here
all right
you
okay good morning everyone this is judge Kaplan we will start our hearing on
BlockPy as always for those who wish to be heard if I haven't called upon you
please use the raise hand function and I will do my best to spot you and we
already have somebody already let me turn to debtors council Ms. Okike
morning your honor Christina Okike of Kirkland and Ellis on behalf of the
debtors Donna we have two matters on today's agenda an update on the wallet
motion and an update on the emergent proceedings we would propose to proceed
in that order if that's okay with your honor that's fine I thought it would and
I agree with debtors council I thought it would be important since we're not
hearing the wallet motion there's been always a stir to have an update for
those who are interested in its disposition so please feel free to go
ahead thank you your honor your honor we filed the wallet motion early on in
these cases because we believe that the cryptocurrency that was in customers
wallet accounts before the platform pause belongs to customers and should be
returned to them we received a host of objections to the requested relief most
of the objectors including the ad hoc group believe that they should be
treated as if the cryptocurrency was in wallet as of the platform pause because
they attempted to move cryptocurrency to the wallet after the platform pause we
don't agree with their position and it would not be possible to grant the
relief that they are seeking separately we've been working with the UCC to
respond to their diligence requests regarding the wallet account as we sit
here today the UCC is also not on board with releasing all of the
cryptocurrency that was in the wallets as of the platform pause because they
believe that some of that cryptocurrency could be subject to
preferences your honor the debtors do not believe that transfers to wallet in
the 90 days prior to the filing our preferences but that topic creates
another legal issue that's depending on what happens with the case going forward
may or may not be one that people want to litigate the UCC like us wants to get
funds to clients as quickly as possible and may ultimately be supportive of
releasing some portion of the wallet funds customers once they complete their
diligence but that process is ongoing so where we stand today is that we are
providing diligence to the ad hoc group deferred deferred 1031 and the UCC the
ad hoc group and deferred 1031 sent us sent us a list of approximately 60
questions that they want answers to in writing and we have compiled written
answers that we plan to send to them and the UCC later today we are also working
through the UCC's request for additional data so they have the granular detail on
potential preference exposure so your honor once everyone has all the
information they need we are going to try to work this out amicably and if we
can we'll keep these related issues up for your honor in advance of our
confirmation hearing your honor but the debtors position is that the motion on
file is not the right vehicle to address all of the nuances that have been raised
by the ad hoc group and the UCC's positions so we have decided that you
know instead of keeping people in suspense we are going to withdraw the
wallet motion without prejudice and if there's no agreement after diligence is
complete the questions raised will be keyed out for the court in a more direct
way that gets to the specific answers to the specific questions that all parties
will need answered in order for us to propose a plan and hopefully
confirm it so your honor I'll pause there to answer any questions I'm sure
council for the committee and the ad hoc group will also want to weigh in all
right thank you miss Okike let me turn to first council for the committee do you
wish to weigh in yes your honor this is Kenneth Oled of Brown-Rutnik for the committee
your honor we the committee continues to believe that wallet funds belong to
wallet holders subject to potential holdbacks or preference claims as miss
Okike referenced the issue one of the main issues is who is a wallet customer
and because there aren't enough funds in the wallet accounts to pay out both the
pre November 10th and the post November 10th people that's just a blocking issue
that has to be resolved before the wallet funds can be released our
understanding is that it's just not practicable based on the debtor systems
to do a partial withdrawal like the committee supported in our earlier
filings so we we understand that this is a very important issue for people every
day that goes by and that people are separated from their money compounds the
damage and cryptocurrencies volatile people may want to be able to trade
their positions and we recognize that this being frozen hurts their ability to
do that so the committee is going to continue to explore all ways to get
these blocking issues resolved as quickly as possible and the committee
continues to support the release of wallet funds to wall holders that are
not subject to potential preference holdbacks but we're going to need to get
the issue teed up of exactly who the wallet holders are as quickly as possible
has the committee identified potential holdbacks yet or are you in the process
of doing their targeting specific wallet holders and those that may have
received preferences we have received diligence from the debtors that gives us
a general understanding of the potential universe of claims the issue is is that
