We're ready, Kea?
Good morning.
This is Judge Kaplan.
We will start our omnibus, albeit reduced omnibus, BlockFi hearing, set of hearings.
Good morning, counsel.
Let me have appearances, please.
Good morning, Your Honor.
Richard Canowitz, Haynes & Boone, proposed counsel for the debtors and debtors in possession.
Along with me is Jordan Chavez of Haynes & Boone.
All right.
I'll take other appearances as counsel rise to speak.
Your Honor, you are right.
Today should be a rather straightforward day, and we would ask to proceed down the agenda
in order.
We are thankful for the constructive comments and resolution of matters by the Office of
the United States Trustee, as well as the Official Committee of Unsecured Creditors.
You'll see many, many red lines, but we are all in agreement that, subject to Your Honor's
approval, these motions should be granted in accordance with those orders.
That's fine.
I appreciate the work of everybody through this morning, possibly.
On the Zoom today is Mr. Mark Renzi.
He was going to appear in person, but weather has trapped him in Boston.
So we appreciate, Your Honor, allowing him to testify, if necessary, through Zoom.
We don't anticipate any cross-examination, but for the record, he did have a second-day
declaration that we'd ask to be submitted under.
It supports various motions that we've made on the second day.
I've read through the declaration.
I'll accept counsel's proffer.
I welcome Mr. Renzi's examination, Mr. Renzi, if needed.
Let's see how we proceed.
Thank you, Your Honor, and at this time, I would cede the podium to Ms. Chavez.
All right.
Good morning, Ms. Chavez.
Good morning, Your Honor.
For the record, Jordan Chavez with Haynes & Boone on behalf of the debtors.
As Mr. Canowitz mentioned, we'd just like to highlight some of the changes we've made
to the orders for Your Honor with the constructive comments we've received from the Committee
and the U.S. Trustee.
I do have copies of revised proposed orders for Your Honor for matters one through six
on the agenda, if I may approach and provide those to you.
Yes, please.
Thank you.
Your Honor, beginning on item number one of the agenda that we filed at docket number
294 is our tax motion that we filed at docket number nine.
We filed a notice of revised proposed order for the tax motion at docket number 267.
The main changes to this order are on page three, we've just clarified that the debtors
are authorized but not directed to also pay penalties that may have been incurred pre-petition
for some taxes.
And then paragraph six just adds the requested language from the SEC that was in the interim
order that has been carried over to the final order.
We did not receive any other comments from the Committee or the Trustee on this particular
final order.
We would ask that Your Honor grant the motion on a final basis and enter the proposed final
order after the hearing.
All right.
As far as going forward this morning, Mr. Sponder, to the extent you have a specific
concern that hasn't been addressed and you're working out the language or you want to apprise
the Court of any specific issues, I'll just wait for you to come and approach the podium.
Otherwise, I'll assume that the U.S. Trustee has signed off or has viewed the language
in the proposals.
Good morning, Your Honor.
Jeff Sponder from the Office of the United States Trustee.
To make it easy, the United States Trustee has signed off on all of these orders that
are being presented today, Your Honor.
Can't be easier than that.
I was going to say the same for the Committee.
Your Honor, Kenneth Allett of Brown-Rudnick proposed counsel for the Committee.
The Committee likewise has signed off on all of the proposed orders for today.
Is the result of all this acquiescence?
Everybody was just busy watching football this weekend?
Yeah.
Go ahead.
Please note the number of trees killed, please.
All right.
We had everything resolved before last night.
Item number two on the agenda.
Just a quick question, then.
Will we be getting final orders, complete ones, later this morning?
We're happy to submit that to Chambers if that's the easiest way for you, Your Honor.
I think that's easiest.
Sure.
All right.
Thank you.
After the hearing, we'll submit all the proposed orders.
Right.
So we'll mark it granted in order to be submitted.
Thank you, Your Honor.
Number two is the utility motion that we filed at Dock at number 10.
We did receive some informal comments from the United States Trustee, and we did add
the Committee as a notice party.
So the main changes for this order are in the Notice of Revised Proposed Order that
we filed at Dock at number 293.
