being efficient with the court's resources and the Chapter

582
00:40:18,440 --> 00:40:23,680
11 resources may be more at a premium here than in any other normal bankruptcy case that

583
00:40:23,680 --> 00:40:29,680
we would deal with and that is a very significant part of our theme which is whichever path

584
00:40:29,680 --> 00:40:33,480
we're going on, be thoughtful and diligent about it but then make a decision and go with

585
00:40:33,480 --> 00:40:39,520
it because people are losing money by delay and we don't intend to be stuck.

586
00:40:39,520 --> 00:40:42,120
We met with the company as Mr. Suspick said on Friday.

587
00:40:42,120 --> 00:40:44,760
We had a full day meeting with them.

588
00:40:44,760 --> 00:40:49,640
It's good old-fashioned bankruptcy where everybody saw the whites of each other's eyes and we

589
00:40:49,640 --> 00:40:55,440
had a very frank and very constructive conversation with the management team, the professional

590
00:40:55,440 --> 00:40:56,440
team.

591
00:40:56,440 --> 00:40:59,760
It was a good kickoff meeting.

592
00:40:59,760 --> 00:41:05,600
And they shared a great deal of information with us and they have since that and they're

593
00:41:05,600 --> 00:41:06,600
clearly being well advised.

594
00:41:06,600 --> 00:41:11,560
Some of the best in the business are on the block by side and I have very strong personal

595
00:41:11,560 --> 00:41:13,120
relationships with these individuals.

596
00:41:13,120 --> 00:41:19,240
I've worked with them as Mr. Suspick said in a number of cases and as true to our past

597
00:41:19,240 --> 00:41:24,800
experiences together we're talking the way that we're supposed to in Chapter 11 and

598
00:41:24,800 --> 00:41:25,800
we're learning.

599
00:41:25,800 --> 00:41:31,440
And the executive team shares, seems to share our view, thoughtful, diligent, quick, efficient,

600
00:41:31,440 --> 00:41:35,360
decisive, let's not sit stuck in Chapter 11.

601
00:41:35,360 --> 00:41:39,560
So we all seem to share that view and that was a theme that was replete to our meeting

602
00:41:39,560 --> 00:41:41,440
on Friday and ever since.

603
00:41:41,440 --> 00:41:42,440
We're going to have our disagreements.

604
00:41:42,440 --> 00:41:43,440
That's why we have a V that divides us.

605
00:41:43,440 --> 00:41:44,440
And we're going to try to minimize them.

606
00:41:44,440 --> 00:41:55,480
We have a shared agreement amongst the professionals and the clients that if we extrapolate litigation

607
00:41:55,480 --> 00:42:00,080
and fight over everything that's not going to be consistent with a thematic approach,

608
00:42:00,080 --> 00:42:02,880
shared thematic approach to this Chapter 11 case.

609
00:42:02,880 --> 00:42:04,480
So we're going to try to resolve things where we can.

610
00:42:04,480 --> 00:42:08,320
When we have disagreements we're going to do it in a very professional, fair, and orderly

611
00:42:08,320 --> 00:42:10,320
manner so that we get things resolved.

612
00:42:10,320 --> 00:42:17,840
And I think you saw from Mr. Susford today the transparency idea that is carried through

613
00:42:17,840 --> 00:42:18,840
already.

614
00:42:18,840 --> 00:42:22,760
For the customers who are listening in, again forgive me your honor for seizing the bully

615
00:42:22,760 --> 00:42:27,360
pulpit, but if you allow me just to say a few things for those who are listening.

616
00:42:27,360 --> 00:42:32,680
There are many of you, many of them, and they've lost enormous amounts of money.

617
00:42:32,680 --> 00:42:37,760
And I'm aware, not only from my committee but from others, that very significant portions

618
00:42:37,760 --> 00:42:44,600
of people's own personal savings, retirement accounts, and wealth has gone away.

619
00:42:44,600 --> 00:42:48,520
That is a profound responsibility on this committee and we acknowledge it.

620
00:42:48,520 --> 00:42:52,280
We live it every day, full-time job.

621
00:42:52,280 --> 00:42:57,160
And we're going to do everything we can to get people their money back as soon and as

622
00:42:57,160 --> 00:43:02,280
large in dollar quantum as possible, not without getting stuck in the mud, being decisive and

623
00:43:02,280 --> 00:43:06,640
being efficient and keeping costs down and driving this case forward to get people their

624
00:43:06,640 --> 00:43:09,200
maximum money.

625
00:43:09,200 --> 00:43:13,040
We hired M3 and Elementus, you saw on the screen.

626
00:43:13,040 --> 00:43:19,760
They are experts as financial advisors and in this particular industry space.

627
00:43:19,760 --> 00:43:26,040
They're working very, very hard to learn everything they can, how we got here, where we're going.

628
00:43:26,040 --> 00:43:29,560
That's very unclear to me right now where we're going.

629
00:43:29,560 --> 00:43:33,120
And how soon and cost efficiently can we get there.

630
00:43:33,120 --> 00:43:36,800
So we're deeply, already working deeply on that with the company.

631
00:43:36,800 --> 00:43:39,480
We're going to be communicating with the customers.

632
00:43:39,480 --> 00:43:40,480
We've already set up a Twitter account.

633
00:43:40,480 --> 00:43:44,160
That one's a little new to me so I'm going to learn from this.

634
00:43:44,160 --> 00:43:46,760
We've set up the website.

635
00:43:46,760 --> 00:43:50,880
We're going to be delivering information to the customer group overall.

636
00:43:50,880 --> 00:43:51,880
It's their money.

637
00:43:51,880 --> 00:43:55,920
We're going to be talking to them.

638
00:43:55,920 --> 00:44:00,160
And we want to deliver not only information as we can, confidentiality restrictions are

639
00:44:00,160 --> 00:44:04,520
very important, we're going to honor them scrupulously, but if we can get information

640
00:44:04,520 --> 00:44:05,520
out, we will.

641
00:44:05,520 --> 00:44:10,320
We'll do it timely and we'll try to be as insightful as we can so that the customer

642
00:44:10,320 --> 00:44:14,520
community generally understands what's happening in this case and how it's moving forward.

643
00:44:14,520 --> 00:44:18,960
And we're always ready to speak one on one with any customer who can call us 24-7 and

644
00:44:18,960 --> 00:44:19,960
we'll respond promptly.

645
00:44:19,960 --> 00:44:23,960
And we're going to answer all questions.

646
00:44:23,960 --> 00:44:26,960
With that, Your Honor, I just open up for any questions Your Honor may have for us,

647
00:44:26,960 --> 00:44:31,440
but we intend to move this case quickly with the other folks on the other side of the aisle

648
00:44:31,440 --> 00:44:34,440
in a very consensual way and try to get to resolution as Mr. Sussberg said.

649
00:44:34,440 --> 00:44:36,840
We obviously have a lot to do.

650
00:44:36,840 --> 00:44:38,080
Thank you, Mr. Stark.

651
00:44:38,080 --> 00:44:43,600
Your comments were especially important for those that aren't here today.

652
00:44:43,600 --> 00:44:50,680
I wanted to address very briefly that the Court is in receipt probably of two to three

653
00:44:50,680 --> 00:44:57,760
dozen individual objections that have been filed by customers and with many of them related

654
00:44:57,760 --> 00:45:00,400
motions for appearances.

655
00:45:00,400 --> 00:45:05,200
We have done our best besides the obvious.

656
00:45:05,200 --> 00:45:13,200
I read everything and I'm trying to make that clear to all who filed pleadings.

657
00:45:13,200 --> 00:45:14,200
They get read.

658
00:45:14,200 --> 00:45:15,200
They get read by me.

659
00:45:15,200 --> 00:45:18,600
They get read by my law clerks.

660
00:45:18,600 --> 00:45:25,560
We are doing our best to direct individual customers to the committee now that it's been

661
00:45:25,560 --> 00:45:26,560
formed.

662
00:45:26,560 --> 00:45:30,840
We're also cognizant that there's an ad hoc committee that's been formed with respect

663
00:45:30,840 --> 00:45:32,640
to certain issues.

664
00:45:32,640 --> 00:45:38,360
And I'm hoping between those two committees and counsel representing those committees

665
00:45:38,360 --> 00:45:46,880
that the concerns and issues that have been raised are often repetitive, same forms and

666
00:45:46,880 --> 00:46:01,320
same briefs and arguments can be addressed and supported by counsel so that the Court

667
00:46:01,320 --> 00:46:09,200
need not endeavor to allow individual appearances.

668
00:46:09,200 --> 00:46:16,740
As much as I look forward to having individual customers share their views, their concerns,

669
00:46:16,740 --> 00:46:27,520
their arguments, at this juncture I'm asking that it be done on a written platform.

670
00:46:27,520 --> 00:46:29,280
They're obviously transparent.

671
00:46:29,280 --> 00:46:34,600
They are welcome to watch and engage and engage with counsel for the committees.

672
00:46:34,600 --> 00:46:40,160
But it would just be problematic, I think, for all of us to allow a disruption as far

673
00:46:40,160 --> 00:46:48,160
as the court proceedings in having multiple dozens of individuals present views that are

674
00:46:48,160 --> 00:46:52,040
shared by those that can represent their views to the court.

675
00:46:52,040 --> 00:46:55,680
So not really for your benefit but for those here as well.

676
00:46:55,680 --> 00:47:01,480
But for those that are watching, I'd like the customers to understand that the Court

677
00:47:01,480 --> 00:47:08,920
is certainly weighing all of the information that's been provided to the Court subject

678
00:47:08,920 --> 00:47:11,920
to arguments that go back and forth.

679
00:47:11,920 --> 00:47:19,640
But at this juncture I'm not authorizing any individual appearances separate apart from

680
00:47:19,640 --> 00:47:27,400
actual pending motion practice or adversary proceedings where parties of course are, their

681
00:47:27,400 --> 00:47:29,440
arguments are going to be entertained.

682
00:47:29,440 --> 00:47:34,200
So with that, I don't know Mr. Stark, is there anything else you want to add at this juncture?

683
00:47:34,200 --> 00:47:39,480
Two things only, that we are solicitous of that if there are customers out there who

684
00:47:39,480 --> 00:47:42,800
are in fact interested in filing pleadings to be heard by the Court.

685
00:47:42,800 --> 00:47:44,800
It might be better if they just call us first.

686
00:47:44,800 --> 00:47:48,800
We would be very honored to receive those calls and see if we can be helpful and in

687
00:47:48,800 --> 00:47:51,600
turn help the Court if that's responsive.

688
00:47:51,600 --> 00:47:55,560
No I think that's the best approach and that's what we've been trying to urge them to do.

689
00:47:55,560 --> 00:47:59,480
And second, I think I may have misstepped on something earlier if you'll allow me to

690
00:47:59,480 --> 00:48:00,480
correct the record.

691
00:48:00,480 --> 00:48:01,480
Yes, go ahead.

692
00:48:01,480 --> 00:48:05,640
I was just wondering earlier about returning people's money to them in sort of quantum

693
00:48:05,640 --> 00:48:06,640
and dollar amount.

694
00:48:06,640 --> 00:48:07,640
I meant value.

695
00:48:07,640 --> 00:48:11,440
It may be in certain respects that returning people in kind is better for tax and other

696
00:48:11,440 --> 00:48:13,400
purposes so I just want to make sure the record is clear on that.

697
00:48:13,400 --> 00:48:16,040
No it's clear and an important issue.

698
00:48:16,040 --> 00:48:17,040
Thank you, thank you counsel.

699
00:48:17,040 --> 00:48:18,040
Counsel.

700
00:48:18,040 --> 00:48:19,040
Thank you your honor.

701
00:48:19,040 --> 00:48:25,040
Richard Canowitz, Hears and Boom proposed counsel for the debtors and debtors in possession.

702
00:48:25,040 --> 00:48:30,120
We have two other items on as well as some other housekeeping to discuss but we could

703
00:48:30,120 --> 00:48:33,000
discuss the housekeeping at the end of the hearing.

704
00:48:33,000 --> 00:48:38,400
I would ask the Court to hear that Jerof lifts a motion first and then we could turn to the

705
00:48:38,400 --> 00:48:40,720
adversary proceeding issues.

706
00:48:40,720 --> 00:48:41,720
That's fine.

707
00:48:41,720 --> 00:48:46,800
Before we get to the Jerof matter let me just make sure with respect to the status conference.

708
00:48:46,800 --> 00:48:50,440
I didn't know if there's any other party that wanted to be heard.

709
00:48:50,440 --> 00:48:51,440
Let me start in the courtroom.

710
00:48:51,440 --> 00:48:59,240
I didn't know if the US trustee, Mr. Sponger, did you wish to be heard on the status?

711
00:48:59,240 --> 00:49:00,240
Thank you your honor.

712
00:49:00,240 --> 00:49:01,920
Jeff Sponger from the office of the US trustee.

713
00:49:01,920 --> 00:49:07,520
Just very briefly your honor just to for the record, United States trustee continues to

714
00:49:07,520 --> 00:49:12,320
discuss with the debtors the final first day orders, the second day motions as well as

715
00:49:12,320 --> 00:49:19,080
the retention applications and we hope to have as much resolved as we can prior to the

716
00:49:19,080 --> 00:49:20,080
next hearings.

717
00:49:20,080 --> 00:49:21,080
All right thank you.

718
00:49:21,080 --> 00:49:22,080
Ms. Koski, APAP.

719
00:49:22,080 --> 00:49:23,080
Good morning your honor Jeff Koski, Chapman Peppers for the ad hoc committee.

720
00:49:23,080 --> 00:49:37,360
I would just add my words to start that if there are individual customers whose interests

721
00:49:37,360 --> 00:49:41,880
are aligned with those of the ad hoc committee, of course they should feel free to reach out

722
00:49:41,880 --> 00:49:43,880
and I'm more than happy to speak with them.

723
00:49:43,880 --> 00:49:45,840
Great and I thank you for your participation.

724
00:49:45,840 --> 00:49:49,480
I think it will be important.

725
00:49:49,480 --> 00:49:54,320
Anyone else remotely wish to be heard on the status?

726
00:49:54,320 --> 00:49:56,280
All right then I think we're ready.

727
00:49:56,280 --> 00:50:00,560
We'll proceed to the Jero stay relief motion.

728
00:50:00,560 --> 00:50:06,280
Let me have appearances for counsel for the movement.

729
00:50:06,280 --> 00:50:09,280
Ms. Dalton.

730
00:50:09,280 --> 00:50:22,000
Carol Horskin-Holton appearing on behalf of the movement, George Jero.

731
00:50:22,000 --> 00:50:27,720
All right and I see Mr. Jero, who's going to be presenting orignal?

732
00:50:27,720 --> 00:50:29,520
Is it you or Mr. Jero?

733
00:50:29,520 --> 00:50:30,520
I am.

734
00:50:30,520 --> 00:50:31,520
You are.

735
00:50:31,520 --> 00:50:33,520
Is Mr. Jero's father counsel?

736
00:50:33,520 --> 00:50:34,520
Yes.

737
00:50:34,520 --> 00:50:39,520
Mr. Jero's father was counsel to him in the California case.

738
00:50:39,520 --> 00:50:40,520
Okay.

739
00:50:40,520 --> 00:50:41,520
Yes, I think you're.

740
00:50:41,520 --> 00:50:43,520
Okay, that's what I wanted to clarify.

741
00:50:43,520 --> 00:50:44,520
Thank you.

742
00:50:44,520 --> 00:50:45,520
Yes, Your Honor.

743
00:50:45,520 --> 00:50:49,280
I will allow Mrs. Nolten to present the argument.

744
00:50:49,280 --> 00:50:54,760
I'm here just in case I'm called upon or if needed.

745
00:50:54,760 --> 00:50:55,760
All right, thank you.

746
00:50:55,760 --> 00:50:56,760
Ms. Nolten, proceed.

