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here

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all right

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you

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okay good morning everyone this is judge Kaplan we will start our hearing on

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BlockPy as always for those who wish to be heard if I haven't called upon you

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please use the raise hand function and I will do my best to spot you and we

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already have somebody already let me turn to debtors council Ms. Okike

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morning your honor Christina Okike of Kirkland and Ellis on behalf of the

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debtors Donna we have two matters on today's agenda an update on the wallet

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motion and an update on the emergent proceedings we would propose to proceed

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in that order if that's okay with your honor that's fine I thought it would and

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I agree with debtors council I thought it would be important since we're not

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hearing the wallet motion there's been always a stir to have an update for

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those who are interested in its disposition so please feel free to go

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ahead thank you your honor your honor we filed the wallet motion early on in

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these cases because we believe that the cryptocurrency that was in customers

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wallet accounts before the platform pause belongs to customers and should be

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returned to them we received a host of objections to the requested relief most

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of the objectors including the ad hoc group believe that they should be

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treated as if the cryptocurrency was in wallet as of the platform pause because

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they attempted to move cryptocurrency to the wallet after the platform pause we

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don't agree with their position and it would not be possible to grant the

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relief that they are seeking separately we've been working with the UCC to

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respond to their diligence requests regarding the wallet account as we sit

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here today the UCC is also not on board with releasing all of the

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cryptocurrency that was in the wallets as of the platform pause because they

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believe that some of that cryptocurrency could be subject to

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preferences your honor the debtors do not believe that transfers to wallet in

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the 90 days prior to the filing our preferences but that topic creates

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another legal issue that's depending on what happens with the case going forward

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may or may not be one that people want to litigate the UCC like us wants to get

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funds to clients as quickly as possible and may ultimately be supportive of

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releasing some portion of the wallet funds customers once they complete their

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diligence but that process is ongoing so where we stand today is that we are

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providing diligence to the ad hoc group deferred deferred 1031 and the UCC the

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ad hoc group and deferred 1031 sent us sent us a list of approximately 60

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questions that they want answers to in writing and we have compiled written

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answers that we plan to send to them and the UCC later today we are also working

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through the UCC's request for additional data so they have the granular detail on

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potential preference exposure so your honor once everyone has all the

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information they need we are going to try to work this out amicably and if we

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can we'll keep these related issues up for your honor in advance of our

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confirmation hearing your honor but the debtors position is that the motion on

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file is not the right vehicle to address all of the nuances that have been raised

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by the ad hoc group and the UCC's positions so we have decided that you

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know instead of keeping people in suspense we are going to withdraw the

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wallet motion without prejudice and if there's no agreement after diligence is

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complete the questions raised will be keyed out for the court in a more direct

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way that gets to the specific answers to the specific questions that all parties

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will need answered in order for us to propose a plan and hopefully

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confirm it so your honor I'll pause there to answer any questions I'm sure

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council for the committee and the ad hoc group will also want to weigh in all

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right thank you miss Okike let me turn to first council for the committee do you

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wish to weigh in yes your honor this is Kenneth Oled of Brown-Rutnik for the committee

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your honor we the committee continues to believe that wallet funds belong to

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wallet holders subject to potential holdbacks or preference claims as miss

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Okike referenced the issue one of the main issues is who is a wallet customer

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and because there aren't enough funds in the wallet accounts to pay out both the

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pre November 10th and the post November 10th people that's just a blocking issue

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that has to be resolved before the wallet funds can be released our

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understanding is that it's just not practicable based on the debtor systems

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to do a partial withdrawal like the committee supported in our earlier

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filings so we we understand that this is a very important issue for people every

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day that goes by and that people are separated from their money compounds the

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damage and cryptocurrencies volatile people may want to be able to trade

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their positions and we recognize that this being frozen hurts their ability to

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do that so the committee is going to continue to explore all ways to get

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these blocking issues resolved as quickly as possible and the committee

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continues to support the release of wallet funds to wall holders that are

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not subject to potential preference holdbacks but we're going to need to get

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the issue teed up of exactly who the wallet holders are as quickly as possible

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has the committee identified potential holdbacks yet or are you in the process

