1 00:00:00,000 --> 00:00:12,520 Okay, good morning everyone. This is Judge Kaplan. Hope everyone is doing well. This 2 00:00:12,520 --> 00:00:23,020 is the BlockFi Inc. Matters. And I appreciate everybody's participation through Zoom remotely. 3 00:00:23,020 --> 00:00:29,960 For those who wish to be heard at any point in time, if I haven't called on you, please 4 00:00:29,960 --> 00:00:41,080 use the raise hand function. And either I or my law clerks will make sure we spot you 5 00:00:41,080 --> 00:00:53,000 and give you the opportunity to speak. I've received correspondence from on behalf of 6 00:00:53,000 --> 00:01:03,040 the committee regarding the exclusivity motion. I expect that we'll be talking about the process. 7 00:01:03,040 --> 00:01:09,360 I see both Mr. Susberg and Mr. Stark have raised their hands, anxious to get involved. 8 00:01:09,360 --> 00:01:14,840 Let's have at it, so to speak. Good morning, gentlemen. Let me start with Mr. Susberg. 9 00:01:14,840 --> 00:01:21,040 Yes, thank you, Your Honor. Joshua Susberg from Kirkland and Alice on behalf of the debtors. 10 00:01:21,040 --> 00:01:27,800 I think the agenda today is relatively straightforward, save for what I think is straightforward, 11 00:01:27,800 --> 00:01:34,320 our exclusivity extension. This is our first exclusivity extension. And it's a modest one 12 00:01:34,320 --> 00:01:40,160 at that, Your Honor. As you've seen in our reply, we asked for an extension of the filing 13 00:01:40,160 --> 00:01:46,740 deadline by 48 days and the solicitation deadline by 73 days. So that would be extensions to 14 00:01:46,740 --> 00:01:54,560 May 15th and August 11th, respectively. And we laid out in our reply, it's on page 4, 15 00:01:54,560 --> 00:01:59,320 the schedule that we're seeking to adhere to, which includes the filing of a plan no later 16 00:01:59,320 --> 00:02:04,440 than May 15th. And then working our way through all the statutory deadlines and the like to 17 00:02:04,440 --> 00:02:10,140 get to the deadline we propose in August, which we admit is aggressive. But it's one 18 00:02:10,140 --> 00:02:14,520 that we want to move forward with. And we have been doing a tremendous amount of work 19 00:02:14,520 --> 00:02:19,840 to be in a position to resolve many complex issues, notwithstanding the commentary from 20 00:02:19,840 --> 00:02:25,080 the committee. And we laid this out for the committee on April 10th. And we noted in our 21 00:02:25,080 --> 00:02:30,760 papers there was an 88-page deck. Mr. Renzi walked through it. We had a conversation about 22 00:02:30,760 --> 00:02:35,080 the schedule. And we had a back and forth. And, you know, Your Honor, I've been doing 23 00:02:35,080 --> 00:02:39,480 this 20 years. I know there's people on this phone that have been doing it a lot longer. 24 00:02:39,480 --> 00:02:44,280 The way it works with exclusivity, you have up to 18 and 20 months for filing a plan and 25 00:02:44,280 --> 00:02:50,000 for soliciting. The debtor proposes six months or nine months. The committee comes back. 26 00:02:50,000 --> 00:02:55,600 We reach agreement on the days. We were within 11 days of each other. Mr. Stark wanted the 27 00:02:55,600 --> 00:03:01,800 end of July. We wanted the middle of August, like we suggested. And then we got the pleading 28 00:03:01,800 --> 00:03:07,800 seeking to terminate exclusivity on our first request. This is not something that I've ever 29 00:03:07,800 --> 00:03:13,720 seen. And the reality is, Your Honor, that there's more to this than meets the eye. And, 30 00:03:13,720 --> 00:03:19,400 you know, notwithstanding all the back and forth in the objection that Mr. Stark filed, 31 00:03:19,400 --> 00:03:24,200 comes down to one sentence in his pleading. It's paragraph 28, where he makes a comment 32 00:03:24,200 --> 00:03:30,760 about the debtors can file a plan that seeks to confirm over the objection of creditors 33 00:03:30,760 --> 00:03:35,680 with releases in the plan. And we want to file our own plan. And the reality is that's 34 00:03:35,680 --> 00:03:41,920 what this is all about. This is all about Mr. Stark pre-adjudicating before we even file 35 00:03:41,920 --> 00:03:46,640 a plan what our plan is going to include and what it's going to say. And what I would tell 36 00:03:46,640 --> 00:03:52,000 you, Your Honor, we are continuing the investigation. Kirkland analysis handling an investigation 37 00:03:52,000 --> 00:03:56,880 at the direction of our independent directors, Jennifer Hill and Scott Vogel. As you know, 38 00:03:56,880 --> 00:04:01,920 the committee is conducting an investigation. And as we sit here today, that investigation 39 00:04:01,920 --> 00:04:07,320 is ongoing. There are more depositions. We have more document requests from the committee. 