747
00:50:56,760 --> 00:50:57,760
Yes, Your Honor.

748
00:50:57,760 --> 00:51:07,840
The debtors' attorneys have filed both an objection and a sub-replied.

749
00:51:07,840 --> 00:51:16,280
And in that, their position is we shouldn't waste the money and the time allowing relief

750
00:51:16,280 --> 00:51:24,480
from the stay for Mr. Jero to go to California to have his case heard because there are hundreds

751
00:51:24,480 --> 00:51:30,440
of thousands of creditors in this case and we should just abide by the claims process.

752
00:51:30,440 --> 00:51:37,880
Unfortunately, I don't know that the claims process would be applicable here.

753
00:51:37,880 --> 00:51:46,120
Mr. Jero, his point is because of the fact that there is a forum selection clause and

754
00:51:46,120 --> 00:51:53,520
a waiver of the right to a jury trial in the contract, he needs to go to the California

755
00:51:53,520 --> 00:51:55,480
court to have that matter decided.

756
00:51:55,480 --> 00:52:00,160
He went to the California court and at the time of the filing of the bankruptcy, there

757
00:52:00,160 --> 00:52:11,080
was a court of appeals order or opinion that granted him the right to have his case heard

758
00:52:11,080 --> 00:52:18,400
in California because to do otherwise would possibly deprive him of his right to a jury

759
00:52:18,400 --> 00:52:27,200
trial as well as some other unwaverable rights that are present in California but not necessarily

760
00:52:27,200 --> 00:52:30,680
present in Delaware or other states.

761
00:52:30,680 --> 00:52:32,680
I understand the argument.

762
00:52:32,680 --> 00:52:38,560
I see that this is an enormous case, obviously, and I heard Mr. Stark, I heard what he said

763
00:52:38,560 --> 00:52:46,720
about having it be economical and efficient and I agree with that to some extent, except

764
00:52:46,720 --> 00:52:53,040
for the fact that this is not an administrative or procedural issue.

765
00:52:53,040 --> 00:53:00,520
This is an issue about waiving his unwaverable right, his absolute right in California to

766
00:53:00,520 --> 00:53:03,560
a jury trial on the issues of his case.

767
00:53:03,560 --> 00:53:09,080
Therefore, I think that it is appropriate to grant him relief from the state in order

768
00:53:09,080 --> 00:53:13,160
to proceed to the Supreme Court of California.

769
00:53:13,160 --> 00:53:23,880
The debtors, when the California court of appeals entered their decision that it was

770
00:53:23,880 --> 00:53:31,520
actually California that should hear the case, the debtors appealed to the Supreme Court

771
00:53:31,520 --> 00:53:33,760
and that's what's pending right now.

772
00:53:33,760 --> 00:53:40,480
But right now, that order from the California court of appeals is the standing order.

773
00:53:40,480 --> 00:53:42,040
That's the decision.

774
00:53:42,040 --> 00:53:49,200
I know that in their survey plot, the debtors submitted hundreds of pages of pleadings.

775
00:53:49,200 --> 00:53:58,760
One noticeably absent one was that order that the California court of appeals provided.

776
00:53:58,760 --> 00:54:02,960
That is already, however, and maybe that's why they didn't submit it, but it's already

777
00:54:02,960 --> 00:54:09,040
in the motion as Exhibit 3, the original motion that we submitted on behalf of Mr. Giroux

778
00:54:09,040 --> 00:54:10,880
has that order in it.

779
00:54:10,880 --> 00:54:17,680
And that indicates that the reason that they wouldn't allow it to be heard in Delaware,

780
00:54:17,680 --> 00:54:23,680
which is what the contract agreed to, is that they weren't convinced by what the debtors

781
00:54:23,680 --> 00:54:27,160
had proposed or had submitted, I should say.

782
00:54:27,160 --> 00:54:33,120
They weren't convinced that it would guarantee that Mr. Giroux would get his right to a jury

783
00:54:33,120 --> 00:54:38,440
trial and would get any of the other unlawful rights, that the debtors hadn't submitted

784
00:54:38,440 --> 00:54:41,120
enough evidence to show that he would get that.

785
00:54:41,120 --> 00:54:46,240
So I understand that we need to be efficient.

786
00:54:46,240 --> 00:54:50,920
I understand that things need to be heard promptly.

787
00:54:50,920 --> 00:54:57,640
But I don't know that having it heard in New Jersey or through this court would make it

788
00:54:57,640 --> 00:55:00,400
more efficient or make it heard more promptly.

789
00:55:00,400 --> 00:55:05,400
On the one hand, the debtors are saying in some of their papers that we should wait.

790
00:55:05,400 --> 00:55:10,240
We should wait until the claims process is done, that it's premature to do this.

791
00:55:10,240 --> 00:55:15,440
On the other hand, they're saying it would take too long to go to California because

792
00:55:15,440 --> 00:55:20,040
you won't be heard in California for a long time.

793
00:55:20,040 --> 00:55:21,040
You can't have it both ways.

794
00:55:21,040 --> 00:55:25,720
One of the reasons Mr. Giroux wanted to file this now was so that he could get started

795
00:55:25,720 --> 00:55:33,880
in California, so that he wouldn't be too late once the process here is completed, and

796
00:55:33,880 --> 00:55:41,440
also so that he wouldn't by going through the claims process, he can't then go to California.

797
00:55:41,440 --> 00:55:48,520
So our position is that despite the fact that there are many, many creditors in this case,

798
00:55:48,520 --> 00:55:53,600
despite the fact that it's going to cost money, it would cost money here.

799
00:55:53,600 --> 00:56:00,720
It would cost money here because the debtors admit it's a disputed claim.

800
00:56:00,720 --> 00:56:05,440
It's going to be a long process.

801
00:56:05,440 --> 00:56:10,760
It's our position that his right to a jury trial and the other unlawful rights is something

802
00:56:10,760 --> 00:56:17,760
that he shouldn't be deprived of just because there are hundreds of thousands of creditors

803
00:56:17,760 --> 00:56:22,640
and because these are procedural matters that weigh against him.

804
00:56:22,640 --> 00:56:26,720
But couldn't each of those 100,000 creditors make the same argument?

805
00:56:26,720 --> 00:56:36,960
Is there a basis for Mr. Giroux to opt out of the claims process that Congress has implemented

806
00:56:36,960 --> 00:56:41,920
under 502, the allowance process?

807
00:56:41,920 --> 00:56:53,360
Isn't this the forum that Congress selected to displace the burden on debtors to litigate

808
00:56:53,360 --> 00:56:56,080
claims issues across the country?

809
00:56:56,080 --> 00:56:58,920
That's what I'm struggling with.

810
00:56:58,920 --> 00:57:06,360
I understand that there are jury rights that have been asserted under state law, California.

811
00:57:06,360 --> 00:57:09,360
There are other substantive rights.

812
00:57:09,360 --> 00:57:17,400
You could point to many claims in this bankruptcy that are bottomed on substantive rights under

813
00:57:17,400 --> 00:57:26,840
state law which are at loggerheads with the scheme implemented under the code.

814
00:57:26,840 --> 00:57:28,240
Yes, Your Honor.

815
00:57:28,240 --> 00:57:30,400
I understand that.

816
00:57:30,400 --> 00:57:37,600
The thing that's different here is that the agreement that exists between BlockFi and

817
00:57:37,600 --> 00:57:44,400
Mr. Giroux has a clause in there, has a jury waiver clause and a form selection clause,

818
00:57:44,400 --> 00:57:46,960
and that makes it Delaware.

819
00:57:46,960 --> 00:57:52,360
And what we're worried about is that in the claims process that you, as the bankruptcy

820
00:57:52,360 --> 00:57:58,000
judge, would have to look at that agreement and have to honor that agreement, whereas

821
00:57:58,000 --> 00:58:06,280
the California court is saying despite that agreement, this should be heard in California.

822
00:58:06,280 --> 00:58:08,920
I don't know if there's a solution to that.

823
00:58:08,920 --> 00:58:17,560
Why would this court come to a different resolution of a conflict of law issue?

824
00:58:17,560 --> 00:58:25,000
Wouldn't that be guided by the applicable law, the statement of law as we apply it to

825
00:58:25,000 --> 00:58:27,800
which is the choice of law?

826
00:58:27,800 --> 00:58:33,040
You would think all courts would reach the same conclusion.

827
00:58:33,040 --> 00:58:40,760
I certainly have, and Ms. Knowlton, you've litigated in front of me often enough, various

828
00:58:40,760 --> 00:58:44,840
state law issues, even outside New Jersey issues.

829
00:58:44,840 --> 00:58:46,720
I know that you can do that, Your Honor.

830
00:58:46,720 --> 00:58:50,080
I'm confident in your ability to do that.

831
00:58:50,080 --> 00:58:54,800
I have been in front of you many times and I've listened to other cases that you've

832
00:58:54,800 --> 00:58:55,800
done.

833
00:58:55,800 --> 00:59:04,360
I think what Mr. Drew was worried about is would you feel compelled to comply with the

834
00:59:04,360 --> 00:59:08,080
agreement that gives it the Delaware forum?

835
00:59:08,080 --> 00:59:14,240
I think if he were confident that you wouldn't, and of course we can't know that until we're

836
00:59:14,240 --> 00:59:21,320
there, but if you were confident that you were going to have the decision made in accordance

837
00:59:21,320 --> 00:59:31,080
with California law, he wouldn't be as concerned about the fact that he's not in California.

838
00:59:31,080 --> 00:59:32,080
I interrupt you.

839
00:59:32,080 --> 00:59:34,080
Do you have anything else?

840
00:59:34,080 --> 00:59:35,080
No.

841
00:59:35,080 --> 00:59:39,600
I wanted to keep it short and sweet because I realize that I'm taking up a lot of time

842
00:59:39,600 --> 00:59:40,600
here.

843
00:59:40,600 --> 00:59:43,320
We'll make sure it's comprehensive.

844
00:59:43,320 --> 00:59:44,320
Thank you, Ms. Knowlton.

845
00:59:44,320 --> 00:59:45,320
I'll give you a chance to respond.

846
00:59:45,320 --> 00:59:46,320
Mr. Canowitz?

847
00:59:46,320 --> 00:59:47,320
Thank you, Your Honor.

848
00:59:47,320 --> 00:59:52,320
For the record, Richard Canowitz, Anzenboom proposed counsel for the debtors and debtors

849
00:59:52,320 --> 00:59:53,320
in possession.

850
00:59:53,320 --> 00:59:54,800
I'll be very quick, Your Honor.

851
00:59:54,800 --> 00:59:59,280
There is no cause to lift the stay, whether it's a three-part test, a 12-part test.

852
00:59:59,280 --> 01:00:01,400
Mr. Jarrow's not a creditor here.

853
01:00:01,400 --> 01:00:02,880
There's no money owed.

854
01:00:02,880 --> 01:00:06,960
He's a creditor in the broadest sense of what's defined as a claim in the bankruptcy code

855
01:00:06,960 --> 01:00:12,320
because he has an unliquidated dispute, something.

856
01:00:12,320 --> 01:00:15,200
We would just ask that Your Honor deny the stay motion.

857
01:00:15,200 --> 01:00:20,000
In fact, I think based on the reply that they filed, they are actually not seeking lift

858
01:00:20,000 --> 01:00:21,000
stay.

859
01:00:21,000 --> 01:00:24,960
They're asking Your Honor to give them certain relief and protection that they're not afforded

860
01:00:24,960 --> 01:00:25,960
to.

861
01:00:25,960 --> 01:00:26,960
We have a supremacy clause.

862
01:00:26,960 --> 01:00:27,960
We have a claims process.

863
01:00:27,960 --> 01:00:33,040
To the extent that Mr. Jarrow wants a distribution from this estate, he needs to file a proof

864
01:00:33,040 --> 01:00:34,040
of claim.

865
01:00:34,040 --> 01:00:35,880
That will impact certain rights that he has.

866
01:00:35,880 --> 01:00:38,280
We will proceed accordingly at that time.

867
01:00:38,280 --> 01:00:41,680
Everything else that he's requesting in his papers is premature, and we ask you not to

868
01:00:41,680 --> 01:00:42,680
grant it.

869
01:00:42,680 --> 01:00:43,680
Thank you.

870
01:00:43,680 --> 01:00:44,680
Thank you, Mr. Canowitz.

871
01:00:44,680 --> 01:00:50,560
Does the committee take a position?

872
01:00:50,560 --> 01:00:53,560
Your Honor, the committee has not considered this matter at this time.

873
01:00:53,560 --> 01:00:56,560
We do not take a position on this.

874
01:00:56,560 --> 01:00:57,560
Let's stay motion.

875
01:00:57,560 --> 01:00:58,840
All right.

876
01:00:58,840 --> 01:01:02,200
Is there any other party in interest taking a position?

877
01:01:02,200 --> 01:01:06,040
Mr. Jarrow, your hand is raised.

878
01:01:06,040 --> 01:01:08,560
You have counsel, but I'll give you some latitude.

879
01:01:08,560 --> 01:01:15,120
Would you want to weigh in?

880
01:01:15,120 --> 01:01:16,120
I think you're still muted.

881
01:01:16,120 --> 01:01:17,120
There you go.

882
01:01:17,120 --> 01:01:18,120
Yes.

883
01:01:18,120 --> 01:01:19,120
Thank you, Your Honor.

884
01:01:19,120 --> 01:01:22,160
I just wanted to note that the distinguishing factor between this claim and other claims

885
01:01:22,160 --> 01:01:24,480
is that the case is already pending.

886
01:01:24,480 --> 01:01:28,400
That is a relevant factor for purposes of the abstention doctrine.

887
01:01:28,400 --> 01:01:34,280
Both abstention doctrines apply to cases that are already pending, and also the rules recognize

888
01:01:34,280 --> 01:01:38,920
that a case that's already pending can be removed and proceeded as an adversarial proceeding.

889
01:01:38,920 --> 01:01:44,320
So that is another distinguishing factor that distinguishes this claim from the other few

890
01:01:44,320 --> 01:01:46,360
disputed claims in this case.

891
01:01:46,360 --> 01:01:47,360
All right.

892
01:01:47,360 --> 01:01:48,360
Thank you.

893
01:01:48,360 --> 01:01:52,120
Ms. Knowles, is there anything else you want to add in response?

894
01:01:52,120 --> 01:02:00,040
No, my voice certainly didn't carry from back there.

895
01:02:00,040 --> 01:02:01,040
No, Your Honor.

896
01:02:01,040 --> 01:02:02,040
Thank you.

897
01:02:02,040 --> 01:02:03,800
All right.

898
01:02:03,800 --> 01:02:08,520
I understand the frustrations of a creditor who's in the midst of litigation having it

899
01:02:08,520 --> 01:02:13,800
halted as a result of a bankruptcy.

900
01:02:13,800 --> 01:02:20,240
But those frustrations are shared in this case by other parties and by creditors who

901
01:02:20,240 --> 01:02:26,120
are also looking to assert their rights even if they hadn't been brought before a court.

902
01:02:26,120 --> 01:02:30,560
I am also cognizant that there is a pending litigation.

903
01:02:30,560 --> 01:02:36,040
I am not hearing a motion for remand if a matter has been removed at this juncture.

904
01:02:36,040 --> 01:02:41,120
I am not addressing abstention issues.

905
01:02:41,120 --> 01:02:48,900
There is certainly a large and significant body of law which addresses both permissive

906
01:02:48,900 --> 01:02:56,000
and mandatory abstention if litigation is brought by removal before the court.

907
01:02:56,000 --> 01:03:05,480
What I have is a, I think Mr. Kennewitz noted, a disputed, unliquidated claim or a potential

908
01:03:05,480 --> 01:03:06,480
claim.

909
01:03:06,480 --> 01:03:10,560
Well, I think the debtor acknowledges that they're disputing a claim and a claim is very

910
01:03:10,560 --> 01:03:14,520
broad but that's all we have at this juncture.