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of doing their targeting specific wallet holders and those that may have

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received preferences we have received diligence from the debtors that gives us

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a general understanding of the potential universe of claims the issue is is that

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there's you know millions of transactions that have to be sorted through and the

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committee has been looking to see our understanding of the debtor systems is

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you can turn is probably possible to turn distributions on for specific

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parties but not others but that's the 100% we've been trying to identify the

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customers that would have no preference exposure and that funds could be

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entirely released that said if the post November 10th customers are considered

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wallet holders you're just starting up funds for everybody

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partial distributions would be required and our understanding is that just as

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possible we have a general sense of the potential magnitude of the preference

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claims but there are certain issues that we have not been able to filter out at

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this time like the 7575 in an S cap we have not removed those sorts of

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transactions from our data set yet all right thank you

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miss Koski a pop for the ad hoc do you want to be heard yes John I think you

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good morning that's probably for the ad hoc committee and wallets out holders

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like Michelle at and particularly believe that wallet funds assets and

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wallets are going to be wallet customers and not to the estate but as Michelle

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it says there's a real important dating issue there as to whether the transfers

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that occur while the better allowed users to continue to transfer assets from

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BIA to wallet whether those should be recognized as part of the wallet universe

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the insert message issues with these are people's characterizations that means

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transfers will be your attempt but there was a platform wide pause we don't think

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this actually system we look forward to receiving answers to the questions that

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we pose this is definitely an important meeting issue and while we hope that a

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conventional regulations and we reached of course the ad hoc community users

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it's right to bring its own motion to put these matters before the court in

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order to get them resolved we absolutely believe that wallet assets to the

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greatest extent possible we need to be returned to customers as soon as

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possible but they need to be returned to the right customers in the right

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proportion all right I appreciate your input thank you I mean so Kiki I guess

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I'm inclined to want to keep my thumb on the process and the parties our next

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date that we have omnibus date is March 13th I think that would be appropriate

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to have since there will be information supplied this week maybe we can have

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another update on the 13th but from what I'm hearing the court should go ahead

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and mark as withdrawn the current motion just for clarity for all parties is that

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correct yes correct your honor we're happy to provide an update at the next

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omnibus hearing great so we'll do that for 313 that's at 10 o'clock does anyone

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else wish to be heard on the status of the now withdrawn wallet motion all

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right then thank you I appreciate all of your input let's move forward to the

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only other status matter is okay gay which would be on the pending litigation

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with emergent yes your honor I believe my co-counsel miss Chavez is going to

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provide an update on that all right miss Chavez good morning yes good morning

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your honor Jordan Chavez on behalf of the debtors and as Mr. Kiki mentioned we

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did want to provide just a brief status update on the emergent adversary on

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February 3rd emergent filed its own bankruptcy case in the district of

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Delaware and on February 16th block 5 filed a motion to dismiss emergent case

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which is currently set for hearing on March 15th we recognize the automatic

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stay is in place until such time when emergent mail no longer be a debtor or

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this day is listed and so we are continuing to coordinate with the

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parties involved and submitted a stipulation and scheduling order to your

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honor extending merits is that line to answer or otherwise respond in the

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adversary to March 15th which your honor entered at docket number 59 and will of

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course continue to keep the court apprised of the status of the emergent

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case so my understanding from what I've read and heard this a pending motion in

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Delaware correct to dismiss the emergent proceeding yes your honor we

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filed it last week at docket number 32 in the emergent case okay all right does

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anyone wish to thank you counsel does anybody wish to be heard otherwise on

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this mr. Dorchak

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oh there you are good morning your honor if I may just quickly then Josh

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from door check on behalf of the joint provisional liquidators of the emergent

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FTX committee and my firm or you lose is also proposed counsel to the emergent

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as a chapter 11 dinner and that was an accurate recital of the current state of

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affairs in that chapter 11 case we were to opposing the motion to dismiss and I

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just want to say to the record that we disagree with a lot of the

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characterizations made in the motion to dismiss about what the chief does it

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done so far including the chief the else because your honor's court and the

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moment but those things along the way which we might be marriage of the

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motion and because it wasn't more commentary from counsel I don't have to

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say anything further at this point I think thank you all right well well we'll let

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the issues play out as they progress thank you thank you counsel well it looks

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like it's gonna be a short morning is there are there any other issues that

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the debtor or committee wish to bring to the court's attention mr. Ouellette or I

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see mr. Stark you're on a bad man I'm trying to stand up I have a terrible

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problem accessing that the zoom today so I apologize I tried to speak earlier I

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couldn't do it no problem okay yes go ahead please mr.