there's you know millions of transactions that have to be sorted through and the
committee has been looking to see our understanding of the debtor systems is
you can turn is probably possible to turn distributions on for specific
parties but not others but that's the 100% we've been trying to identify the
customers that would have no preference exposure and that funds could be
entirely released that said if the post November 10th customers are considered
wallet holders you're just starting up funds for everybody
partial distributions would be required and our understanding is that just as
possible we have a general sense of the potential magnitude of the preference
claims but there are certain issues that we have not been able to filter out at
this time like the 7575 in an S cap we have not removed those sorts of
transactions from our data set yet all right thank you
miss Koski a pop for the ad hoc do you want to be heard yes John I think you
good morning that's probably for the ad hoc committee and wallets out holders
like Michelle at and particularly believe that wallet funds assets and
wallets are going to be wallet customers and not to the estate but as Michelle
it says there's a real important dating issue there as to whether the transfers
that occur while the better allowed users to continue to transfer assets from
BIA to wallet whether those should be recognized as part of the wallet universe
the insert message issues with these are people's characterizations that means
transfers will be your attempt but there was a platform wide pause we don't think
this actually system we look forward to receiving answers to the questions that
we pose this is definitely an important meeting issue and while we hope that a
conventional regulations and we reached of course the ad hoc community users
it's right to bring its own motion to put these matters before the court in
order to get them resolved we absolutely believe that wallet assets to the
greatest extent possible we need to be returned to customers as soon as
possible but they need to be returned to the right customers in the right
proportion all right I appreciate your input thank you I mean so Kiki I guess
I'm inclined to want to keep my thumb on the process and the parties our next
date that we have omnibus date is March 13th I think that would be appropriate
to have since there will be information supplied this week maybe we can have
another update on the 13th but from what I'm hearing the court should go ahead
and mark as withdrawn the current motion just for clarity for all parties is that
correct yes correct your honor we're happy to provide an update at the next
omnibus hearing great so we'll do that for 313 that's at 10 o'clock does anyone
else wish to be heard on the status of the now withdrawn wallet motion all
right then thank you I appreciate all of your input let's move forward to the
only other status matter is okay gay which would be on the pending litigation
with emergent yes your honor I believe my co-counsel miss Chavez is going to
provide an update on that all right miss Chavez good morning yes good morning
your honor Jordan Chavez on behalf of the debtors and as Mr. Kiki mentioned we
did want to provide just a brief status update on the emergent adversary on
February 3rd emergent filed its own bankruptcy case in the district of
Delaware and on February 16th block 5 filed a motion to dismiss emergent case
which is currently set for hearing on March 15th we recognize the automatic
stay is in place until such time when emergent mail no longer be a debtor or
this day is listed and so we are continuing to coordinate with the
parties involved and submitted a stipulation and scheduling order to your
honor extending merits is that line to answer or otherwise respond in the
adversary to March 15th which your honor entered at docket number 59 and will of
course continue to keep the court apprised of the status of the emergent
case so my understanding from what I've read and heard this a pending motion in
Delaware correct to dismiss the emergent proceeding yes your honor we
filed it last week at docket number 32 in the emergent case okay all right does
anyone wish to thank you counsel does anybody wish to be heard otherwise on
this mr. Dorchak
oh there you are good morning your honor if I may just quickly then Josh
from door check on behalf of the joint provisional liquidators of the emergent
FTX committee and my firm or you lose is also proposed counsel to the emergent
as a chapter 11 dinner and that was an accurate recital of the current state of
affairs in that chapter 11 case we were to opposing the motion to dismiss and I
just want to say to the record that we disagree with a lot of the
characterizations made in the motion to dismiss about what the chief does it
done so far including the chief the else because your honor's court and the
moment but those things along the way which we might be marriage of the
motion and because it wasn't more commentary from counsel I don't have to
say anything further at this point I think thank you all right well well we'll let
the issues play out as they progress thank you thank you counsel well it looks
like it's gonna be a short morning is there are there any other issues that
the debtor or committee wish to bring to the court's attention mr. Ouellette or I
see mr. Stark you're on a bad man I'm trying to stand up I have a terrible
problem accessing that the zoom today so I apologize I tried to speak earlier I
couldn't do it no problem okay yes go ahead please mr.