911
01:03:14,520 --> 01:03:22,640
In my view, it would be folly to start lawyers on the path of continuing litigation in other

912
01:03:22,640 --> 01:03:33,900
fora, this may have a bearing down the road, when we're not sure as to potential distributions

913
01:03:33,900 --> 01:03:35,600
in this case.

914
01:03:35,600 --> 01:03:41,720
Certainly resolution of litigation must take into account is this a 100% case, is this

915
01:03:41,720 --> 01:03:43,840
a 5% case.

916
01:03:43,840 --> 01:03:51,580
That's how you decide whether it makes sense to continue litigation or reach a settlement

917
01:03:51,580 --> 01:03:53,520
or even pursue mediation.

918
01:03:53,520 --> 01:04:00,120
We are far removed from that stage in this case and I appreciate all counsel wanting

919
01:04:00,120 --> 01:04:06,100
to get there quickly, so does the court by all means, but we're not there yet to allow

920
01:04:06,100 --> 01:04:13,120
continued litigation which from my understanding, the focal point is simply where it should

921
01:04:13,120 --> 01:04:20,340
be litigated and no court has reached the substance of Mr. Jarrow's claims or the basis

922
01:04:20,340 --> 01:04:31,160
for any defenses and to spend time and money at this juncture on an appellate process focused

923
01:04:31,160 --> 01:04:37,720
on where the case should be litigated, where there is a forum that Congress has put in

924
01:04:37,720 --> 01:04:44,800
place in light of the code for allowance and disallowance of claims and the ability down

925
01:04:44,800 --> 01:04:51,560
the road if I want to punt so to speak and send it out.

926
01:04:51,560 --> 01:04:57,960
Those options remain, but it's far too early and I'm going to deny the motion without

927
01:04:57,960 --> 01:05:05,040
prejudice at this juncture, the motion being for stay relief even with respect to the pending

928
01:05:05,040 --> 01:05:07,880
Supreme Court, California Supreme Court matter.

929
01:05:07,880 --> 01:05:19,360
I am going to direct that Mr. Jarrow in his discretion and in consultation with counsel

930
01:05:19,360 --> 01:05:26,000
decide whether to file a proof of claim and if the claims are filed, we will address those

931
01:05:26,000 --> 01:05:32,960
claims as with all claims through the Section 502 allowance process.

932
01:05:32,960 --> 01:05:42,000
If the litigation is removed to me, God bless, we'll address that when the time arises in

933
01:05:42,000 --> 01:05:49,400
the appropriate fashion with the appropriate body of law that's applicable.

934
01:05:49,400 --> 01:05:53,400
At this juncture, the court will enter an order unless debtors counsel wants to submit

935
01:05:53,400 --> 01:05:56,280
any specific form of order.

936
01:05:56,280 --> 01:05:57,280
It's up to you, Your Honor.

937
01:05:57,280 --> 01:06:03,240
I think we have a proposed form of order, but if Your Honor wants to submit, I mean,

938
01:06:03,240 --> 01:06:04,240
enter one by yourself.

939
01:06:04,240 --> 01:06:07,240
I will look at the order, Ms. Knowlton.

940
01:06:07,240 --> 01:06:12,520
Why don't, let me ask, Mr. Kanowitz, why don't you forward a copy again of the proposed order

941
01:06:12,520 --> 01:06:13,520
to Ms. Knowlton.

942
01:06:13,520 --> 01:06:14,680
She and her client can review it.

943
01:06:14,680 --> 01:06:17,240
If there's an issue, we can have a conference call.

944
01:06:17,240 --> 01:06:18,240
Thank you, Your Honor.

945
01:06:18,240 --> 01:06:19,240
All right.

946
01:06:19,240 --> 01:06:20,240
Thank you.

947
01:06:20,240 --> 01:06:21,240
Thank you, Mr. Jarrow.

948
01:06:21,240 --> 01:06:26,520
The next matter, Your Honor, is in fact the, oh, let me just, Mr. Jarrow.

949
01:06:26,520 --> 01:06:29,320
I, do you want to be heard?

950
01:06:29,320 --> 01:06:34,280
Go ahead, very briefly.

951
01:06:34,280 --> 01:06:35,720
You need to unmute yourself.

952
01:06:35,720 --> 01:06:40,920
Your Honor, I was wondering if the non-debtor, Scratch, that did not oppose the motion for

953
01:06:40,920 --> 01:06:46,920
stay relief, I was wondering if the court would entertain allowing the stay to be modified

954
01:06:46,920 --> 01:06:54,160
so that it can, the case can be, Scratch only.

955
01:06:54,160 --> 01:06:59,880
I think Scratch is the agent of, at this juncture, there is no automatic stay as to them.

956
01:06:59,880 --> 01:07:00,880
Correct.

957
01:07:00,880 --> 01:07:06,320
We have not sought to extend the automatic stay, either 362 or 105, to their benefit.

958
01:07:06,320 --> 01:07:09,040
There's no motion in front of you for Mr. Jarrow's request.

959
01:07:09,040 --> 01:07:11,960
If they believe that the stay applies and an abundance of caution they want to make

960
01:07:11,960 --> 01:07:14,160
application, they could do so.

961
01:07:14,160 --> 01:07:17,600
I don't know until they file their papers what they put in there that may be or may

962
01:07:17,600 --> 01:07:22,120
not be prejudicial to the debtors of state.

963
01:07:22,120 --> 01:07:32,000
Well, at this juncture, Mr. Jarrow, you are free to proceed as you think it's appropriate

964
01:07:32,000 --> 01:07:36,520
in consultation with counsel as to Scratch.

965
01:07:36,520 --> 01:07:38,960
It is not a debtor before me.

966
01:07:38,960 --> 01:07:41,800
I think that's the limit of what I can offer you at this juncture.

967
01:07:41,800 --> 01:07:49,080
May we put that in the order denying without prejudice so it would be granting in part,

968
01:07:49,080 --> 01:07:53,320
denying in part without prejudice so that way that the California Supreme Court feels

969
01:07:53,320 --> 01:07:56,600
comfortable proceeding without violating the automatic stay?

970
01:07:56,600 --> 01:08:00,760
Well, there hasn't been a motion for stay relief with that entity, I don't believe.

971
01:08:00,760 --> 01:08:05,400
Oh, Your Honor, this motion did request the stay relief for that entity.

972
01:08:05,400 --> 01:08:09,000
They were served and it is in the papers.

973
01:08:09,000 --> 01:08:18,440
It is in the moving papers, Your Honor.

974
01:08:18,440 --> 01:08:19,440
Mr. Stark?

975
01:08:19,440 --> 01:08:20,440
Your Honor, forgive me.

976
01:08:20,440 --> 01:08:21,440
Yes.

977
01:08:21,440 --> 01:08:24,040
I know that we have, we said we didn't take a position in this.

978
01:08:24,040 --> 01:08:31,560
We can't possibly respond about some litigation that we haven't looked at yet.

979
01:08:31,560 --> 01:08:36,960
It's risky to sort of go ahead and continue a litigation with a co-defendant when one

980
01:08:36,960 --> 01:08:41,520
of your defendants, at least allegedly as a debtor, and I think what I understood Mr.

981
01:08:41,520 --> 01:08:46,240
Cano with saying is those are the risks you assume if you want to do that, but we as the

982
01:08:46,240 --> 01:08:51,080
committee, we cannot without even studying the litigation, understanding it and the impacts

983
01:08:51,080 --> 01:08:54,880
of the estate, support any sort of an order that allows for anything along the side.

984
01:08:54,880 --> 01:08:57,160
I'll be a little bit more blunt than Mr. Cano.

985
01:08:57,160 --> 01:09:01,600
Your Honor, I'm just concerned about any indemnification rights between our agreement with Scratch.

986
01:09:01,600 --> 01:09:05,040
The motion is not clear that they were seeking relief against Scratch.

987
01:09:05,040 --> 01:09:07,880
It was against the debtors, that's why I filed it here.

988
01:09:07,880 --> 01:09:13,760
We would just ask, Your Honor, just to deny the motion as requested and in fact, maybe

989
01:09:13,760 --> 01:09:18,400
now, Your Honor, I revisit my statement, maybe you should enter an order so that we don't

990
01:09:18,400 --> 01:09:23,040
have satellite litigation over the terms and conditions of what should be a very simple

991
01:09:23,040 --> 01:09:27,200
one-page order denying without prejudice the lift of the estate request.

992
01:09:27,200 --> 01:09:30,000
I think you can work on the order.

993
01:09:30,000 --> 01:09:31,000
It'll be fine.

994
01:09:31,000 --> 01:09:35,880
I'm not going to include in the order any provision relative to Scratch.

995
01:09:35,880 --> 01:09:48,120
I think that if the California Supreme Court or Mr. Jarrow wishes to relay this court's

996
01:09:48,120 --> 01:09:52,600
view, I've already given my view, it's in the transcript.

997
01:09:52,600 --> 01:09:59,040
And so you're free to provide a transcript to the California Supreme Court with respect

998
01:09:59,040 --> 01:10:00,040
to my ruling.

999
01:10:00,040 --> 01:10:01,040
Thank you, Your Honor.

1000
01:10:01,040 --> 01:10:02,040
All right.

1001
01:10:02,040 --> 01:10:03,040
Thank you.

1002
01:10:03,040 --> 01:10:04,040
Thank you, Mr. Jarrow.

1003
01:10:04,040 --> 01:10:05,040
Thank you, Your Honor.

1004
01:10:05,040 --> 01:10:06,040
You're welcome.

1005
01:10:06,040 --> 01:10:07,040
All right.

1006
01:10:07,040 --> 01:10:15,800
Let's move on to the, I think the only remaining, although significant matter is the pending

1007
01:10:15,800 --> 01:10:24,520
turnover motion filed by the debtor with the plethora of opposition that's been filed.

1008
01:10:24,520 --> 01:10:26,560
Mr. Kanowitz or?

1009
01:10:26,560 --> 01:10:28,760
Your Honor, thank you.

1010
01:10:28,760 --> 01:10:30,560
Mr. Hanigan will handle this part of the hearing.

1011
01:10:30,560 --> 01:10:31,560
All right.

1012
01:10:31,560 --> 01:10:32,560
Thank you.

1013
01:10:32,560 --> 01:10:33,560
Good morning again, Mr. Hanigan.

1014
01:10:33,560 --> 01:10:37,000
Good morning, Your Honor, for the record, Rick Hanigan with Haynes and Boone, proposed

1015
01:10:37,000 --> 01:10:41,600
counsel for Block by Inc, Block by Lending, and Block by International.

1016
01:10:41,600 --> 01:10:45,800
Your Honor, I know that you've read all the papers, so I'm not going to address background

1017
01:10:45,800 --> 01:10:48,680
facts or the procedural status of this unless you have questions.

1018
01:10:48,680 --> 01:10:53,520
Luckily, there are no football games important.

1019
01:10:53,520 --> 01:10:58,320
I assume you're aware of this, but the collateral since our December 28th hearing has been seized

1020
01:10:58,320 --> 01:10:59,320
by the government.

1021
01:10:59,320 --> 01:11:05,280
The collateral consists of approximately 55.2 million shares of Robin Hood Markets, Inc.,

1022
01:11:05,280 --> 01:11:10,120
Common Stock, and there's approximately $21 million of cash.

1023
01:11:10,120 --> 01:11:15,240
It was all seized by the government from MaRICS on January 4th.

1024
01:11:15,240 --> 01:11:20,760
The turnover motion originally sought to protect all the parties who were claiming an interest

1025
01:11:20,760 --> 01:11:22,200
in the collateral.

1026
01:11:22,200 --> 01:11:23,800
The collateral has now been secured.

1027
01:11:23,800 --> 01:11:26,920
We're not sure it's being protected.

1028
01:11:26,920 --> 01:11:32,960
Following our December 28th hearing, if you recall, the parties discussed maximizing value

1029
01:11:32,960 --> 01:11:40,440
of the property for any and all constituents who may ultimately benefit from the funds

1030
01:11:40,440 --> 01:11:42,840
that were seized.

1031
01:11:42,840 --> 01:11:50,440
Counsel for Block by, FTX, MaRICS, the emergent JPLs, and also Mr. Bankman-Freed had a discussion.

1032
01:11:50,440 --> 01:11:57,040
We discussed having an advisor be appointed to give advice as to maximizing value of the

1033
01:11:57,040 --> 01:11:58,440
collateral.

1034
01:11:58,440 --> 01:12:01,800
This was somewhat interrupted by the seizure.

1035
01:12:01,800 --> 01:12:06,520
We have had discussions with the government concerning whether we should have an advisor

1036
01:12:06,520 --> 01:12:14,960
appointed or at least contemplated to give advice as to maximizing the value of the collateral,

1037
01:12:14,960 --> 01:12:19,560
which we think that's in the best interest of all parties concerned.

1038
01:12:19,560 --> 01:12:21,600
No agreements have been reached.

1039
01:12:21,600 --> 01:12:23,040
Discussions are ongoing.

1040
01:12:23,040 --> 01:12:29,120
And Block by has reserved all of its rights related to the seizure with respect to actions

1041
01:12:29,120 --> 01:12:31,900
of the government.

1042
01:12:31,900 --> 01:12:38,160
One of the purposes of today's or the purpose of today's hearing originally was to determine

1043
01:12:38,160 --> 01:12:43,000
whether the collateral would remain at MaRICS or whether it would be transferred to a third

1044
01:12:43,000 --> 01:12:48,640
party, all subject to this court's jurisdiction, notwithstanding that the government has taken

1045
01:12:48,640 --> 01:12:52,080
possession of the collateral, we still believe they're important matters for the court to

1046
01:12:52,080 --> 01:12:53,080
consider today.

1047
01:12:53,080 --> 01:13:01,760
And what we're asking for today is for the court to retain jurisdiction over the rights

1048
01:13:01,760 --> 01:13:09,040
to these disputes as to title, as to rights and priorities in the collateral itself.

1049
01:13:09,040 --> 01:13:14,080
We would also ask the court to prohibit the emergent JPLs in their action in Antigua

1050
01:13:14,080 --> 01:13:21,000
from furthering, taking further actions that would impact Block by's rights to this collateral.

1051
01:13:21,000 --> 01:13:26,720
We would ask that the court prohibit the FTX debtors in their bankruptcy case in Delaware

1052
01:13:26,720 --> 01:13:32,320
from taking actions with respect to their stay motion that would impact Block by.

1053
01:13:32,320 --> 01:13:38,320
And it was also, we have filed an objection to Mr. Shim's declaration that was filed

1054
01:13:38,320 --> 01:13:44,160
by the emergent JPLs in support of their objection, and we would ask that that objection

1055
01:13:44,160 --> 01:13:45,160
be sustained.

1056
01:13:45,160 --> 01:13:51,360
Your Honor, the worldwide stay order that you entered on November 30th has been treated

1057
01:13:51,360 --> 01:13:54,080
as it never existed.

1058
01:13:54,080 --> 01:13:58,800
Block by has been measured in not seeking any relief, but it's very concerned that

1059
01:13:58,800 --> 01:14:04,400
the worldwide stay order has been disrespected, and if need be, at the appropriate time, we'll

1060
01:14:04,400 --> 01:14:09,000
file motions, contempt motions if necessary.

1061
01:14:09,000 --> 01:14:13,760
Without this court enforcing the worldwide stay order, there's going to be complete

1062
01:14:13,760 --> 01:14:17,520
chaos here, as evidenced by all the objections that have been filed.

1063
01:14:17,520 --> 01:14:21,920
In this case, there have been multiple filings in the FTX proceedings.

1064
01:14:21,920 --> 01:14:28,080
There's multiple filings in Antigua, and this is all in addition to the actions that

1065
01:14:28,080 --> 01:14:33,720
the government has taken and its proceeding with respect to the seizure of the property.