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star and I was raising my hand in fact surely as you're asking at the end of

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the last contested matter about the wallet matter to the middle wish to be

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heard and you could have heard me like banging my my keyboard all the way in

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New Jersey I only want to raise this one point and and this is intended to be

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procedural not substantive as you said in our papers you know way back when

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when we first addressed the whole ball of issue there's some analysis that

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needs to get done factual and legal obviously you're on our asking questions

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with my partner and got some answers but really it still is a work in progress

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and applaud the debtor for sort of engaging with us about trying to find a

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intellectually disciplined rigorous solution here for a complex problem the

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worry that I have from a procedural perspective is withdrawing the motion

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as a mechanical means to move to the next step on a very technical level we've

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joined issue as the ad hoc committee in connection with that motion and in our

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papers we said look there's a lot of difficult stuff we've got to get through

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and the ad hoc committee agreed with that not to be a you know very technical

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but generally speaking when you join issue on a matter it takes consent of

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all sides to withdraw a motion but leaving that issue aside for the minute

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I don't want to be in a situation where because the motion is withdrawn we now

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have to start the process over again to find a solution because I think people

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are working awfully hard to try to find a solution and to tee it up in connection

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with the present contested matter so your honor can deal with it in a you know

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logical way and I think your honors requested mr. Pique about having sort of

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a carryover status conference for motions been withdrawn kind of reflects

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the weirdness of the procedural posture my proposal is instead just put it on a

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suspense docket let's adjourn it we know we have issues that's all continued to

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kind of work our way through those issues if we can find a solution where

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maybe it's a briefing schedule or we all agreed to maybe it's a discovery matter

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I just don't want to be in a situation where if there are discovery disputes

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but we don't have a contested matter that's an odd procedure posture to go

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in front of your honor if we want to put a briefing schedule in place we have to

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file an adversary proceeding to move forward and we're the official committee

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went off the debtor so one could read the bankruptcy code as saying only

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debtors can bring these types of matters not committees so just to make sure

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that there's clarity of purpose to get to the next stages in the most

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efficiently possible I would propose that the better way rather than drawing

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the motion so to speak it's a pretty by all parties agreement on a suspense

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docket and let's keep working under that contested matter and as issues mature if

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there are any issues we can then bring it under that contested matter that was

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my proposal uh-huh

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miss a kick a doesn't make sense to you I don't think we have an issue

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necessarily I just don't think that the motion actually tees up some of the

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issues that are in the field so I think we could work with the various parties to

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the extent that we're not able to reach consensus on a consensual path forward

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but for instance the ad hoc group is seeking relief that the 375 attempted

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transactions are actually in wallet and that's just outside the scope of our

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current motion and I don't think procedurally it's the proper means to

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have that issue decided but we're happy to continue working with the parties to

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the extent that we're not able to reach you know a consensual resolution to

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TV that you about before your honor which I think is what I what I tried to

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say maybe in our fully in my opening remarks all right

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miss Kofsky thank you your honor I think that mr. Stark proposal is very sensible

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I have no objection to it I'm not quite certainly understand me the

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secret point that the status of the world transfer is not part of their

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motion that was the entire basis of our objection the confirmation seeks to

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reverse transfers that occurred and figuring out the status of those

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transfers I think is thoroughly within the bound to that motion so I think that

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it's just X point we provide an appropriate vehicle on at least on that

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issue where the we might have a cap is I understand the committee's desire to

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figure out potential preference claims and defenses and I don't think that's

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been raised in the debtors motion but leaving that to the side fully the

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respect to the issue of the status of these wallet transfers I think it's

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raised with a motion and putting the motion on a defense socket makes perfect

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sense to me all right thank you this is not the

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I could just respond yes your honor I I just disagree with that

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characterization the motion is seeking to release funds that are currently in

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wallet and the ad hoc group is seeking that transactions which the debtors

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don't believe occurred these are transactions attempted transfers that

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were effectuated on the user interface but not on the back end of the system

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are actually in wallet and our motion doesn't address that at all our motion

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is seeking to release in full the funds that are currently in wallet based off of

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our books and records it's not seeking to have 375 million of attempted

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transfers being to be in wallet I just disagree with that characterization that

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this is teed up in the context of the motion that we filed I understood mr.