star and I was raising my hand in fact surely as you're asking at the end of
the last contested matter about the wallet matter to the middle wish to be
heard and you could have heard me like banging my my keyboard all the way in
New Jersey I only want to raise this one point and and this is intended to be
procedural not substantive as you said in our papers you know way back when
when we first addressed the whole ball of issue there's some analysis that
needs to get done factual and legal obviously you're on our asking questions
with my partner and got some answers but really it still is a work in progress
and applaud the debtor for sort of engaging with us about trying to find a
intellectually disciplined rigorous solution here for a complex problem the
worry that I have from a procedural perspective is withdrawing the motion
as a mechanical means to move to the next step on a very technical level we've
joined issue as the ad hoc committee in connection with that motion and in our
papers we said look there's a lot of difficult stuff we've got to get through
and the ad hoc committee agreed with that not to be a you know very technical
but generally speaking when you join issue on a matter it takes consent of
all sides to withdraw a motion but leaving that issue aside for the minute
I don't want to be in a situation where because the motion is withdrawn we now
have to start the process over again to find a solution because I think people
are working awfully hard to try to find a solution and to tee it up in connection
with the present contested matter so your honor can deal with it in a you know
logical way and I think your honors requested mr. Pique about having sort of
a carryover status conference for motions been withdrawn kind of reflects
the weirdness of the procedural posture my proposal is instead just put it on a
suspense docket let's adjourn it we know we have issues that's all continued to
kind of work our way through those issues if we can find a solution where
maybe it's a briefing schedule or we all agreed to maybe it's a discovery matter
I just don't want to be in a situation where if there are discovery disputes
but we don't have a contested matter that's an odd procedure posture to go
in front of your honor if we want to put a briefing schedule in place we have to
file an adversary proceeding to move forward and we're the official committee
went off the debtor so one could read the bankruptcy code as saying only
debtors can bring these types of matters not committees so just to make sure
that there's clarity of purpose to get to the next stages in the most
efficiently possible I would propose that the better way rather than drawing
the motion so to speak it's a pretty by all parties agreement on a suspense
docket and let's keep working under that contested matter and as issues mature if
there are any issues we can then bring it under that contested matter that was
my proposal uh-huh
miss a kick a doesn't make sense to you I don't think we have an issue
necessarily I just don't think that the motion actually tees up some of the
issues that are in the field so I think we could work with the various parties to
the extent that we're not able to reach consensus on a consensual path forward
but for instance the ad hoc group is seeking relief that the 375 attempted
transactions are actually in wallet and that's just outside the scope of our
current motion and I don't think procedurally it's the proper means to
have that issue decided but we're happy to continue working with the parties to
the extent that we're not able to reach you know a consensual resolution to
TV that you about before your honor which I think is what I what I tried to
say maybe in our fully in my opening remarks all right
miss Kofsky thank you your honor I think that mr. Stark proposal is very sensible
I have no objection to it I'm not quite certainly understand me the
secret point that the status of the world transfer is not part of their
motion that was the entire basis of our objection the confirmation seeks to
reverse transfers that occurred and figuring out the status of those
transfers I think is thoroughly within the bound to that motion so I think that
it's just X point we provide an appropriate vehicle on at least on that
issue where the we might have a cap is I understand the committee's desire to
figure out potential preference claims and defenses and I don't think that's
been raised in the debtors motion but leaving that to the side fully the
respect to the issue of the status of these wallet transfers I think it's
raised with a motion and putting the motion on a defense socket makes perfect
sense to me all right thank you this is not the
I could just respond yes your honor I I just disagree with that
characterization the motion is seeking to release funds that are currently in
wallet and the ad hoc group is seeking that transactions which the debtors
don't believe occurred these are transactions attempted transfers that
were effectuated on the user interface but not on the back end of the system
are actually in wallet and our motion doesn't address that at all our motion
is seeking to release in full the funds that are currently in wallet based off of
our books and records it's not seeking to have 375 million of attempted
transfers being to be in wallet I just disagree with that characterization that
this is teed up in the context of the motion that we filed I understood mr.