1066
01:14:33,720 --> 01:14:38,040
At this point, we've got the following parties who have asserted interest in this collateral

1067
01:14:38,040 --> 01:14:45,080
block by, the FTX debtors, the emergent JPLs, the Department of Justice, Mr. Bankman Fried,

1068
01:14:45,080 --> 01:14:55,000
and possibly the FTX trading JPLs who have filed a motion in the FTX debtors case, but

1069
01:14:55,000 --> 01:14:59,720
not in this case.

1070
01:14:59,720 --> 01:15:04,800
Block by, as we said on December 28th, is the only documented creditor of emergent.

1071
01:15:04,800 --> 01:15:06,280
We've got a pledge agreement.

1072
01:15:06,280 --> 01:15:09,320
We've got a file UCC-1 statement.

1073
01:15:09,320 --> 01:15:12,040
Those are presumed to be valid.

1074
01:15:12,040 --> 01:15:20,800
The FTX debtors, FTX trading JPLs, Mr. Bankman Fried, they're all tainted with alleged and

1075
01:15:20,800 --> 01:15:27,560
admitted fraudulent or criminal activity of Mr. Bankman Fried, Ms. Ellison, and Mr. Wang.

1076
01:15:27,560 --> 01:15:29,320
Block by is not.

1077
01:15:29,320 --> 01:15:36,560
The emergent JPLs, they're a creation of litigation that was filed after this bankruptcy

1078
01:15:36,560 --> 01:15:37,880
proceeding was filed.

1079
01:15:37,880 --> 01:15:46,320
The JPL, the Antiguan JPLs for emergent weren't appointed until December the 5th, and their

1080
01:15:46,320 --> 01:15:50,880
application for appointment wasn't filed until December the 2nd.

1081
01:15:50,880 --> 01:15:55,000
So all of that was after the worldwide stay order was in place.

1082
01:15:55,000 --> 01:16:02,520
So these claimants may have rights and assert that the block by interest in the collateral

1083
01:16:02,520 --> 01:16:04,280
is invalid.

1084
01:16:04,280 --> 01:16:07,760
These are all issues that ultimately need to be decided.

1085
01:16:07,760 --> 01:16:10,700
We think they should be decided in one forum.

1086
01:16:10,700 --> 01:16:17,040
We believe this court should maintain jurisdiction over that.

1087
01:16:17,040 --> 01:16:20,840
We will enter into a stipulation with the government that will allow it to reserve all

1088
01:16:20,840 --> 01:16:26,080
of its rights and will reserve all of our rights.

1089
01:16:26,080 --> 01:16:32,320
And this court, we believe, is entitled to maintain jurisdiction because this was the

1090
01:16:32,320 --> 01:16:36,960
first filed action involving this collateral under the Princess Lyta doctrine.

1091
01:16:36,960 --> 01:16:40,500
This court therefore has jurisdiction over the collateral.

1092
01:16:40,500 --> 01:16:45,600
We don't see that there would be any prejudice to any of the parties who are claiming an

1093
01:16:45,600 --> 01:16:49,640
interest in the collateral from appearing in this court and having this court decide

1094
01:16:49,640 --> 01:16:56,760
amongst everyone who is entitled to this in terms of priority, title, etc.

1095
01:16:56,760 --> 01:17:01,960
It may be us, it may not be us, but these issues should be decided in one place.

1096
01:17:01,960 --> 01:17:05,440
And we submit that this is the court where it should be done.

1097
01:17:05,440 --> 01:17:07,040
The court has the right to do this.

1098
01:17:07,040 --> 01:17:09,640
It should be the gatekeeper.

1099
01:17:09,640 --> 01:17:11,920
It has these powers under Section 105.

1100
01:17:11,920 --> 01:17:20,240
It also has inherent powers to conduct proceedings before it in an orderly fashion.

1101
01:17:20,240 --> 01:17:25,600
And for these issues to be decided, we don't need to be proceeding in three different forums

1102
01:17:25,600 --> 01:17:29,320
in Antigua, in Delaware, and here.

1103
01:17:29,320 --> 01:17:33,520
In Antigua, we've got big concerns about due process.

1104
01:17:33,520 --> 01:17:36,520
And in Delaware, we were the first filed action.

1105
01:17:36,520 --> 01:17:41,920
We've got the direct claim in the collateral and therefore ask that the court maintain

1106
01:17:41,920 --> 01:17:44,400
control over the collateral here.

1107
01:17:44,400 --> 01:17:45,400
All right.

1108
01:17:45,400 --> 01:17:53,960
Would you contemplate, we have a pending adversary proceeding that sensibly seeks turnover.

1109
01:17:53,960 --> 01:17:57,360
The United States is not a party.

1110
01:17:57,360 --> 01:18:05,100
Would the debtor contemplate or is the debtor contemplating amending the complaint to add

1111
01:18:05,100 --> 01:18:06,400
additional parties?

1112
01:18:06,400 --> 01:18:08,480
Either, yes, we are.

1113
01:18:08,480 --> 01:18:12,080
We need to amend the complaint just because of the actions that have been taken.

1114
01:18:12,080 --> 01:18:21,280
We've also sought declaratory relief that BlockFi has priority to the collateral.

1115
01:18:21,280 --> 01:18:22,480
And so we would amend that.

1116
01:18:22,480 --> 01:18:27,960
There have been, even in the FTX debtor's objection, they said if necessary, they will

1117
01:18:27,960 --> 01:18:30,080
quickly intervene in this action.

1118
01:18:30,080 --> 01:18:34,480
The emergent JPLs, they can intervene in this action if they want to assert rights in the

1119
01:18:34,480 --> 01:18:37,080
collateral with respect to the government.

1120
01:18:37,080 --> 01:18:39,000
I think we'll reserve our rights.

1121
01:18:39,000 --> 01:18:42,320
We haven't fully analyzed whether they need to be a party to this action.

1122
01:18:42,320 --> 01:18:48,600
We know that you have certain authority as set forth in your LTL decision with respect

1123
01:18:48,600 --> 01:18:52,000
to actions that have been taken under an alleged police power.

1124
01:18:52,000 --> 01:18:55,640
And we continue to analyze those rights as well.

1125
01:18:55,640 --> 01:19:00,240
Well, but our complaint needs to be amended at this point.

1126
01:19:00,240 --> 01:19:05,440
If we need to modify our schedule because of the addition of new parties, we're more

1127
01:19:05,440 --> 01:19:07,720
than happy to do that.

1128
01:19:07,720 --> 01:19:13,120
I'm aware of the committee's motion to intervene into the adversary proceeding.

1129
01:19:13,120 --> 01:19:21,960
We could talk about that when we get to scheduling or next steps.

1130
01:19:21,960 --> 01:19:28,420
Certainly, from the limited notice of seizure that the court was provided with by the Department

1131
01:19:28,420 --> 01:19:38,400
of Justice, I believe the position is that the government believes the title to the property

1132
01:19:38,400 --> 01:19:43,880
is tied to the date of the criminal activity, which may or may not.

1133
01:19:43,880 --> 01:19:49,920
I mean, I'm certainly today not making any rulings on that, but may or may not predate

1134
01:19:49,920 --> 01:19:52,360
a pledge agreement.

1135
01:19:52,360 --> 01:19:56,720
And clearly in a two-page notice, there is ample room for discussion as to the rights

1136
01:19:56,720 --> 01:20:01,440
of third parties in any such property that has been seized.

1137
01:20:01,440 --> 01:20:03,160
So it'll be interesting.

1138
01:20:03,160 --> 01:20:09,520
And I understand Mr. Shapiro is appearing remotely.

1139
01:20:09,520 --> 01:20:15,600
The government is not a party to the pending litigation, but he'll weigh in as appropriate.

1140
01:20:15,600 --> 01:20:16,920
But thank you.

1141
01:20:16,920 --> 01:20:24,120
Let me hear from then, why don't we turn to counsel for FTX?

1142
01:20:24,120 --> 01:20:32,920
Good morning, Your Honor.

1143
01:20:32,920 --> 01:20:33,920
Good morning.

1144
01:20:33,920 --> 01:20:38,400
For the record, Brian Gluckstein, Solvent and Cromwell for the FTX debtors.

1145
01:20:38,400 --> 01:20:43,320
Your Honor, we did file a response to the motion, opposing the actual turnover motion

1146
01:20:43,320 --> 01:20:47,120
consistent with the court's scheduling order.

1147
01:20:47,120 --> 01:20:52,600
We have not intervened in the adversary proceeding at this point, but appreciate, Your Honor,

1148
01:20:52,600 --> 01:20:53,600
hearing me this morning.

1149
01:20:53,600 --> 01:20:54,600
By all means.

1150
01:20:54,600 --> 01:21:03,800
Your Honor, it was not entirely clear to us what was going to be sought today.

1151
01:21:03,800 --> 01:21:10,160
I think from Mr. Anagan's comments, I don't hear the debtors requesting the relief that's

1152
01:21:10,160 --> 01:21:15,760
actually contained in the turnover motion, which is to move the shares from what was

1153
01:21:15,760 --> 01:21:21,920
in a neutral brokerage to another brokerage account, given the seizure from the United

1154
01:21:21,920 --> 01:21:23,440
States government.

1155
01:21:23,440 --> 01:21:27,520
We certainly would submit that that relief is not available.

1156
01:21:27,520 --> 01:21:36,640
It sounds like what BlockFi is seeking to do is have the court affirm its jurisdiction.

1157
01:21:36,640 --> 01:21:41,640
Certainly there has been an adversary proceeding that's been filed.

1158
01:21:41,640 --> 01:21:47,560
There's a schedule to respond to that complaint in the adversary proceeding.

1159
01:21:47,560 --> 01:21:53,080
Our view at this point, Your Honor, is that we could have a whole discussion if relief

1160
01:21:53,080 --> 01:21:55,520
is put in front of the court, a motion put in front of the court.

1161
01:21:55,520 --> 01:22:00,160
As I understand it, there's now no relief before the court today with respect to any

1162
01:22:00,160 --> 01:22:04,400
of these stay or jurisdictional related issues.

1163
01:22:04,400 --> 01:22:08,760
I think it's fair to say there's a difference of opinion, and I don't think it's just necessarily

1164
01:22:08,760 --> 01:22:15,560
between us and BlockFi, as to where the ultimate decisions around interest in property potentially

1165
01:22:15,560 --> 01:22:19,400
should be decided.

1166
01:22:19,400 --> 01:22:23,360
I think the government has, if you want to add, that might be different for either one

1167
01:22:23,360 --> 01:22:24,360
of us.

1168
01:22:24,360 --> 01:22:28,720
It certainly seems to us, Your Honor, that at this point, that the seizure by the government

1169
01:22:28,720 --> 01:22:31,360
here is a very significant event.

1170
01:22:31,360 --> 01:22:38,920
The suggestion that we're just going to proceed to adjudicate rights and interests in property,

1171
01:22:38,920 --> 01:22:43,280
that we don't know if the United States government is ever going to release it, in what form

1172
01:22:43,280 --> 01:22:46,960
it's going to release it, is it going to still be shares, is it going to be cash, when is

1173
01:22:46,960 --> 01:22:48,960
that going to happen?

1174
01:22:48,960 --> 01:22:52,240
All of those are discussions that need to take place.

1175
01:22:52,240 --> 01:22:57,560
We do agree with Mr. Anakin, and we had a conversation, as he reported last week, about

1176
01:22:57,560 --> 01:23:03,200
what seems to be the pressing issue here, which is ensuring that the value is maximized

1177
01:23:03,200 --> 01:23:04,200
for creditors.

1178
01:23:04,200 --> 01:23:10,200
BlockFi is a very significant creditor in the FTX debtors' bankruptcy cases.

1179
01:23:10,200 --> 01:23:17,120
FTX, one of the FTX debtors, is a significant creditor here.

1180
01:23:17,120 --> 01:23:23,880
But the question around jurisdiction and venue and all of those issues seems to be putting

1181
01:23:23,880 --> 01:23:30,280
a little bit of a cart before the horse, where the government's in possession of the shares,

1182
01:23:30,280 --> 01:23:32,240
is in possession of the cash.

1183
01:23:32,240 --> 01:23:40,160
We should be, in our view, not litigating, at this point, rights in ultimate distribution

1184
01:23:40,160 --> 01:23:46,800
rights in those assets, until we figure out what's going to happen with it.

1185
01:23:46,800 --> 01:23:53,520
And so we do think that it makes sense to continue the discussions around how to ensure

1186
01:23:53,520 --> 01:24:00,760
that the shares are maximized in value for everybody who has an interest, but to immediately

1187
01:24:00,760 --> 01:24:08,880
have this fight around where should evidence effectively be presented and to which court.

1188
01:24:08,880 --> 01:24:14,080
I think that is something that all of the parties would need to weigh in on, on appropriate

1189
01:24:14,080 --> 01:24:15,080
papers.

1190
01:24:15,080 --> 01:24:19,600
There are arguments that there are multiple courts that potentially have jurisdiction.

1191
01:24:19,600 --> 01:24:27,240
I'm just not sure that all of those issues should be teed up now when we have some real

1192
01:24:27,240 --> 01:24:31,880
gating issues here that have to be addressed, both in terms of ensuring that the asset is

1193
01:24:31,880 --> 01:24:35,880
maximized and understanding what the government intends to do.

1194
01:24:35,880 --> 01:24:40,400
If BlockFi is intending to challenge the actions of the government, they would need to obviously

1195
01:24:40,400 --> 01:24:43,120
bring some sort of process to do that.

1196
01:24:43,120 --> 01:24:47,320
Even if they're seeking to return the status quo to where we were a couple of weeks ago,

1197
01:24:47,320 --> 01:24:51,120
that would need to play out in front of a board, obviously, of confidence jurisdiction.

1198
01:24:51,120 --> 01:24:55,280
So from the FTX debtor's perspective, Your Honor, this is a significant asset.

1199
01:24:55,280 --> 01:25:02,480
We disagree with the characterization of BlockFi that we simply have claims against the asset.

1200
01:25:02,480 --> 01:25:06,720
The turnover motion and the arguments with respect to the stay that BlockFi have put

1201
01:25:06,720 --> 01:25:12,480
forward are all premised on the idea, of course, that BlockFi has the property interest.

1202
01:25:12,480 --> 01:25:14,760
It says it has.

1203
01:25:14,760 --> 01:25:21,000
And there are a number of gating issues there that we just respectfully disagree with.

1204
01:25:21,000 --> 01:25:27,320
Certainly we've asserted the FTX debtors that we have a direct property interest.

1205
01:25:27,320 --> 01:25:31,480
And to the extent we're correct about that, Your Honor, the stay obviously in our case

1206
01:25:31,480 --> 01:25:36,840
would have attached, which was filed three or so weeks before BlockFi filed this case

1207
01:25:36,840 --> 01:25:37,840
here.

1208
01:25:37,840 --> 01:25:41,600
So I think all of the arguments that have been put forward, Your Honor, as at least

1209
01:25:41,600 --> 01:25:46,800
certainly with respect to the competing claims between BlockFi and FTX, go to the heart of

1210
01:25:46,800 --> 01:25:48,800
the merits issue.

1211
01:25:48,800 --> 01:25:52,680
Are merits issues ultimately going to have to be resolved at some point?

1212
01:25:52,680 --> 01:25:56,960
Presumably, yes, assuming there's an asset to distribute and the government isn't keeping

1213
01:25:56,960 --> 01:26:02,800
it or going to argue that it should be applied to some sort of penalty and going to be distributed.

1214
01:26:02,800 --> 01:26:09,040
But we think this fight around where potential fight, and perhaps over time, issues will

1215
01:26:09,040 --> 01:26:13,360
become clearer and perhaps processes could be agreed upon on what to do with an asset.

1216
01:26:13,360 --> 01:26:17,080
But if we're talking about having an immediate fight, we think it's premature.