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best best cough yeah thank you your honor Dan best a cough of lobin will for

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deferred 1031 LLC I just want to briefly respond to this whole thing about what

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is and what isn't teed up under the motion the motion has a whole section

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and it was the entire basis of our objection that seeks to invalidate the

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transfers of funds into wallet post November 10 you know the corollary to

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that is that you know if not invalidated they're valid and so you know certainly

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it's it seems to us it's teed up it seems to be the central issue of the of

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the entire dispute I agree with miss Tosky the preference issue is not it's

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it is you know not even mentioned once in the motion and so you know whether

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anything is teed up under this motion or not it's it seems that if we can get to

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a resolution of all the issues that makes sense to everybody keeping the

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motion on on track you know on suspense as mr. Stark she may suggest it makes

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sense because you know a settlement could could certainly fall under this

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broader umbrella of these issues all right mr. Stark did you want to be heard

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again very briefly around only from the standpoint that we have a nucleus of

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operative fact we all know the issues is that there's a transfer effective is

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there preferences can you get the money now is there the massive of the estate

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parsing what's even what's out is to me a little silly we have a contested

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matter we all have issues that are being being thoughtfully advanced in

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discovery formal and informal we're working on it we're talking to you can

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schedule we're trying to resolve and yes probably this thing all needs to be

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resolved in the settlement format of one way or the other all I'm talking about

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and my entire proposal was I don't want to be in a weird situation where perhaps

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custom this task is a path and mr. Bessicoff reach agreement on something

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how do I get it in front of your honor in a weird way because the procedures

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then changed and who are we since we're not a debtor and if there's discovery

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disputes how do we resolve them that's all I'm trying to accomplish here

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without having to file an adversary proceeding and start the clock all over

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again which seems awfully wasteful and silly that's all we're doing it doesn't

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really matter if it's in or it's not in because of course it's going to be all

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resolved as part of the same issue that we all know what the issues are all

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right fair enough thank you all this as I was going to say this is not the first

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time a motion in front of me morphs into more than was anticipated at the outset

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it makes the most sense to keep the motion pending at this juncture simply

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for status purposes so at one point we will put together a briefing schedule

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which may indeed include a deadline to file cross motions seeking specific

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relief that is outside the purview of the current motion I will carry the

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debtors motion and we will mark it for status only March 10th so that I'm sorry

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March 13th so that it's clear that the court is not going to be reviewing the

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pending pleadings and the court anticipates a boatload of additional

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pleadings when the time comes when the issues are crystallized and when

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potential cross motions for additional relief and they're outside the scope of

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them of the initial motion are filed we can talk about scheduling and that does

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leave the door open if the court needs to address pending discovery concerns

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it's it's the middle ground between I think what the debtor has proposed and

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what makes sense for judicial economy so we will leave it pending in status for

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status purposes only and then hopefully on the 13th maybe we can start

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addressing what needs to happen to bring it to progress the issues because they

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are they are time-sensitive and they are important all right with that said I

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also was hoping we could schedule a new omnibus date the only date I have right

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now for block by is March 13th if we want to keep roughly if another 30 day

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date I would propose April 11th at 10 o'clock it's a Tuesday again needless to

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say it doesn't stop anyone from coming in on short in time we'll see what

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happens with the other motions but I just want to have a date out there that

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that we can use to carry matters or to schedule matters does anybody have any

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concerns great thank you miss Kovsky

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I'm gonna get in trouble oh yeah I knew that all right all right then we're good

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good thank you folks all right I appreciate your time and efforts we're

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in recess