Paragraph three is just clarifying the amount of adequate assurance deposit rather than
just referencing 50% of the monthly amount.
Again, added the Committee as a notice party.
We imposed a duty on the debtors to set a hearing if there's delinquency notices that
we cannot resolve or objections filed.
And then paragraph eight just provides a service deadline of two days upon entry of the order
to all of the utility parties.
And then paragraph 11 is the SEC's requested language.
Again, no objections were received to the utility motion, and we'll ask this Court
to grant it on a final basis.
All right, I'm just looking at the SEC language.
We'll reserve that fun issue for another day.
All right, again, we'll mark it in order to be submitted.
Thank you, granted.
Thank you, Your Honor.
Item number three is the insurance motion that we filed at Dock at number 11.
We did receive some informal comments from the Committee, from the Trustee, and from
some of the insurance and sorority bond providers.
We filed a notice of revised proposed order at Dock at number 268.
The notable changes in that order, Your Honor, are paragraph five.
We've agreed to give the Committee consent rights for payments that are proposed above
$50,000.
And the rest of the order is just clarifications from the insurance and bond providers and
the carryover language from the interim order that it does not impact money transmitter
bonds.
No formal objections were received, and we'll ask the Court to grant this motion as well
on a final basis.
All right, granted, order to be submitted.
Thank you.
Thank you, Your Honor.
Number four is the claimants motion or critical vendor motion that was filed originally on
the first day at Dock at number 13.
We filed a revised proposed order at Dock at number 292 after comments were received
from the U.S. Trustee and the Committee, and we've agreed to include on page five of the
order some reporting requirements and objection rights.
So upon entry of the order, we will provide the Committee and the Trustee within 30 days
just an updated report on the spending that's proposed in the critical vendor order, and
of course the SEC language we've carried over from the interim order.
We've received no formal objections to the critical vendor motion and would ask Your
Honor to grant that on a final basis as well.
All right.
Thank you.
Will market granted order be submitted?
For counsel who are appearing remotely, I haven't forgotten about you all.
If you wish to be heard, please just use the raise hand function.
Otherwise, we'll just keep on proceeding.
Thank you.
Thank you, Your Honor.
Item number five is a new motion that we filed, so we're moving on now to our second, some
of our second day motions, and this was to set up procedures for rejection of executory
contracts and unexpired leases.
This was filed at Dock at number 122.
We did receive some informal comments that we incorporated into the proposed order that
we revised and filed at Dock at number 290.
The main changes in the procedures after receiving comments are that we received language from
the U.S. Trustee that clarifies the procedures and adds the committee as a notice party.
We agreed to give some consent rights to the committee for rejections, creating claims
over a million dollars, and paragraph 2E adds the debtor's duty to set a hearing if we receive
objections and provide at least seven days notice of such a hearing.
And just to clarify, rejection dates for both personal property leases and real estate are
all as of the initial notice date, unless there's an objection?
Yes, Your Honor, and there's a really limited amount of real property leases, but to the
extent we were requesting retroactive rejection as of the notice, that would, of course, be
if the keys are turned over and the property's been returned to the applicable landlord.
Thank you.
Again, granted, OTBS.
Thank you, Your Honor.
My last item is number six, which is our administrative fee procedures.
We filed this at Dock at number 123.
We received some comments from the Trustee and the committee that we incorporated and
filed a notice of revised proposed order at Dock at number 269.
The main changes to the order are, of course, adding in the committee once they were appointed
and all the requested language from the U.S. Trustee just to clarify the procedures if
they were to want to object to any of the fees.
And there were no other formal objections received to those procedures, and we would
ask the Court to grant the order on a final basis.
All right.
Granted, consistent with prior orders on these matters that the Court has approved.
All right.
Granted an order to be submitted.
Thank you, Counsel.
Thank you, Your Honor.
I'll turn the podium back over to Mr. Canowitz to handle items seven and eight.
Okay.
Again, for the record, Richard Canowitz, Haines & Boone, proposed counsel to debtors
and debtors in possession.
Your Honor, I'm handling what is known as the Ordinary Course Professional Motion as
well as the Loan Servicing Motion.