1217
01:26:17,080 --> 01:26:19,880
We think there are gating issues that need to be addressed with the government who is

1218
01:26:19,880 --> 01:26:22,080
in possession of the collateral.

1219
01:26:22,080 --> 01:26:26,280
They are not appearing, certainly in this adversary proceeding at this point in time.

1220
01:26:26,280 --> 01:26:30,240
And we think the parties should take the time to do that before we unnecessarily press ahead

1221
01:26:30,240 --> 01:26:32,720
with the jurisdiction.

1222
01:26:32,720 --> 01:26:33,720
But let me ask this.

1223
01:26:33,720 --> 01:26:40,520
I appreciate the concerns you raised as far as timing and obviously the court, I'm interested

1224
01:26:40,520 --> 01:26:43,640
in hearing what the parties think the next step should be.

1225
01:26:43,640 --> 01:26:50,080
But until notice of the seizure occurred by the government, there was a pending action

1226
01:26:50,080 --> 01:26:53,320
in Delaware court.

1227
01:26:53,320 --> 01:26:59,480
And this goes far beyond a turf battle among courts.

1228
01:26:59,480 --> 01:27:05,680
We're looking at substantive issues here as to the interest and how best to protect the

1229
01:27:05,680 --> 01:27:10,800
creditors, both BlockFi and FTX's creditors in this matter.

1230
01:27:10,800 --> 01:27:18,840
But there were efforts taken in the Delaware court by your client, which would seem on

1231
01:27:18,840 --> 01:27:27,680
the surface, and I'm going to ask you to explain, offend the automatic stay in this court.

1232
01:27:27,680 --> 01:27:36,880
There is no question that I've seen that BlockFi doesn't base its claim as having a leanholder

1233
01:27:36,880 --> 01:27:41,040
interest, a security interest in the shares.

1234
01:27:41,040 --> 01:27:53,200
Disputed, no doubt, by FTX and by Mr. Bankman Fried and by the JPL in Antigua.

1235
01:27:53,200 --> 01:27:59,520
But we're talking about a leanholder interest, a property interest.

1236
01:27:59,520 --> 01:28:06,080
And it would seem to me pretty clear under the code that a debtor's leanholder interest,

1237
01:28:06,080 --> 01:28:09,080
let's use simplistic analogy.

1238
01:28:09,080 --> 01:28:14,160
If BlockFi asserted that it had a mortgage on a commercial office building, certainly

1239
01:28:14,160 --> 01:28:19,760
the office building isn't property of the BlockFi estate, but that mortgage is.

1240
01:28:19,760 --> 01:28:30,120
In any effort to prevent BlockFi from asserting its rights or any pending action restricting

1241
01:28:30,120 --> 01:28:38,800
BlockFi from fixing its rights in its collateral, certainly to me offends the automatic stay

1242
01:28:38,800 --> 01:28:40,920
of the debtor in this case.

1243
01:28:40,920 --> 01:28:44,080
It's a property interest, a security interest.

1244
01:28:44,080 --> 01:28:46,720
Disputed, no doubt.

1245
01:28:46,720 --> 01:28:52,680
And whether it's this court or Judge Dorsey or some court in Southern District that decides

1246
01:28:52,680 --> 01:28:54,240
it will see.

1247
01:28:54,240 --> 01:29:00,280
But I'd like to understand how, and I would pose the same question to the counsel for

1248
01:29:00,280 --> 01:29:14,200
the JPLs, how any effort to restrict BlockFi in asserting its collateral interest to determine

1249
01:29:14,200 --> 01:29:23,960
those interests, to either prevent this debtor from foreclosing on an interest or to seek

1250
01:29:23,960 --> 01:29:28,680
a determination to fix the extent and validity of an interest.

1251
01:29:28,680 --> 01:29:36,120
How that doesn't run a loggerheads with the automatic stay.

1252
01:29:36,120 --> 01:29:44,480
And it would seem that this court has under 1334 certainly jurisdiction over the debtor's

1253
01:29:44,480 --> 01:29:50,320
interest in the collateral, which is that issue here.

1254
01:29:50,320 --> 01:29:58,880
And I understand FTS takes a different position, but it seems to be that FTS, their interest

1255
01:29:58,880 --> 01:30:05,360
in the collateral is bottomed on potential litigation.

1256
01:30:05,360 --> 01:30:06,920
I understand that.

1257
01:30:06,920 --> 01:30:14,560
Mr. Bankman-Freed's interest in the collateral, candidly I'm not sure what it's bottomed on.

1258
01:30:14,560 --> 01:30:18,720
And I wait to hear that.

1259
01:30:18,720 --> 01:30:26,960
The JPL liquidators, they're pursuing their responsibility to protect the interests of

1260
01:30:26,960 --> 01:30:32,080
emergence creditors, which to my understanding is BlockFi, and possibly FTS creditors, which

1261
01:30:32,080 --> 01:30:38,880
we have two courts here in Delaware and New Jersey protecting those interests.

1262
01:30:38,880 --> 01:30:45,560
With this court, and this is a long-winded question, but with this court clearly having

1263
01:30:45,560 --> 01:30:53,040
authority and jurisdiction under SEC 28 U.S.C. 1334, and the debtor having a property interest,

1264
01:30:53,040 --> 01:30:59,840
albeit disputed, a collateral interest, how are these actions pending another four is

1265
01:30:59,840 --> 01:31:02,920
my question, and what's the next step in your view?

1266
01:31:02,920 --> 01:31:03,920
Mr. Bankman-Freed.

1267
01:31:03,920 --> 01:31:04,920
All right, Your Honor, let me address that.

1268
01:31:04,920 --> 01:31:05,920
Mr. Bankman-Freed.

1269
01:31:05,920 --> 01:31:06,920
Gave you a mouthful.

1270
01:31:06,920 --> 01:31:07,920
Mr. Bankman-Freed.

1271
01:31:07,920 --> 01:31:08,920
There is a lot there, so if I could unpack that a little bit.

1272
01:31:08,920 --> 01:31:11,840
So be clear.

1273
01:31:11,840 --> 01:31:20,480
The motion that we filed in Delaware is not asking at this juncture at all to determine

1274
01:31:20,480 --> 01:31:22,680
the merits of any.

1275
01:31:22,680 --> 01:31:28,600
What we have asked is to enforce the automatic stay of our debtors, because you're right,

1276
01:31:28,600 --> 01:31:29,600
Your Honor.

1277
01:31:29,600 --> 01:31:30,600
There's a fundamental disagreement here.

1278
01:31:30,600 --> 01:31:35,920
BlockFi has come forward and said we have a collateral interest.

1279
01:31:35,920 --> 01:31:43,720
The nature of that collateral interest is not only disputed, the existence of it is

1280
01:31:43,720 --> 01:31:45,560
called into question.

1281
01:31:45,560 --> 01:31:47,120
And I don't want to argue the facts, Your Honor.

1282
01:31:47,120 --> 01:31:48,120
I don't want to be-

1283
01:31:48,120 --> 01:31:49,120
Mr. Bankman-Freed.

1284
01:31:49,120 --> 01:31:50,120
No, I'm cognizant.

1285
01:31:50,120 --> 01:31:51,120
I've read the briefing and I understand the basis.

1286
01:31:51,120 --> 01:31:52,120
Mr. Bankman-Freed.

1287
01:31:52,120 --> 01:31:57,520
Right, but to be clear, what we have here is BlockFi say we have an interest in collateral

1288
01:31:57,520 --> 01:32:02,600
that was granted 24 hours before the FTX debtors filed for bankruptcy.

1289
01:32:02,600 --> 01:32:08,360
We have those documents signed by somebody, Ms. Caroline Ellison, who has now pled guilty

1290
01:32:08,360 --> 01:32:10,200
to fraud.

1291
01:32:10,200 --> 01:32:15,280
We have Mr. Bankman-Freed, who was involved in that process, now contesting whether Ms.

1292
01:32:15,280 --> 01:32:20,760
Ellison even had the ability to sign the documents that BlockFi is relying on to create that

1293
01:32:20,760 --> 01:32:21,760
interest in property.

1294
01:32:21,760 --> 01:32:27,720
Okay, and so BlockFi is absolutely able to argue those points.

1295
01:32:27,720 --> 01:32:33,120
And as I stated earlier, Your Honor, I do believe that there are arguments that there

1296
01:32:33,120 --> 01:32:37,080
are multiple courts here that could exercise jurisdiction.

1297
01:32:37,080 --> 01:32:44,200
We're not suggesting that this court is incapable of hearing these issues.

1298
01:32:44,200 --> 01:32:49,080
The problem though, Your Honor, is again, if we're correct, that we have not just some

1299
01:32:49,080 --> 01:32:54,120
avoidance claim or fraudulent transfer claim, but if we're correct, that the property that's

1300
01:32:54,120 --> 01:32:58,760
now been seized, that BlockFi is claiming is their collateral, was in fact property

1301
01:32:58,760 --> 01:33:05,400
of our estate when we filed for bankruptcy in earlier November than BlockFi filed, then

1302
01:33:05,400 --> 01:33:09,400
we believe there's an automatic state issue with them filing on the first day of their

1303
01:33:09,400 --> 01:33:13,480
case the adversary proceeding here, which Your Honor did not.

1304
01:33:13,480 --> 01:33:17,200
That those papers, if we go back to the original complaint and the turnover motion that was

1305
01:33:17,200 --> 01:33:24,760
the subject of this morning's hearing, nowhere in those papers does BlockFi disclose the

1306
01:33:24,760 --> 01:33:30,880
relationship of what this is about, which is collection of loan that they had outstanding

1307
01:33:30,880 --> 01:33:34,320
to Alameda, very significant loan.

1308
01:33:34,320 --> 01:33:42,640
And we heard this morning in the debtors update presentation, all of the linkage between FTX

1309
01:33:42,640 --> 01:33:43,960
and BlockFi.

1310
01:33:43,960 --> 01:33:50,240
And so to suggest that this is just a collateral holder and we're seeking to enforce our collateral,

1311
01:33:50,240 --> 01:33:53,880
the facts here are much more complicated than that.

1312
01:33:53,880 --> 01:34:00,120
And so, Your Honor, certainly to the extent that the question here is competing state

1313
01:34:00,120 --> 01:34:05,400
issues or state violations, we're happy to brief those issues, but I do think there's

1314
01:34:05,400 --> 01:34:10,680
just a practical consideration, which ultimately is going to be, is it going to be Your Honor,

1315
01:34:10,680 --> 01:34:14,080
is it going to be Judge Dorsey, is it going to be a judge in the Southern District of

1316
01:34:14,080 --> 01:34:20,080
New York, potentially as the government has suggested, that it's going to decide the

1317
01:34:20,080 --> 01:34:21,080
merits issues.

1318
01:34:21,080 --> 01:34:26,360
And it might very well be that the parties can sit down and agree on that ultimately

1319
01:34:26,360 --> 01:34:29,960
in terms of putting some process around it.

1320
01:34:29,960 --> 01:34:35,760
But I think what our concern from the beginning here was that papers were filed two hours

1321
01:34:35,760 --> 01:34:40,760
into the BlockFi case, which was three and a half weeks after the FTX debtors had filed

1322
01:34:40,760 --> 01:34:41,760
bankruptcy in Delaware.

1323
01:34:41,760 --> 01:34:44,760
We were not named as the defendant in that lawsuit.

1324
01:34:44,760 --> 01:34:49,440
We were not even mentioned in that lawsuit.

1325
01:34:49,440 --> 01:34:53,360
The issue, of course, now is what do we do about it?

1326
01:34:53,360 --> 01:34:59,240
And I think what's getting lost in this, Your Honor, is we're talking about 55 million shares

1327
01:34:59,240 --> 01:35:06,080
of stock and 21 million dollars, 21 or so odd million dollars of cash that are in the

1328
01:35:06,080 --> 01:35:07,960
possession of the United States government.

1329
01:35:07,960 --> 01:35:10,720
We haven't heard anything from the United States government other than the statement

1330
01:35:10,720 --> 01:35:14,480
that they filed in this case, and they made a statement on the record in a status conference

1331
01:35:14,480 --> 01:35:16,680
in our case last week.

1332
01:35:16,680 --> 01:35:18,840
They certainly are in possession of those shares.

1333
01:35:18,840 --> 01:35:19,960
We know that.

1334
01:35:19,960 --> 01:35:22,160
We know that they are going to safeguard them.

1335
01:35:22,160 --> 01:35:26,520
But the issues that Mr. Hannigan started his remarks with at the outset today, I think

1336
01:35:26,520 --> 01:35:31,360
when we think about next steps and we think about what should happen, from our perspective,

1337
01:35:31,360 --> 01:35:36,720
we should not be having a dispute about jurisdiction this week or next week.

1338
01:35:36,720 --> 01:35:41,640
We don't feel the need, frankly, Your Honor, for our motion to go forward in Delaware that's

1339
01:35:41,640 --> 01:35:42,640
pending.

1340
01:35:42,640 --> 01:35:46,080
If we could all agree that what we're not going to be fighting about right now is jurisdiction,

1341
01:35:46,080 --> 01:35:50,920
but what we should do is sit down and talk about how to maximize the value of these assets,

1342
01:35:50,920 --> 01:35:54,200
get an understanding from the United States government to the extent they're willing to

1343
01:35:54,200 --> 01:35:59,520
discuss with the parties what their intentions are with respect to these assets over the

1344
01:35:59,520 --> 01:36:03,760
medium term so that we can get some understanding as to whether the parties can get comfortable

1345
01:36:03,760 --> 01:36:09,640
around the process for ensuring both that those assets are maximized and that when it

1346
01:36:09,640 --> 01:36:15,880
becomes necessary, we have a see if we can reach some sort of process about what to do.

1347
01:36:15,880 --> 01:36:20,720
I certainly don't believe it's in anybody's interest, given that there's nobody's going

1348
01:36:20,720 --> 01:36:26,960
to get possession of these assets in the immediate term, that seems clear, to be having the sorts

1349
01:36:26,960 --> 01:36:33,480
of debates around who filed first, whose stay might be implicated, and what should we do

1350
01:36:33,480 --> 01:36:38,440
about it, because from our perspective, that's not really in anybody's best interest.

1351
01:36:38,440 --> 01:36:39,440
Fair enough.

1352
01:36:39,440 --> 01:36:40,440
Thank you.

1353
01:36:40,440 --> 01:36:41,440
Thank you.

1354
01:36:41,440 --> 01:36:46,640
Let me hear from counsel approaching the podium.

1355
01:36:46,640 --> 01:36:48,440
Thank you, Your Honor.

1356
01:36:48,440 --> 01:36:56,560
Josh Widorchak of Morgan Lewis again for the Joint Provisional Liquidators of Emergent.

1357
01:36:56,560 --> 01:37:01,640
I think everyone agrees, Your Honor, that the actual relief sought in the motion is

1358
01:37:01,640 --> 01:37:05,480
mooted or futile or something like that, and I don't need to address it.

1359
01:37:05,480 --> 01:37:07,480
Am I correct on that?

1360
01:37:07,480 --> 01:37:08,480
No, Your Honor.

1361
01:37:08,480 --> 01:37:10,760
We don't agree that it's mooted.

1362
01:37:10,760 --> 01:37:14,320
We believe it's frustrated and maybe delayed, but it's not mooted.

1363
01:37:14,320 --> 01:37:15,320
Okay.

1364
01:37:15,320 --> 01:37:17,240
In that case, I'll start by saying this, Your Honor.

1365
01:37:17,240 --> 01:37:23,840
My clients have no legal or practical ability to move these shares that everyone is fighting

1366
01:37:23,840 --> 01:37:29,240
over or to freeze these shares that everyone is fighting over to do anything with them.

1367
01:37:29,240 --> 01:37:35,800
So the relief, we can't do anything about it unless the situation changes, and that's

1368
01:37:35,800 --> 01:37:38,760
been true since the government took the share.