best best cough yeah thank you your honor Dan best a cough of lobin will for
deferred 1031 LLC I just want to briefly respond to this whole thing about what
is and what isn't teed up under the motion the motion has a whole section
and it was the entire basis of our objection that seeks to invalidate the
transfers of funds into wallet post November 10 you know the corollary to
that is that you know if not invalidated they're valid and so you know certainly
it's it seems to us it's teed up it seems to be the central issue of the of
the entire dispute I agree with miss Tosky the preference issue is not it's
it is you know not even mentioned once in the motion and so you know whether
anything is teed up under this motion or not it's it seems that if we can get to
a resolution of all the issues that makes sense to everybody keeping the
motion on on track you know on suspense as mr. Stark she may suggest it makes
sense because you know a settlement could could certainly fall under this
broader umbrella of these issues all right mr. Stark did you want to be heard
again very briefly around only from the standpoint that we have a nucleus of
operative fact we all know the issues is that there's a transfer effective is
there preferences can you get the money now is there the massive of the estate
parsing what's even what's out is to me a little silly we have a contested
matter we all have issues that are being being thoughtfully advanced in
discovery formal and informal we're working on it we're talking to you can
schedule we're trying to resolve and yes probably this thing all needs to be
resolved in the settlement format of one way or the other all I'm talking about
and my entire proposal was I don't want to be in a weird situation where perhaps
custom this task is a path and mr. Bessicoff reach agreement on something
how do I get it in front of your honor in a weird way because the procedures
then changed and who are we since we're not a debtor and if there's discovery
disputes how do we resolve them that's all I'm trying to accomplish here
without having to file an adversary proceeding and start the clock all over
again which seems awfully wasteful and silly that's all we're doing it doesn't
really matter if it's in or it's not in because of course it's going to be all
resolved as part of the same issue that we all know what the issues are all
right fair enough thank you all this as I was going to say this is not the first
time a motion in front of me morphs into more than was anticipated at the outset
it makes the most sense to keep the motion pending at this juncture simply
for status purposes so at one point we will put together a briefing schedule
which may indeed include a deadline to file cross motions seeking specific
relief that is outside the purview of the current motion I will carry the
debtors motion and we will mark it for status only March 10th so that I'm sorry
March 13th so that it's clear that the court is not going to be reviewing the
pending pleadings and the court anticipates a boatload of additional
pleadings when the time comes when the issues are crystallized and when
potential cross motions for additional relief and they're outside the scope of
them of the initial motion are filed we can talk about scheduling and that does
leave the door open if the court needs to address pending discovery concerns
it's it's the middle ground between I think what the debtor has proposed and
what makes sense for judicial economy so we will leave it pending in status for
status purposes only and then hopefully on the 13th maybe we can start
addressing what needs to happen to bring it to progress the issues because they
are they are time-sensitive and they are important all right with that said I
also was hoping we could schedule a new omnibus date the only date I have right
now for block by is March 13th if we want to keep roughly if another 30 day
date I would propose April 11th at 10 o'clock it's a Tuesday again needless to
say it doesn't stop anyone from coming in on short in time we'll see what
happens with the other motions but I just want to have a date out there that
that we can use to carry matters or to schedule matters does anybody have any
concerns great thank you miss Kovsky
I'm gonna get in trouble oh yeah I knew that all right all right then we're good
good thank you folks all right I appreciate your time and efforts we're
in recess