40 00:04:07,320 --> 00:04:12,440 And we are going to make determinations and decisions when it is complete. But there is 41 00:04:12,440 --> 00:04:18,520 no world in which we should be terminating exclusivity at the first request. I think 42 00:04:18,520 --> 00:04:25,000 we have demonstrated cause more than sufficiently in the 32 bullets that we laid out on pages 43 00:04:25,000 --> 00:04:31,240 3 through 5 in our pleadings. And I know Your Honor mentioned Mr. Stark's letter from yesterday. 44 00:04:31,240 --> 00:04:36,600 I will admit that we did take the bait a bit from the committee when they asked us what 45 00:04:36,600 --> 00:04:42,160 our evidentiary record would be. We submitted declarations for Mr. Renzi and Ms. Pulo. And 46 00:04:42,160 --> 00:04:47,000 obviously we will take guidance from Your Honor. I think those declarations are unnecessary. 47 00:04:47,000 --> 00:04:53,080 I think Your Honor can decide this on the papers. Again, it's a first exclusivity extension. 48 00:04:53,080 --> 00:04:58,040 We were talking about 11 days. This is about Mr. Stark and the committee trying to make 49 00:04:58,040 --> 00:05:04,760 a point that I'm not sure is ringing hollow. It is ringing hollow. And I think we are going 50 00:05:04,760 --> 00:05:10,600 to work over the next couple of months to pursue and ultimately confirm a plan that's 51 00:05:10,600 --> 00:05:14,960 in the best interest of our stakeholders. And we are not going to pre-adjudicate anything, 52 00:05:14,960 --> 00:05:20,000 especially because investigations and the like are not complete. So we would submit, 53 00:05:20,000 --> 00:05:24,080 Your Honor, unless you want to handle it differently. I'm hopeful that we can move forward on the 54 00:05:24,080 --> 00:05:30,080 pleadings here today and get our exclusivity extension and really start building the consensus 55 00:05:30,080 --> 00:05:35,280 that we need, which we thought had started, admittedly, on April 10th. I know it will 56 00:05:35,280 --> 00:05:39,480 continue. And I'm hopeful we can put some of this aside and really move this forward 57 00:05:39,480 --> 00:05:41,520 for the benefit of the customers of this estate. 58 00:05:41,520 --> 00:05:46,360 All right. Thank you, Mr. Susberg. Mr. Stark, let me hear from you. 59 00:05:46,360 --> 00:05:47,760 Thank you, Your Honor. Can Your Honor hear me okay? 60 00:05:47,760 --> 00:05:48,760 Yes, I can. 61 00:05:48,760 --> 00:05:55,560 Thank you. I do have a presentation. Maybe it's a little longer than Mr. Susberg's. But 62 00:05:55,560 --> 00:06:00,200 I do appreciate the things that he says. And as I think Mr. Susberg said to me, said in 63 00:06:00,200 --> 00:06:05,560 open court, we have a relationship that goes over many cases, and I respect the man. And 64 00:06:05,560 --> 00:06:09,520 I think he is an honest and good lawyer. So what I'm about to say is not a reflection 65 00:06:09,520 --> 00:06:13,720 of anything other than the fact that I accept him as his word, and I always have, but we 66 00:06:13,720 --> 00:06:18,400 will continue to work in good faith. But we have an issue. And there has been pleadings 67 00:06:18,400 --> 00:06:22,840 that have been filed that admittedly, maybe from us, and I think probably they admit as 68 00:06:22,840 --> 00:06:29,520 well, raises the rhetorical level considerably high. And so I think, Your Honor, it's worth 69 00:06:29,520 --> 00:06:35,720 spending a couple of minutes to talk about that. The reply says, hey, wait a second. 70 00:06:35,720 --> 00:06:42,160 We had, we moved a lot from our original request, and there was a meeting and the schedule was 71 00:06:42,160 --> 00:06:48,080 presented and it gets a little personal towards me, but I said, hey, maybe we can talk about 72 00:06:48,080 --> 00:06:53,000 this. I want to think about it. We didn't agree to anything, despite what they said. 73 00:06:53,000 --> 00:06:59,240 And it really kind of presents this as the committee picking a fight. And I don't think 74 00:06:59,240 --> 00:07:04,560 that's fair. And I want to unpack that. And I will at the end of my presentation, because 75 00:07:04,560 --> 00:07:10,480 I do believe this is a status conference. And I do believe that we are, and I will make 76 00:07:10,480 --> 00:07:14,600 a proposal procedurally about how to advance, but we're not, as I understand it, going to 77 00:07:14,600 --> 00:07:20,280 be taking evidence today. And we, of course, would reserve that right. So let me just unpack 78 00:07:20,280 --> 00:07:25,240 it a little bit and then hopefully move, seek to, okay, where do we go from here? Which 79 00:07:25,240 --> 00:07:30,040 I know that's always Your Honor's request of all counsel. So I'd like to make a proposal 80 00:07:30,040 --> 00:07:38,760 on that. Before we filed the objection, there was a meeting and there were conversations. 