1369
01:37:38,760 --> 01:37:44,400
So actually turning them over to someone we can't do, so I'll just leave it at that now.

1370
01:37:44,400 --> 01:37:45,400
That's enough on that subject.

1371
01:37:45,400 --> 01:37:47,400
You can't do it because they've been seized.

1372
01:37:47,400 --> 01:37:48,400
Right.

1373
01:37:48,400 --> 01:37:49,400
Okay.

1374
01:37:49,400 --> 01:37:50,400
I just wanted to clarify.

1375
01:37:50,400 --> 01:37:54,000
Not because we don't want to.

1376
01:37:54,000 --> 01:37:58,560
The most important thing I think I need to address is the idea that even though the government

1377
01:37:58,560 --> 01:38:02,480
is taking the shares, there's some lingering wrongdoing going on out there.

1378
01:38:02,480 --> 01:38:07,320
I certainly have to address what I think was irresponsible over the weekend accusations

1379
01:38:07,320 --> 01:38:12,200
that my clients have been sort of serially violating the automatic stay and acting in

1380
01:38:12,200 --> 01:38:16,520
contempt of Your Honor, including some comments you made at the last hearing.

1381
01:38:16,520 --> 01:38:19,080
So I need to address that right away.

1382
01:38:19,080 --> 01:38:23,640
The easiest way to explain it, I think, is to tell you what's going on in Antigua.

1383
01:38:23,640 --> 01:38:28,080
So the joint provisional liquidators were appointed on December 5th, and the order that

1384
01:38:28,080 --> 01:38:33,040
appoints them, which is on the record, says that the purposes of the provisional liquidators

1385
01:38:33,040 --> 01:38:38,200
appointment are to investigate the respondents' affairs and to preserve the value of the respondents'

1386
01:38:38,200 --> 01:38:42,720
assets for the benefit of those entitled to them, pending the determination of the petition

1387
01:38:42,720 --> 01:38:44,440
to wind up with a respond.

1388
01:38:44,440 --> 01:38:51,760
So the task of the JPLs is to investigate what happened and to figure out how to amass

1389
01:38:51,760 --> 01:38:55,760
the assets of the company for the benefit of whoever is entitled to them.

1390
01:38:55,760 --> 01:39:01,640
There's no predetermination of who's entitled to the benefit of these shares or who owns

1391
01:39:01,640 --> 01:39:02,640
them.

1392
01:39:02,640 --> 01:39:08,320
So while they're being appointed, the JPLs have never asked the Antigua court to make

1393
01:39:08,320 --> 01:39:15,320
any decision whatsoever about who owns these shares or who should get the value of these

1394
01:39:15,320 --> 01:39:16,320
shares.

1395
01:39:16,320 --> 01:39:19,600
As we said the last time we were before you, we're still trying to investigate what even

1396
01:39:19,600 --> 01:39:20,920
happened.

1397
01:39:20,920 --> 01:39:25,640
And we have not been sneaking around in the Caribbean behind your back, Your Honor, trying

1398
01:39:25,640 --> 01:39:32,120
to get some advantage over the BlockFi estate when it comes to these shares.

1399
01:39:32,120 --> 01:39:35,000
I hope you believe that me when I'm saying that.

1400
01:39:35,000 --> 01:39:39,120
What's been going on since we were appointed is there was an attack on the authority of

1401
01:39:39,120 --> 01:39:44,640
the JPLs, brought in the first instance by Samuel Bank and Fried, and then BlockFi joined

1402
01:39:44,640 --> 01:39:48,920
that attack to try and sort of kick my clients off the job.

1403
01:39:48,920 --> 01:39:50,040
And we responded to that.

1404
01:39:50,040 --> 01:39:51,040
It was purely defensive.

1405
01:39:51,040 --> 01:39:53,520
And again, the shares were not at issue.

1406
01:39:53,520 --> 01:39:58,160
The shares were in the background, but there has been no activity in Antigua about these

1407
01:39:58,160 --> 01:40:00,080
shares.

1408
01:40:00,080 --> 01:40:04,840
And the hearing that's scheduled toward the end of January is to get a wind-up order out

1409
01:40:04,840 --> 01:40:05,840
of the judge.

1410
01:40:05,840 --> 01:40:10,960
Again, it doesn't predetermine anything about whose shares these are.

1411
01:40:10,960 --> 01:40:13,560
So my clients are fiduciaries.

1412
01:40:13,560 --> 01:40:15,880
What is sought in the wind-up order?

1413
01:40:15,880 --> 01:40:18,920
What relief is sought in the wind-up order?

1414
01:40:18,920 --> 01:40:24,600
The wind-up order is sought to conclude, to give the joint provisional liquidators the

1415
01:40:24,600 --> 01:40:28,800
authority to administer the estate for the benefit of the stakeholders.

1416
01:40:28,800 --> 01:40:35,480
And the creditors, who we have to first figure out who those are, right?

1417
01:40:35,480 --> 01:40:37,480
And we're done.

1418
01:40:37,480 --> 01:40:39,800
We're holding this asset to the extent we're holding it.

1419
01:40:39,800 --> 01:40:40,800
The government's holding it.

1420
01:40:40,800 --> 01:40:44,960
But our ownership of this asset in the hands of these fiduciaries is for the benefit of

1421
01:40:44,960 --> 01:40:46,440
whoever's entitled to it.

1422
01:40:46,440 --> 01:40:51,440
And we've never asked for a ruling on who's entitled to these shares away from this court.

1423
01:40:51,440 --> 01:40:55,840
Now, we have questions about where the best forum to do it is, and we've said that out

1424
01:40:55,840 --> 01:41:01,640
there, but we have not taken any affirmative action anywhere to get some other judge besides

1425
01:41:01,640 --> 01:41:03,080
you to decide this issue.

1426
01:41:03,080 --> 01:41:12,680
But in order to effectuate the wind-up, do you not need to take steps to determine the

1427
01:41:12,680 --> 01:41:19,200
extent and validity of either FTX's interest or BlockFi's interest?

1428
01:41:19,200 --> 01:41:30,240
So there is a competing proceeding going on in another forum, which affects the rights

1429
01:41:30,240 --> 01:41:31,240
of this debtor.

1430
01:41:31,240 --> 01:41:40,240
And I'm not speaking for the FTX debtor, but it would seem to be parallel in assets.

1431
01:41:40,240 --> 01:41:47,480
We have potentially three, if not four, different venues deciding everybody's respective interests.

1432
01:41:47,480 --> 01:41:55,320
Of course, the estate can't be administered until these issues are decided.

1433
01:41:55,320 --> 01:42:00,880
The JPLs in Antigua, as I said, have not been asking that judge, just as I feel BlockFi's

1434
01:42:00,880 --> 01:42:04,780
counsel sort of implied, we're down there trying to take this decision away from you.

1435
01:42:04,780 --> 01:42:07,360
We haven't asked that judge to make that decision.

1436
01:42:07,360 --> 01:42:12,360
We came up here as soon as the counsel for the JPLs came up here and contacted all the

1437
01:42:12,360 --> 01:42:14,240
counsel for the parties in interest.

1438
01:42:14,240 --> 01:42:20,640
Our view was that we should talk about a sort of efficient way for everyone to get their

1439
01:42:20,640 --> 01:42:23,320
claims on the table and hash this all out.

1440
01:42:23,320 --> 01:42:27,360
We also agreed with various people that have said we want the value of the shares to be

1441
01:42:27,360 --> 01:42:28,480
preserved.

1442
01:42:28,480 --> 01:42:33,120
We did the opposite of trying to get this decided back down in the Caribbean when nobody

1443
01:42:33,120 --> 01:42:34,120
was looking.

1444
01:42:34,120 --> 01:42:39,360
We came up here and said to Marek, our custodian, because we do own the shares technically,

1445
01:42:39,360 --> 01:42:44,560
Your Honor, we asked our custodian to freeze the shares, not to give them to us so we could

1446
01:42:44,560 --> 01:42:47,600
go off and do something with them, to freeze them so that we could talk to the parties

1447
01:42:47,600 --> 01:42:48,600
in interest.

1448
01:42:48,600 --> 01:42:49,600
And that was happening.

1449
01:42:49,600 --> 01:42:54,640
Now, the government has changed the playing field a little bit, but we haven't changed

1450
01:42:54,640 --> 01:42:58,360
our attitude, which is that we probably should talk about how to work this out.

1451
01:42:58,360 --> 01:43:00,800
So that always has been our position.

1452
01:43:00,800 --> 01:43:06,560
I just want this court to know that there hasn't been any funny business going on.

1453
01:43:06,560 --> 01:43:09,760
It's almost done.

1454
01:43:09,760 --> 01:43:15,760
There was a complaint about a little clause in the order that the judge in Antigua put

1455
01:43:15,760 --> 01:43:20,160
in for BlockFi to, if they want to appear at this hearing, which they're welcome to

1456
01:43:20,160 --> 01:43:26,640
do at the end of January, to provide the court with a summary of the position, sort of why

1457
01:43:26,640 --> 01:43:27,720
they are here.

1458
01:43:27,720 --> 01:43:31,520
I understand that that's a local procedural thing that's common in every case.

1459
01:43:31,520 --> 01:43:35,680
It's not an attempt to keep BlockFi out of the court in Antigua.

1460
01:43:35,680 --> 01:43:38,120
They're welcome to come down there and say whatever they want.

1461
01:43:38,120 --> 01:43:43,440
And just as a practical matter, Your Honor, we are aware that even if we did go to the

1462
01:43:43,440 --> 01:43:49,560
judge in Antigua and get that judge to say, OK, the shares belong to so-and-so, that we

1463
01:43:49,560 --> 01:43:53,200
may have to come up here and contend with all the other judges up here who may have

1464
01:43:53,200 --> 01:43:54,200
a different opinion.

1465
01:43:54,200 --> 01:43:58,560
And so it wouldn't even have worked if that was our plan.

1466
01:43:58,560 --> 01:44:01,480
I just want to make that clear.

1467
01:44:01,480 --> 01:44:05,880
So if you ask me what we should do next, I'm going to say the same thing I said before,

1468
01:44:05,880 --> 01:44:09,720
which is we think that there seems to be the government seizing the shares has caused a

1469
01:44:09,720 --> 01:44:13,280
sort of reset of some sort.

1470
01:44:13,280 --> 01:44:14,280
OK.

1471
01:44:14,280 --> 01:44:17,920
If it means that certain people should be implicated into this case, fair enough.

1472
01:44:17,920 --> 01:44:21,800
We had already asked for more time to respond in this case because we're trying to figure

1473
01:44:21,800 --> 01:44:22,880
out what's going on.

1474
01:44:22,880 --> 01:44:25,920
So it seems like the party should continue to talk about that.

1475
01:44:25,920 --> 01:44:28,520
If there are rival forms, I don't know.

1476
01:44:28,520 --> 01:44:31,720
It eventually gets litigated if it can't be negotiated.

1477
01:44:31,720 --> 01:44:37,080
But besides the issue of making the shares have their maximum value, which maybe requires

1478
01:44:37,080 --> 01:44:42,880
an advisor, a very practical issue, I don't think there's a legal issue that requires

1479
01:44:42,880 --> 01:44:44,640
anything more than some cooperation.

1480
01:44:44,640 --> 01:44:48,040
There is no legal issue at all that needs to be cited in the near term.

1481
01:44:48,040 --> 01:44:53,480
I don't think that the JPL is going forward with getting a winding up order would necessarily

1482
01:44:53,480 --> 01:44:54,480
change anything.

1483
01:44:54,480 --> 01:45:01,240
It certainly isn't going to somehow simultaneously decide the outcome of the shares, which of

1484
01:45:01,240 --> 01:45:06,400
course even the judge in Antigua can't convince the government to do anything with it.

1485
01:45:06,400 --> 01:45:07,520
No threat.

1486
01:45:07,520 --> 01:45:15,200
So would it make sense to carve out from any wind up order steps to determine, fix to an

1487
01:45:15,200 --> 01:45:18,160
extent, the validity of any interest in it?

1488
01:45:18,160 --> 01:45:20,560
I can't speak for the judge.

1489
01:45:20,560 --> 01:45:24,000
Well, no, I'm throwing that out there.

1490
01:45:24,000 --> 01:45:29,240
But it's in my mind perfectly possible that the judge in Antigua would be open to these

1491
01:45:29,240 --> 01:45:33,560
key issues disputed amongst a bunch of people up in the United States.

1492
01:45:33,560 --> 01:45:35,120
But maybe that issue should get decided there.

1493
01:45:35,120 --> 01:45:38,880
And then the effects of that issue are folded into the winding up order.

1494
01:45:38,880 --> 01:45:40,960
But I don't think the judge would be against that.

1495
01:45:40,960 --> 01:45:42,760
But of course, I can't read the judge's mind, Your Honor.

1496
01:45:42,760 --> 01:45:44,800
We're actually getting a new judge.

1497
01:45:44,800 --> 01:45:50,080
The judge that we have heard the case so far is going off the rolls or whatever the expression

1498
01:45:50,080 --> 01:45:52,240
is, and a new judge will be coming in.

1499
01:45:52,240 --> 01:45:58,560
But either way, Your Honor, there's nothing that interesting going on in Antigua, to put

1500
01:45:58,560 --> 01:46:01,640
it that way.

1501
01:46:01,640 --> 01:46:04,560
So that's the main point I wanted to make.

1502
01:46:04,560 --> 01:46:08,800
Otherwise, I believe that the motion should be denied because my clients can't be compelled

1503
01:46:08,800 --> 01:46:12,160
to turn over something when they literally cannot do that.

1504
01:46:12,160 --> 01:46:16,720
And that we all get some extra time to talk and see if a lot of people can work out a

1505
01:46:16,720 --> 01:46:17,960
lot of these procedural issues.

1506
01:46:17,960 --> 01:46:23,040
My sympathies to the new judge coming in, just very briefly.

1507
01:46:23,040 --> 01:46:28,400
I know my law clerks are cringing at the thought of me asking this, but the real important

1508
01:46:28,400 --> 01:46:31,480
question is it Antigua or Antigua?

1509
01:46:31,480 --> 01:46:32,480
Antigua.

1510
01:46:32,480 --> 01:46:37,240
That's what the lawyers at Antigua call it.

1511
01:46:37,240 --> 01:46:38,240
Even that's going to be disputed.

1512
01:46:38,240 --> 01:46:39,240
Maybe so.

1513
01:46:39,240 --> 01:46:42,240
I'm not taking a position on it myself.

1514
01:46:42,240 --> 01:46:49,440
But definitely the Commonwealth community uses Antigua and Antigua.

1515
01:46:49,440 --> 01:46:51,840
Fair enough.

1516
01:46:51,840 --> 01:46:52,840
Thank you, counsel.

1517
01:46:52,840 --> 01:46:53,840
Thank you.

1518
01:46:53,840 --> 01:46:58,520
Let me, before I get, thank you.

1519
01:46:58,520 --> 01:47:00,920
Is there any other appearances?

1520
01:47:00,920 --> 01:47:01,920
Council?

1521
01:47:01,920 --> 01:47:06,600
Thank you, Your Honor.

1522
01:47:06,600 --> 01:47:09,800
Edward Schnitzer from Montgomery-McCracken on behalf of Samuel Bankman Fried.

1523
01:47:09,800 --> 01:47:13,720
Your Honor, as other people have already stated, we believe the motion is moot because of the

1524
01:47:13,720 --> 01:47:14,720
seizure.

1525
01:47:14,720 --> 01:47:18,920
While the seizure was unexpected from our perspective, it did happen.

1526
01:47:18,920 --> 01:47:20,400
It has been effectuated.