I have copies of the redlined orders if you would like.
Yes, please.
Absolutely.
Thank you.
The Ordinary Course Professional Motion, Your Honor, at Docket 124, standard fare in these
type of proceedings, much of the language can be found in other orders that you approved
in the LTL case, for example.
It's heavily marked by the U.S. Trustee's Office, not because it was deficient, but
rather because we wanted some clarification on certain things.
Two points to note that I would say is a takeaway that may be different.
One here, we are asking for the authority to give post-petition retainers to certain
professionals.
For example, Linworth Johnson in Antigua requested a $20,000 retainer in connection
with the proceedings down there.
It was a foreign representation.
He is not familiar with the proceedings here.
He asked for it.
We agreed, subject to your honor, approving.
Okay.
That's the only one we anticipate actually providing, but the motion is flexible that
the extent someone else comes forward, we will do that on notice.
So that's one takeaway that you might not see in other types of Ordinary Course Professional
Motions.
The second big picture item is the fact that after six months, we're going to look at
the aggregate cap.
We probably may have to come back to expand it, but the trustee wanted us to have a revisit
of where we are after six months.
So to the extent we think we're going to go above the aggregate cap, we need to enhance
it, increase it, we'll come back and we'll deal with those issues.
In advance.
In advance, right.
No retroact.
If any professional goes over the aggregate cap or monthly cap for three months in a row,
they're supposed to make application and get retained.
All of the typical procedures that you would see that to the extent that a party is actually
handling large matters, case administration issues, we'll come back and the appropriate
retention applications if necessary.
All right.
So we ask that the court grant that motion and we will submit it as Nishada said after
court.
Thank you.
We'll mark it.
Again, granted, order to be submitted.
The next motion, your honor, that I will handle is on docket 125.
That's what's known as the loan servicing motion.
This is for institutional loan portfolio only.
This is not for retail clients as we make clear.
The aggregate amount of potential institutional loans is north of 900 million.
So we're talking about a large portfolio that the debtor deals with on a day-to-day
basis.
As you can see, there's typical loan servicing types of things in there such as collections,
forbearance, extensions, workouts, to the extent that we want to ultimately take a haircut,
if you will, on any of the loans.
There's procedures to give notice based on the threshold.
Under a million dollars, pretty much do what you want.
Million to five million, we're giving notice for people to respond, especially the committee,
see if we have an objection.
And then, of course, if there are any objections, about five million, put it out on notice for
a hearing before your honor, if necessary.
But this will allow the debtor to have flexibility to do things in the ordinary course.
As you can imagine, many of the counterparties are distressed themselves, and we want to
realize the highest value without litigation and court costs if possible.
But to the extent we have to, we will come back to court.
Loan servicing is all undertaken in-house?
Yes.
The debtor has extensive both financial and legal capabilities.
And they've been doing this without us, without us bankruptcy lawyers.
So this motion is just really a handoff back to them of what they've been doing, and doing
it competently and well, for the benefit of the estate.
So counsel that would be pursuing collection remedies or workouts or other efforts are
part of the ordinary course professionals, for the most part?
To the extent that we might need a specific collection lawyer in a specific jurisdiction,
we would add that to the ordinary course professional.
That's my contemplation.
If it becomes something much larger, of course we'll come back to court if we believe that
it runs afoul of any of your honors orders.
The other thing to note about this motion is BlockFi International has some institutional
loan portfolios.
The JPLs out of Bermuda were hesitant in connection with this motion.
That's why you'll see throughout the motion and the order there are certain carve-outs.
And likewise, that we agree that they must seek orders in their court so that they become
comfortable with what we're doing if it impacts BlockFi International loan.
We don't believe there are many loans that fall into that bucket, but notwithstanding
that fact, we want to make one motion, put it before your honor, to cover the enterprise
as opposed to separate debtors.
And again, just for clarification, maybe for the participants who are watching, this does
not concern the retail customers?
Nope.
Correct.
It's made clear in the motion and the wrap.
All right.
Thank you.
Thank you, your honor.
And now it's...
The motion will be granted, order to be submitted.
Thank you, your honor.
I'll see the podium.