1527
01:47:20,400 --> 01:47:23,680
So if you just simply look at what the relief that was requested in the motion, as well

1528
01:47:23,680 --> 01:47:28,800
as the proposed order, it really can't be granted because the shares in stock are no

1529
01:47:28,800 --> 01:47:30,760
longer in the possession of Merrick's.

1530
01:47:30,760 --> 01:47:35,640
I actually agree with FTX counsel, and maybe the one time only in this case that I will

1531
01:47:35,640 --> 01:47:36,640
agree with FTX counsel.

1532
01:47:36,640 --> 01:47:42,320
But as they said, basically, the arguments advance and relief sought earlier today that

1533
01:47:42,320 --> 01:47:45,560
you heard was not what was set forth in the motion and it should be denied.

1534
01:47:45,560 --> 01:47:50,240
Your Honor, as you saw in our papers, we responded because the motion was going forward, not

1535
01:47:50,240 --> 01:47:54,400
withstanding this, so we needed to make our point with respect to the standard for preliminary

1536
01:47:54,400 --> 01:47:55,400
injunction.

1537
01:47:55,400 --> 01:47:56,400
We do not think it's met.

1538
01:47:56,400 --> 01:47:58,040
I put that forth in our papers.

1539
01:47:58,040 --> 01:47:59,920
I believe the JPL has also put that forth.

1540
01:47:59,920 --> 01:48:03,400
I won't burden you with repeating what we put forth in our papers.

1541
01:48:03,400 --> 01:48:06,680
The only thing I wanted to add, Your Honor, is in part of their presentation, they said

1542
01:48:06,680 --> 01:48:10,320
our position was tainted by the fraud of Mr. Bankman Fried and Ms. Ellison.

1543
01:48:10,320 --> 01:48:11,800
I just wanted to make two points, Your Honor.

1544
01:48:11,800 --> 01:48:17,520
First of all, I do want to remind everybody, and Your Honor, I believe you effectively

1545
01:48:17,520 --> 01:48:21,160
stated this before, it's alleged fraud of Mr. Bankman Fried.

1546
01:48:21,160 --> 01:48:22,160
He's been accused.

1547
01:48:22,160 --> 01:48:23,160
He has his right in court.

1548
01:48:23,160 --> 01:48:24,160
We will see what happens.

1549
01:48:24,160 --> 01:48:26,040
Ms. Ellison, on the other hand, has by guilty.

1550
01:48:26,040 --> 01:48:28,160
I believe there is a difference there.

1551
01:48:28,160 --> 01:48:31,640
Lastly, Your Honor, I know you asked, so I thought I would answer the question you asked,

1552
01:48:31,640 --> 01:48:33,640
what is Mr. Bankman Fried's interest?

1553
01:48:33,640 --> 01:48:36,400
He is the 90 percent shareholder of Emergent.

1554
01:48:36,400 --> 01:48:38,440
I don't believe anyone's disputing that.

1555
01:48:38,440 --> 01:48:44,160
So my understanding of how things work in Antigua or Antigua, I'm not sure either of

1556
01:48:44,160 --> 01:48:47,440
pronunciation, my understanding of how things work there are similar to how things work

1557
01:48:47,440 --> 01:48:52,240
here in that after creditors, if there are any creditors get paid, the interest in a

1558
01:48:52,240 --> 01:48:54,020
company do belong to equity.

1559
01:48:54,020 --> 01:48:55,840
So that is Mr. Bankman Fried's interest.

1560
01:48:55,840 --> 01:49:00,480
It is contingent at this point, although I believe almost everyone's interest here is

1561
01:49:00,480 --> 01:49:03,840
contingent because they would actually have to prove they are a creditor.

1562
01:49:03,840 --> 01:49:04,840
All right.

1563
01:49:04,840 --> 01:49:05,840
Thank you.

1564
01:49:05,840 --> 01:49:06,840
Thank you, Your Honor.

1565
01:49:06,840 --> 01:49:07,840
Counsel for the Committee.

1566
01:49:07,840 --> 01:49:08,840
Good morning, Your Honor.

1567
01:49:08,840 --> 01:49:16,480
Kenneth Ouellette, Brown-Rudnick, proposed counsel for the Committee.

1568
01:49:16,480 --> 01:49:20,200
The Committee supports the debtors today.

1569
01:49:20,200 --> 01:49:24,600
Our view is that there were two things sought in the turnover motion.

1570
01:49:24,600 --> 01:49:29,400
There is the demand to turnover, which it is what it is today.

1571
01:49:29,400 --> 01:49:33,520
But there was also a request to enjoin the transfer of use of the collateral pending

1572
01:49:33,520 --> 01:49:36,760
the court's resolution of the adversary proceeding.

1573
01:49:36,760 --> 01:49:39,760
That is of great importance to the Committee.

1574
01:49:39,760 --> 01:49:43,040
The Committee does not want these shares going anywhere.

1575
01:49:43,040 --> 01:49:46,360
Mr. Bankman Fried's counsel is in the courtroom.

1576
01:49:46,360 --> 01:49:51,840
You can imagine the view of the Committee on Mr. Bankman Fried having any say in where

1577
01:49:51,840 --> 01:49:54,840
these shares go.

1578
01:49:54,840 --> 01:49:59,600
Beyond that, Your Honor, we'll leave it to the debtors, but we wanted to register that

1579
01:49:59,600 --> 01:50:02,360
we joined the debtors in this motion.

1580
01:50:02,360 --> 01:50:03,360
All right.

1581
01:50:03,360 --> 01:50:04,360
Thank you.

1582
01:50:04,360 --> 01:50:06,040
Mr. Shapiro, I'm going to...

1583
01:50:06,040 --> 01:50:09,600
Oh, before I turn to Mr. Shapiro, counsel for...

1584
01:50:09,600 --> 01:50:11,920
Somebody probably wants out, but go ahead.

1585
01:50:11,920 --> 01:50:12,920
Thank you, Your Honor.

1586
01:50:12,920 --> 01:50:14,320
Yes, we would like out.

1587
01:50:14,320 --> 01:50:15,560
We represent Marikson.

1588
01:50:15,560 --> 01:50:21,920
I really don't have much more to add to what the counsel today has said, but as you recall,

1589
01:50:21,920 --> 01:50:27,720
when we had the hearing before you on the 28th, I made very clear that Marik's had froze

1590
01:50:27,720 --> 01:50:31,480
this account on November 10th.

1591
01:50:31,480 --> 01:50:35,680
It made very clear to all of the interested parties that these assets would not be moved

1592
01:50:35,680 --> 01:50:38,760
unless and until a court ordered otherwise.

1593
01:50:38,760 --> 01:50:43,420
And we did get that order by the warrant of seizure on December 30th.

1594
01:50:43,420 --> 01:50:48,020
We made all of the parties aware of that warrant before the government actually seized the

1595
01:50:48,020 --> 01:50:49,560
assets.

1596
01:50:49,560 --> 01:50:54,640
But on January 4, Marik's fully complied with that warrant and everything is now in the

1597
01:50:54,640 --> 01:50:56,920
hands of the government.

1598
01:50:56,920 --> 01:51:02,880
And I do think what we talked about on the conference on the 28th of December was everybody's

1599
01:51:02,880 --> 01:51:07,080
interest in the next step should be to maximize the value of those assets.

1600
01:51:07,080 --> 01:51:11,920
And I would request that we be let out of this case since we no longer are a stakeholder,

1601
01:51:11,920 --> 01:51:12,920
and the motion should be denied.

1602
01:51:12,920 --> 01:51:13,920
All right.

1603
01:51:13,920 --> 01:51:14,920
Thank you.

1604
01:51:14,920 --> 01:51:15,920
Thank you, Your Honor.

1605
01:51:15,920 --> 01:51:21,360
I'd like to turn to Mr. Shapiro.

1606
01:51:21,360 --> 01:51:22,360
Good morning.

1607
01:51:22,360 --> 01:51:23,360
Yeah, it's still morning.

1608
01:51:23,360 --> 01:51:26,120
For the next three minutes.

1609
01:51:26,120 --> 01:51:31,960
I appreciate that the government is not a named party in the adversary proceeding at

1610
01:51:31,960 --> 01:51:34,280
this juncture.

1611
01:51:34,280 --> 01:51:42,200
My understanding is that in reading the notice of the seizure that I guess with a pending

1612
01:51:42,200 --> 01:51:52,040
or contemplated in rem proceeding that's coexistent with the criminal prosecution of Mr. Bankman

1613
01:51:52,040 --> 01:51:56,660
Freed, the government has seized the shares.

1614
01:51:56,660 --> 01:52:08,440
It would seem to me that there can be many months and many market changes before the

1615
01:52:08,440 --> 01:52:19,560
government gets to the point of whether a forfeiture goes into effect.

1616
01:52:19,560 --> 01:52:27,560
And the concern that I have probably shared by every other judge who has these issues

1617
01:52:27,560 --> 01:52:37,800
in front of them is that there not be a loss in value of the shares during this time period

1618
01:52:37,800 --> 01:52:48,000
until ownership entitlement, whether it be as an owner, as a lien holder, or on the basis

1619
01:52:48,000 --> 01:52:52,480
of forfeiture is determined by the appropriate court.

1620
01:52:52,480 --> 01:53:02,240
What are your thoughts on working or reaching a consensus with the stakeholders to ensure

1621
01:53:02,240 --> 01:53:12,080
that the value for the creditor body, all of the retail and larger institutional creditors

1622
01:53:12,080 --> 01:53:13,080
are furthered?

1623
01:53:13,080 --> 01:53:16,160
Thank you and good morning, Your Honor.

1624
01:53:16,160 --> 01:53:22,440
As I indicated earlier, the United States is not a party to the adversary proceeding

1625
01:53:22,440 --> 01:53:27,440
and I'm not appearing in the adversary proceeding but I am here to answer Your Honor's questions

1626
01:53:27,440 --> 01:53:30,240
of the court.

1627
01:53:30,240 --> 01:53:37,000
And we would greatly appreciate the opportunity to be able to submit a brief in conjunction

1628
01:53:37,000 --> 01:53:43,360
with any accusations or allegations against the government before Your Honor rules at

1629
01:53:43,360 --> 01:53:44,960
the appropriate time.

1630
01:53:44,960 --> 01:53:50,960
In the interim, Your Honor should know that we have been having discussions, confidential

1631
01:53:50,960 --> 01:54:00,640
discussions with counsel of the debtors in both this case and the FTX case as well as

1632
01:54:00,640 --> 01:54:01,640
others.

1633
01:54:01,640 --> 01:54:05,520
And hopefully we would be able to resolve these issues but if we can't, there will

1634
01:54:05,520 --> 01:54:10,400
be an appropriate time where Your Honor can hear the arguments of the government as to

1635
01:54:10,400 --> 01:54:15,400
why we believe that what the government did was appropriate.

1636
01:54:15,400 --> 01:54:22,160
And of course, ultimately, if the matter went forward in New York and the Southern District,

1637
01:54:22,160 --> 01:54:27,480
it would be a criminal and or civil asset forfeiture proceeding.

1638
01:54:27,480 --> 01:54:33,720
In the interim, as part of the discussions, Your Honor, to answer our question, that issue

1639
01:54:33,720 --> 01:54:39,080
that Your Honor has brought up has been the subject of discussions and we haven't reached

1640
01:54:39,080 --> 01:54:40,080
a conclusion yet.

1641
01:54:40,080 --> 01:54:45,960
So I can't tell Your Honor what that conclusion is but we are talking with counsel of the

1642
01:54:45,960 --> 01:54:49,880
parties about how to address Your Honor's concern.

1643
01:54:49,880 --> 01:54:51,600
All right.

1644
01:54:51,600 --> 01:54:52,600
Thank you, Mr. Shapiro.

1645
01:54:52,600 --> 01:54:53,600
Mr. Kanowitz?

1646
01:54:53,600 --> 01:54:56,600
Or, we'll miss that.

1647
01:54:56,600 --> 01:54:57,600
Andrea?

1648
01:54:57,600 --> 01:55:04,280
Let me, so what?

1649
01:55:04,280 --> 01:55:07,120
I know going for, Anegean or Anegean?

1650
01:55:07,120 --> 01:55:08,120
Anegean.

1651
01:55:08,120 --> 01:55:09,120
Anegean.

1652
01:55:09,120 --> 01:55:10,120
All right.

1653
01:55:10,120 --> 01:55:14,800
Your Honor, a couple of things are really clear.

1654
01:55:14,800 --> 01:55:19,480
There's multiple parties claiming interest in this property that likely will be the subject

1655
01:55:19,480 --> 01:55:26,040
of some government forfeiture action at some point in the future, whether civil, whether

1656
01:55:26,040 --> 01:55:27,040
criminal.

1657
01:55:27,040 --> 01:55:31,280
But before that really can go forward, I mean, there needs to be a resolution of the rights

1658
01:55:31,280 --> 01:55:37,840
and interests of the parties who are claiming interest in this collateral today.

1659
01:55:37,840 --> 01:55:42,600
And it's unworkable that it goes forward in these multiple forms.

1660
01:55:42,600 --> 01:55:44,640
We filed the first action.

1661
01:55:44,640 --> 01:55:49,400
We think that under the Princess Leighton doctrine it should stay in this court.

1662
01:55:49,400 --> 01:55:51,840
We don't know exactly what's going on in Antigua.

1663
01:55:51,840 --> 01:55:57,640
I mean, our local counsel there asked that certain provisions of the order that sets

1664
01:55:57,640 --> 01:56:04,120
this hearing on January the 27th not be included and that request was rejected.

1665
01:56:04,120 --> 01:56:11,160
So we believe, or at least there's some indication to us, that on January 27th the court in Antigua

1666
01:56:11,160 --> 01:56:18,040
may be deciding what the rights of BlockFi are pursuant to its pledge agreement with

1667
01:56:18,040 --> 01:56:19,040
emergent.

1668
01:56:19,040 --> 01:56:20,480
We don't think that should go forward.

1669
01:56:20,480 --> 01:56:26,840
Now if the Antiguan court wants to go forward with appointing JPLs in some windup order,

1670
01:56:26,840 --> 01:56:31,600
as long as it doesn't impact BlockFi, that's fine with us.

1671
01:56:31,600 --> 01:56:36,560
The same in Delaware, as long as they want to go forward with their stay motion to the

1672
01:56:36,560 --> 01:56:40,760
extent that it doesn't impact BlockFi's rights in the collateral, that's okay with

1673
01:56:40,760 --> 01:56:41,760
us.

1674
01:56:41,760 --> 01:56:45,000
But I believe they said they're willing to push off that hearing on January 20th.

1675
01:56:45,000 --> 01:56:48,200
We don't think that should go forward on that day.

1676
01:56:48,200 --> 01:56:54,440
With respect to Merrick's, we haven't released, BlockFi has claims against Merrick's and

1677
01:56:54,440 --> 01:56:59,840
it will continue to assert those claims.

1678
01:56:59,840 --> 01:57:06,400
We don't see a point in waiting for resolution of any criminal actions against Mr. Bankman

1679
01:57:06,400 --> 01:57:12,440
Fried and the ultimate filing of some type of forfeiture action before some court, hopefully

1680
01:57:12,440 --> 01:57:18,120
this one, goes forward and makes some, at least the parties can move forward with whatever

1681
01:57:18,120 --> 01:57:24,760
agreements or ultimate fights they have over who's entitled to and what rights and benefits

1682
01:57:24,760 --> 01:57:27,280
and priorities we have in the collateral.

1683
01:57:27,280 --> 01:57:33,960
And for those purposes, we would ask that the court enter an order that takes control

1684
01:57:33,960 --> 01:57:42,080
over this matter and enjoins any action of the emergent JPLs in Antigua to the extent

1685
01:57:42,080 --> 01:57:48,040
they're going to affect BlockFi and the same with respect to the action in Delaware.

1686
01:57:48,040 --> 01:57:49,040
All right.

1687
01:57:49,040 --> 01:57:52,640
Thank you.

1688
01:57:52,640 --> 01:57:58,440
I don't see if there's anyone else remotely who wishes to be heard on these issues.

1689
01:57:58,440 --> 01:58:01,040
I don't see any hands raised.

1690
01:58:01,040 --> 01:58:02,360
All right.

1691
01:58:02,360 --> 01:58:09,640
I think all of the stakeholders and the parties have argued well their respective positions.

1692
01:58:09,640 --> 01:58:16,960
These are interesting and challenging issues that I'm sure all the judges appreciate having

1693
01:58:16,960 --> 01:58:21,440
on their respective plates.

1694
01:58:21,440 --> 01:58:28,040
At this juncture, it's clear that this court is not in a position to enter any turnover

1695
01:58:28,040 --> 01:58:31,800
order of any type.

1696
01:58:31,800 --> 01:58:39,680
The shares are being held by the government pursuant to a warrant of seizure and the government

1697
01:58:39,680 --> 01:58:41,800
is not a party to the pending adversary proceeding.

1698
01:58:41,800 --> 01:58:50,000
The government wasn't a party to the motion and the government, the US government's actions

1699
01:58:50,000 --> 01:58:55,320
changed the landscape for all involved here.

1700
01:58:55,320 --> 01:59:00,600
The turnover motion itself is going to be denied without prejudice.

1701
01:59:00,600 --> 01:59:08,800
I have a pending adversary proceeding in which I would expect the complaint needs to be amended.

1702
01:59:08,800 --> 01:59:15,920
It provides for jurisdiction by this court and this court intends to pursue its jurisdiction

1703
01:59:15,920 --> 01:59:25,560
and authority in the pending adversary proceeding.

1704
01:59:25,560 --> 01:59:37,920
It is always subject to a consensus, consensual resolution otherwise as to the proper forum

1705
01:59:37,920 --> 01:59:42,920
for adjudicating the rights here, but this court has identified a property interest held

1706
01:59:42,920 --> 01:59:52,480
by this debtor, subject to dispute but still a property interest under 11 USC section 541A

1707
01:59:52,480 --> 02:00:02,200
that is deserving of protection under 11 USC 362A and this court is well equipped, god

1708
02:00:02,200 --> 02:00:10,640
that sounds awful, pretentious, this court is equipped to handle the litigation going

1709
02:00:10,640 --> 02:00:17,520
forward if it makes sense to the parties and I will certainly afford the parties the opportunity

1710
02:00:17,520 --> 02:00:24,560
to brief and argue if such assertion of jurisdiction is inappropriate.

1711
02:00:24,560 --> 02:00:29,560
But right now there is a pending adversary proceeding.

1712
02:00:29,560 --> 02:00:38,120
There is also a pending order of this court which just implements the statutory rights

1713
02:00:38,120 --> 02:00:45,720
under 362A, this court's November 30th, I think it's been referred to as worldwide order,

1714
02:00:45,720 --> 02:00:47,800
reinforcing the automatic stay.

1715
02:00:47,800 --> 02:00:55,560
The court intends to enforce that order with either the content powers it has or other

1716
02:00:55,560 --> 02:01:04,880
authority under section 105 to the extent that there are violations going forward.

1717
02:01:04,880 --> 02:01:10,840
The doors are open for parties seeking the appropriate relief from the automatic stay.

1718
02:01:10,840 --> 02:01:18,000
The court is cognizant that in this circuit we still view actions taken in violation of

1719
02:01:18,000 --> 02:01:22,560
the automatic stay as void ab initio.

1720
02:01:22,560 --> 02:01:32,960
I don't believe there is a need to enter an order directing a sister court including an

1721
02:01:32,960 --> 02:01:37,720
Antiguan court or Delaware court on what actions they should be taken.

1722
02:01:37,720 --> 02:01:45,000
The law is straightforward and if there are actions which are challenged, they can be

1723
02:01:45,000 --> 02:01:49,440
challenged in this court or other courts as appropriate.

1724
02:01:49,440 --> 02:01:56,560
But at this juncture I think we need to move forward with the adversary proceeding and

1725
02:01:56,560 --> 02:02:02,280
motion practice in that adversary proceeding as appropriate to address the needs of the

1726
02:02:02,280 --> 02:02:03,280
respective parties.

1727
02:02:03,280 --> 02:02:08,000
With respect to the committee's motion to intervene, I'm going to schedule that for

1728
02:02:08,000 --> 02:02:10,200
the 17th.

1729
02:02:10,200 --> 02:02:16,920
I think that should probably be resolved through a consent order.

1730
02:02:16,920 --> 02:02:25,040
And as to other parties' actions going forward, this court is here to address the issues as

1731
02:02:25,040 --> 02:02:34,640
needed but there is no specific relief today that I can provide on the pending motion.

1732
02:02:34,640 --> 02:02:39,000
So again, the pending motion for turnover is denied without prejudice.

1733
02:02:39,000 --> 02:02:40,960
The adversary proceeding continues.

1734
02:02:40,960 --> 02:02:45,240
All parties have their respective rights and abilities to make argument wherever you all

1735
02:02:45,240 --> 02:02:48,000
want to.

1736
02:02:48,000 --> 02:02:49,600
Any questions or concerns?

1737
02:02:49,600 --> 02:02:56,080
For the record, Richard Canowitz on behalf of the debtors estate, Your Honor.

1738
02:02:56,080 --> 02:03:01,480
No, we will speak with the parties, including the FTX debtors and the JPLs to talk about

1739
02:03:01,480 --> 02:03:04,720
how they want to proceed in the adversary proceeding.

1740
02:03:04,720 --> 02:03:09,080
We also look forward to talking to them about moving the January 20th hearing or completely

1741
02:03:09,080 --> 02:03:10,080
withdrawing that motion.

1742
02:03:10,080 --> 02:03:15,040
Just so you know, January 20th is our 341 meeting in this case.

1743
02:03:15,040 --> 02:03:19,160
So we're not available that day anyway but we will discuss with them a constructive way

1744
02:03:19,160 --> 02:03:23,000
of moving the disputes forward in this court if possible.

1745
02:03:23,000 --> 02:03:29,760
And we will also continue talking to the government about the proper way to handle the seizure

1746
02:03:29,760 --> 02:03:33,160
and the benefit to the victims.

1747
02:03:33,160 --> 02:03:35,680
And let's be clear, I just want to make it clear for the record for everybody.

1748
02:03:35,680 --> 02:03:44,160
Block 5 was defrauded by FTX and its affiliates and maybe the insiders of FTX and its affiliates.

1749
02:03:44,160 --> 02:03:45,160
We are a victim.

1750
02:03:45,160 --> 02:03:46,960
FTX is not a victim.

1751
02:03:46,960 --> 02:03:51,840
FTX to the extent that creditors overlap with our creditors are the victims.

1752
02:03:51,840 --> 02:03:56,040
And we're here to protect the victims and Mr. Stark and his team are well equipped to

1753
02:03:56,040 --> 02:03:59,200
assist or work with us to do that.

1754
02:03:59,200 --> 02:04:00,840
But that is our fiduciary duty.

1755
02:04:00,840 --> 02:04:03,340
The gamesmanship really needs to stop.

1756
02:04:03,340 --> 02:04:06,840
As I said to every counsel and as I said to you, Your Honor, at the first hearing, we

1757
02:04:06,840 --> 02:04:07,840
are fiduciaries.

1758
02:04:07,840 --> 02:04:13,360
We are here to protect client interests and get them the best value, not to have skirmishes

1759
02:04:13,360 --> 02:04:18,720
and litigations and gamesmanship over jurisdiction, automatic stay versus automatic stay or something

1760
02:04:18,720 --> 02:04:19,720
else.

1761
02:04:19,720 --> 02:04:24,680
So we're going to try to work cooperatively with all the constituents and adversaries

1762
02:04:24,680 --> 02:04:29,760
and objectors in this case, in this adversary proceeding and try to craft something that

1763
02:04:29,760 --> 02:04:35,800
is sensible, commercial and efficient to have the dispute, as everyone has said, about whether

1764
02:04:35,800 --> 02:04:40,600
or not Block 5 has a guarantee and a pledge from eMERGEant and what that means for this

1765
02:04:40,600 --> 02:04:41,600
estate.

1766
02:04:41,600 --> 02:04:43,440
So we're going to endeavor to do that.

1767
02:04:43,440 --> 02:04:46,240
Two other points, just to clean up.

1768
02:04:46,240 --> 02:04:53,920
The DOJ has in fact served warrants of seizure on Block 5 for certain customers or clients

1769
02:04:53,920 --> 02:04:58,440
who are obligated to the government to turn over property.

1770
02:04:58,440 --> 02:05:01,260
So it's customer property that we're holding.

1771
02:05:01,260 --> 02:05:07,160
We don't think we need an order from this court to actually comply with those seizure

1772
02:05:07,160 --> 02:05:08,160
orders.

1773
02:05:08,160 --> 02:05:12,000
Mr. Shapiro is on the phone and we have had communications about those.

1774
02:05:12,000 --> 02:05:17,440
They emanate out of the state of Washington and there's about two or three clients of

1775
02:05:17,440 --> 02:05:18,440
ours impacted.

1776
02:05:18,440 --> 02:05:19,440
It is client money.

1777
02:05:19,440 --> 02:05:21,600
It is not property of the estate money.

1778
02:05:21,600 --> 02:05:25,420
And we are going to cooperate and do what we need to do through counsel to turn over

1779
02:05:25,420 --> 02:05:28,520
that money to the government based on those seizure warrants.

1780
02:05:28,520 --> 02:05:29,520
All right.

1781
02:05:29,520 --> 02:05:31,120
I wanted to let you know that.

1782
02:05:31,120 --> 02:05:32,120
Thank you.

1783
02:05:32,120 --> 02:05:33,120
I appreciate it.

1784
02:05:33,120 --> 02:05:36,100
And the second thing I think that we need to address housekeeping is further dates.

1785
02:05:36,100 --> 02:05:38,880
Right now we have January 17th.

1786
02:05:38,880 --> 02:05:43,560
We also have January 30th, but we will need dates, I would believe, in late February and

1787
02:05:43,560 --> 02:05:49,040
March subject to any other type of proceeding that needs to be brought before, Your Honor.

1788
02:05:49,040 --> 02:05:51,560
We have a February 21 date already included.

1789
02:05:51,560 --> 02:05:53,280
You think earlier or?

1790
02:05:53,280 --> 02:05:56,440
I think that a little later since we have January 30th.

1791
02:05:56,440 --> 02:06:01,420
It could be earlier, but that week, the President's week, is vacation, among other things.

1792
02:06:01,420 --> 02:06:05,840
So I think that week is probably not the best week to do it.

1793
02:06:05,840 --> 02:06:06,840
Uh-huh.

1794
02:06:06,840 --> 02:06:09,600
Are we scheduling an omnibus date, you think?

1795
02:06:09,600 --> 02:06:23,800
I think it would be an omnibus date.

1796
02:06:23,800 --> 02:06:43,680
We have 1.30.

1797
02:06:43,680 --> 02:06:59,280
I am actually away the week of the, the chunk of the week of the 13th through the end.

1798
02:06:59,280 --> 02:07:12,280
The best I can offer you all is the week of the sixth or if we're basically eliminating,

1799
02:07:12,280 --> 02:07:26,640
well, let me see here.

1800
02:07:26,640 --> 02:07:32,480
If we're eliminating the week of the 20th, and the week of, well, the week of the 13th,

1801
02:07:32,480 --> 02:07:34,400
I believe, is the President's weekend.

1802
02:07:34,400 --> 02:07:36,760
Are we eliminating both those weeks?

1803
02:07:36,760 --> 02:07:40,120
I think the President's weekend is the 20th, Your Honor.

1804
02:07:40,120 --> 02:07:49,560
That's why I'm saying that week on the 21st is an issue for certain people, I think.

1805
02:07:49,560 --> 02:07:54,480
Maria, do you know why we don't have court on the 13th?

1806
02:07:54,480 --> 02:07:56,960
Oh, is that Lincoln's birthday?

1807
02:07:56,960 --> 02:08:00,760
It is the government.

1808
02:08:00,760 --> 02:08:02,520
LTL.

1809
02:08:02,520 --> 02:08:09,840
Well, Your Honor, why don't we do this now?

1810
02:08:09,840 --> 02:08:13,880
Why don't we caucus the estate parties and get back with chambers?

1811
02:08:13,880 --> 02:08:18,040
Because the prior week of the 13th has issues, the week of the 20th has issues, and we don't

1812
02:08:18,040 --> 02:08:21,400
know what we're going to need potentially, so maybe we keep the 21st.

1813
02:08:21,400 --> 02:08:23,840
So, let's keep the 21st for now.

1814
02:08:23,840 --> 02:08:30,720
It looks like the, no, yeah, let's leave it for now.

1815
02:08:30,720 --> 02:08:31,720
We're running out of days.

1816
02:08:31,720 --> 02:08:37,120
Or I'll have to push something else.

1817
02:08:37,120 --> 02:08:38,840
The Third Circuit doesn't rule on LTL.

1818
02:08:38,840 --> 02:08:40,760
I have a whole day I can move for them.

1819
02:08:40,760 --> 02:08:41,760
So we'll see.

1820
02:08:41,760 --> 02:08:42,760
All right.

1821
02:08:42,760 --> 02:08:45,760
Then just reach out for chambers.

1822
02:08:45,760 --> 02:08:46,760
We will, Your Honor.

1823
02:08:46,760 --> 02:08:48,560
I don't believe we have anything else on the agenda.

1824
02:08:48,560 --> 02:08:50,360
We thank you for your time.

1825
02:08:50,360 --> 02:08:51,360
Thank you.

1826
02:08:51,360 --> 02:08:52,360
Mr. Stoltz?

1827
02:08:52,360 --> 02:08:55,360
Your Honor, Daniel Stoltz, proposed local council for the committee.

1828
02:08:55,360 --> 02:09:02,360
On the motion to intervene, shall we submit an order shortening time listing it for the

1829
02:09:02,360 --> 02:09:03,360
17th?

1830
02:09:03,360 --> 02:09:05,560
We submitted it without date.

1831
02:09:05,560 --> 02:09:07,160
I'll just schedule it.

1832
02:09:07,160 --> 02:09:10,440
Let's avoid the paperwork.

1833
02:09:10,440 --> 02:09:13,840
And will the order, will Your Honor enter a text order after when objections will be

1834
02:09:13,840 --> 02:09:14,840
filed?

1835
02:09:14,840 --> 02:09:15,840
Yeah, we'll do that.

1836
02:09:15,840 --> 02:09:19,080
We're talking about having it on the 17th, correct?

1837
02:09:19,080 --> 02:09:20,080
Correct.

1838
02:09:20,080 --> 02:09:29,200
So we'll have objections by, let's see, 17.

1839
02:09:29,200 --> 02:09:30,200
Objections by the 16th.

1840
02:09:30,200 --> 02:09:38,080
And Your Honor, just so Your Honor knows, the debtor has graciously consented to share

1841
02:09:38,080 --> 02:09:39,080
CROL with us.

1842
02:09:39,080 --> 02:09:43,080
So both the debtor and the committee will be using one noticing agent so that people

1843
02:09:43,080 --> 02:09:44,080
won't get confused.

1844
02:09:44,080 --> 02:09:45,080
I think that's great.

1845
02:09:45,080 --> 02:09:46,080
All right.

1846
02:09:46,080 --> 02:09:50,200
Anybody else wish to be heard on any matters?

1847
02:09:50,200 --> 02:09:51,200
All right, folks.

1848
02:09:51,200 --> 02:09:52,200
Thank you for your time.

1849
02:09:52,200 --> 02:09:53,200
Take care.

1850
02:09:53,200 --> 02:09:54,200
Thank you, Your Honor.

1851
02:09:54,200 --> 02:10:00,760
Thank you.