Good morning.
Good morning, your honor.
Francis Petrie of Kirkland, Post-Council for the Debtors.
I'll be taking us through the next few items on the agenda, all of which bring us back
to final orders for relief that was already granted on the first day of these cases.
We filed revised proposed orders on the docket approximately 48 hours ago.
The orders have not changed since then.
However, I do have red lines to the forms of final order that we filed with the original
motions for convenience.
May I approach?
Yes, please.
Thank you.
Okay.
Your honor, so the first item is the order on NOLs or equity trading procedures.
There have been no material updates to the language of this order from the interim stage.
This has been circulated to the U.S. Trustee and the committee, and they are signed off
on it as represented.
In addition, I can confirm to address your concerns at the first day hearing that the
equity holders that are implicated by this order were all served with the motion and
the interim order on December 1st and had notice of this final hearing.
Nobody spoke up or provided comments.
So unless your honor has any questions, I respectfully ask you to enter this order on
a final basis.
Just a quick question.
The order contemplates sending out advance notice of the procedures to all equity holders,
correct?
Not just the ones who are currently 4.5%?
Yes.
Then, in the back of my mind, it's not on for today.
When we had one of the motions with respect to redaction, it was to limit notice to equity
holders, was it not?
I thought there was a pending motion, and it seemed inconsistent, that it would be too
burdensome on the debtor to notice all equity holders because you were not sure who's holding
the stock on a specific date.
I was wondering if it's too burdensome then, why are we able to do it now?
Unless I have that other motion wrong.
Your Honor, Jordan Chavez for the record.
On the first day, we filed a motion to waive the requirement to file an equity holder list.
So that was the relief we were seeking in addition to consolidation and redaction.
I thought there was a requirement, too, to waive the notice of requirement of future
events that occurred during the bankruptcy, from financing to disclosure on equity holders.
Do I have it wrong?
Your Honor, I'd have to go back and look at the language, but I think what Mr. Petrie
is saying through the NOL motion, and now that the dust has settled, I think we are
able to serve the equity holders with this type of notice in order to get this relief
that is very much needed for the debtors.
Maybe we just revisit that other motion.
I thought it was more expansive.
I thought it referenced how difficult and cumbersome it would be to serve all equity
holders, and it seemed inconsistent.
So we can revisit that.
That's obviously being deferred.
So we can revisit that at a later point.
I definitely revisit that in the order.
As you can imagine, we're in less of a scramble now than we were when we were initially filing
this case.
So we'll discuss the actual terms of that form of order going forward.
All right.
So this motion will be granted, order to be submitted.
Thank you, Your Honor.
Okay, so next is the debtor's final wages order.
Again, there's no significant changes from the interim stage.
The red line changes all reflect from forming edits to the entered order – the entered
interim order.
We discussed this order with parties in interest, the U.S. Trustee, and the committee, and they've
all signed off.
So unless Your Honor has any questions, again, we respectfully ask that you grant the relief
requested on a final basis.
I do not review it initially.
The motion will be granted.
I would say just even if there's been no changes to the order, send us down all the
orders from today's hearings in one package so we have clarity.
We'll be sure to do that, Your Honor.
Thank you.
All right.
And so next is the debtor's final cash management order.
The changes reflected in this red line show comments from certain cash management banks
that wanted to clarify their relationships with the debtors, comments from the committee
about the ability to move crypto externally outside of the ordinary course wallets and
custodians that the company currently does things with, and comments from the United
States Trustee.
Some of these are conforming changes from the interim order, as discussed, but others
are updating the order for the current state of affairs with regards to complying with
the 345B guidelines and the debtor's post-petition obligations.
I'd like to note that the U.S. Trustee did file a formal objection to this order, but
we believe we've resolved that objection by adjusting the requested super priority status
of the intercompany loans to administrative priority.
I spoke to Mr. Sponder of the Office of the U.S. Trustee, and he's comfortable believing
that we have resolved this objection with this form of order.
So unless, Your Honor, there's any questions with this being consensual, we ask that you
grant the relief sought here on a final basis.
All right.
So, Mr. Sponder, it does address the concern on the super priority nature of intercompany
loans that you had?
Good morning again, Your Honor.
Jeff Sponder from the Office of the United States Trustee.
It does.
Okay.
Then I'll – will mark it granted with the limited objection the U.S. Trustee was – having
been resolved.
Thank you, Your Honor, and we'll submit all of these to chambers after the hearing.
Thank you.
With that, I'll turn the podium over to committees' counsel.
All right.
Good morning, Your Honor.
Again, Kenneth Allett of Brown-Rudnick, proposed counsel to the committee.
I am joined by Don Clark of Genova-Burns, proposed local counsel to the committee.
With me also in the courtroom is a member of the committee, Corey Grossman.
I just wanted to note that Mr. Stark, my partner, spoke a lot at the previous hearing about
how diligent the committee is, and even though this is a fully consensual hearing today,
the committee still felt it was important, and Mr. Grossman is here.
And Mr. Grossman is –
Good morning, Your Honor.
Good morning.
Welcome.
Thank you.
As discussed, the committee does not object to any of the second-day motions that are
being entered today.
We appreciate the ability to get our informal comments on those resolved.
The only thing for the committee today is, if Your Honor is prepared, we have a consent
order on the committee's motion to intervene in the next meeting.
I did see that.
It was submitted to chambers this morning.
Yeah, I looked through it.
I have no objection to it.
We'll be entering that order.
Okay.
And that's all for the committee, Your Honor.
Thank you.
All right.
Thank you.
Mr. Canowitz.
Yes, Your Honor.
Dan Richard Canowitz, Hansen-Buhn, proposed counsel of debtors and possession.
I think, given the committee intervention, I think it's good to circle back from our
last hearing just to give you a status update of where we are.
I'm not going to talk about anything on the merits.
No party has to worry about what I'm going to say, but if they want to chime in, if to
the extent they're on Zoom, so be it.
Coming out of last hearing, Your Honor made certain, I would say, admonishments, directions.
I hope that the parties and parties in interest heard them.
I can tell you that the FTX debtors have requested from Judge Dorsey has been granted to mark
off without date their motion to stay.
We'll be in contact with them in due course.
Likewise, our motion to preclude certain testimony in that proceeding in connection with their
stay motion was also adjourned without date.
So we are not facing a January 20th motion in Judge Dorsey's courtroom.
Because two, the JPLs in Antigua are proceeding on the petition, the windup petition there
on January 27th.
We were compelled to file papers by January 9th in connection with that proceeding.
Our papers are very straightforward.
We don't object to the windup per se.
We object to the language in direction 4.3 that was pointed out in prior pleadings filed
in this court that would touch upon the pledge issue.
We've asked for a stay of that portion of that windup petition to the extent they could
do that, or alternatively a forum nonconvenience argument since the pledge agreement has arbitration
in New York under Delaware law.
We do not know what's going to happen down there.
On the 27th, it may go forward.
It may be assigned to another judge.
We will report back once we know what the outcome is there.
We've also had discussions with all the various parties about the proposed amended complaint
that we are going to be filing.
At this time, it was our goal to file the amended complaint by January 20th.
We have a draft in process.
It may be delayed for the following reason.
We had a very, from my perspective, productive call with the Department of Justice, both
the criminal side as well as the civil side, and their bankruptcy counsel as well.
They would like to take a look at our amended complaint.
Clearly they have the seizure and forfeiture in mind.
We are not making the government a defendant in the adversary proceeding.
In fact, we're not making the FTX debtors a defendant in the adversary proceeding.
This amended complaint will address emergent, and whoever speaks for emergent will come
to court and speak for emergent in this court.
Likewise, again, it's MARICS, and it will explain in further detail all of the relief
we seek in that amended complaint.
We got on the phone before we spoke with the DOJ, with the defendants, among others, in
connection with the intervention motion, if you will, by the committee, because it led
to a natural discussion.
We agreed that we're filing the amended complaint.
We're not going to try to jam anyone.
The only under your honor's scheduling order was February 15th to respond to the complaint.
We agreed to move that back to March 15th.
To the extent that the DOJ and the state is discussing the amended complaint for the purposes
of, again, your honor, to try to limit litigation and to not step on toes, we're respectful
of their process and hopefully they're respectful of our process.
But to the extent that we need to move forward on the amended complaint, we're going to try
to work things out with the DOJ.
If not, we'll file it.
But as to the defendants, we'll give them whatever time they need to respond.
So right now, the goal is hopefully to file this by January 20th, if it gets pushed a
little.
Likewise, the response date is from February 15th to March 15th.
And I believe we should come before your honor, hopefully on January 30th, with a request
to amend your honor's order for the pre-trial schedule.
And it was really straightforward.
And then, of course, adjourn the pre-trial conference that's on for some time later anyway.
So we're not going to trip any deadlines in this court, but I want to give parties an
understanding of what's at play here.
The government has requested certain things, and I think it's incumbent upon us to at least
discuss with them their concerns, if any, in connection with the amended complaint.
Fair enough.
I appreciate the update.
I think others listening in also benefit by it.
Thank you.
Thank you, Gary.
And then the last is just really to tie up the loose ends in connection with the adjournment
of the two motions.
Yeah.
That's what I wanted to go over our upcoming schedule a bit.
Yeah.
So the reduction of the PII, which is docket four, and the sealing of confidential parties,
which is docket 127, those have been carried to the March omnibus hearing date, your honor,
to March 13th, I believe.
I'm sorry.
So docket number four, which was the reduction of the, oh, 127?
Yes.
Okay.
And notwithstanding those adjournments, your honor, to the extent that the Office of the
United States of the Trustee has an objection to professional retention applications, and
their deadline is the 23rd of January, notwithstanding that those motions haven't been heard, nothing
will prohibit the court from entering orders retaining the professionals.
So it's sort of like a subject, too, right?
Right.
You'll enter the order, hopefully.
Hopefully, there won't be any objections, and we'll submit the order.
But to the extent we have a hearing, and you overrule objections, these objections will
be still outstanding, subject to your honor's ruling on these motions when and if we'll
deal with disclosures that must be required to be done after that ruling.
So if we could work it out with you, as trustee, in connection with these motions, you won't
have a motion to be heard.
If we can't, one day you will decide it, and we will apply accordingly your honor's ruling
to whatever disclosures we made.
But the retentions will have been hopefully granted before that.
Essentially, reservation of rights.
I'll leave it to the U.S. trustee to explain their thought process on what's going on with
the process, but it really was we couldn't be in a cash 22 where we adjourn something,
and then the retention applications get held up pending determination.
It's similar.
We had an LTL, and the U.S. trustee's office was very effective in working out an arrangement
to reserve rights pending the court having a chance to look at the issue.
So that's fine.
So unless anybody has come, including U.S. trustee, I think that captures the intent
of the parties with the adjournment and how it relates to the retention apps.
As far as, let me just double check, because we have two dates coming up in January, the
24th and the 30th.
The 24th, from what I could tell, is the wallet issue and the retention program.
Those are still planned on the 24th, or are we moving to the 30th?
I didn't know if you all want to consolidate the 24th and 30th, or how you want to proceed.
No, we've still got two court dates between now and the 30th.
We're still in discussions with all parties about what will be heard on each of those
dates, but we've been working with your chambers, who have been very accommodating to us.
So we'll work out scheduling as soon as possible.
That's fine.
Just to let you all know, I just had a calendar issue, if I could find it.
I am speaking at a town hall.
Welcome to attend remotely, 12 to 1 o'clock on the 30th.
So if you don't think we have enough time to handle the matters in the morning before
the 12 to 1, I would do it in the afternoon when we have more time, on the 30th, from
1.30 on to the afternoon.
So take a sense of the time you'll need and add more.
So all right.
Then I think this was relatively straightforward.
Anyone remote attending through Zoom wish to be heard on any issues?
Your Honor, it's Robert Starr.
Yes.
I just wish to apologize for not being in the courtroom and thanking your Honor and your
staff for allowing me to provide some of my medical issues.
Not a problem.
This was easy and straightforward.
As easy as extra points in football.
All right.
So thank you all.
And we're adjourned.
Thank you, Your Honor.