81 00:07:38,760 --> 00:07:43,400 And I did call debtors council. Now, Mr. Suspick, I spoke with Mr. Canoed's beforehand and I 82 00:07:43,400 --> 00:07:50,040 said, I don't want to file this objection. I want to talk. And we spent some time talking 83 00:07:50,040 --> 00:07:54,120 to our respective clients. And the decision was no, go ahead and file your objection. 84 00:07:54,120 --> 00:08:00,360 Okay, so we filed the objection. I assume we would continue to talk thereafter. It went, 85 00:08:00,360 --> 00:08:11,000 you know, it zigzagged to what I now read as a fairly heavily handed rhetorical position. 86 00:08:11,000 --> 00:08:16,560 We have sort of two points that are going on underneath this. The first is the need 87 00:08:16,560 --> 00:08:19,960 for speed. And I want to spend a minute or two because it's not only us talking, three 88 00:08:19,960 --> 00:08:23,640 of us talking right now. It's also a lot of people listening to what we're talking about 89 00:08:23,640 --> 00:08:29,440 right now. So I'd like to say a few things on speed. And then let's talk about that underlying 90 00:08:29,440 --> 00:08:37,480 substantive issue because it's enormous. And the pleading kind of masks the substance with 91 00:08:37,480 --> 00:08:42,880 very heavy handed rhetoric. And I think we need to talk substance at this moment. On 92 00:08:42,880 --> 00:08:48,960 the need for speed, I want anybody who's reading the debtor's motion and reply papers, there's 93 00:08:48,960 --> 00:08:54,240 sort of this imperialistic kind of tone and it comes right off the shelf from every other 94 00:08:54,240 --> 00:09:00,760 chapter 11 case. Hey, we get exclusivity because that's de rigueur. We get it because we ask 95 00:09:00,760 --> 00:09:07,400 for it. Paces are big. We get it and move it forward. There's no real, there's iteratives, 96 00:09:07,400 --> 00:09:12,560 but it doesn't really say anything substantively about progress. But I understand that's what 97 00:09:12,560 --> 00:09:19,440 we do in most cases. But this is not most cases. In this case, we don't have banks, 98 00:09:19,440 --> 00:09:27,760 hedge funds, arbitrageurs, landlords, trade vendors, companies. In this case, the creditors 99 00:09:27,760 --> 00:09:35,080 are people, individuals, moms and pops, many of whom have lost their life savings. And 100 00:09:35,080 --> 00:09:39,000 Your Honor, I know has received a number of communications from some of these people. 101 00:09:39,000 --> 00:09:42,920 At the last hearing, I got up and said, please don't call chambers anymore. Call me. So Your 102 00:09:42,920 --> 00:09:46,960 Honor can only imagine how many you're receiving because I'm receiving more. But the stories 103 00:09:46,960 --> 00:09:53,440 are frightfully terrible. And I take that very, very seriously as does the committee. 104 00:09:53,440 --> 00:10:00,280 We will not allow these people to get processed in the usual course. We don't believe that's 105 00:10:00,280 --> 00:10:06,320 appropriate given the circumstances of this particular case. I can't explain four months 106 00:10:06,320 --> 00:10:11,040 from now why we can't get something done. I've been saying for quite a while now, we 107 00:10:11,040 --> 00:10:16,080 want to plan on file that we can agree to before there are leaves on the trees and there 108 00:10:16,080 --> 00:10:22,400 are already leaves on the trees. And I can't explain the delay. It is the debtor's job 109 00:10:22,400 --> 00:10:28,080 in a case as personal as this one to say an open court in a much better way than the pro 110 00:10:28,080 --> 00:10:35,000 forma ipsa dixit that's been filed already, why it takes four more months, why the separation 111 00:10:35,000 --> 00:10:42,240 from money is so important. Not for me to do. Second, this case is burning money. It's 112 00:10:42,240 --> 00:10:47,360 clear it's burning money. And yes, this little contested matter is burning money. But there's 113 00:10:47,360 --> 00:10:51,360 a rule, Your Honor, and I learned it when I was in college. It's called Parkinson's 114 00:10:51,360 --> 00:10:58,600 Law. Maybe Your Honor knows this. Work will always expand to fill the time allotted. And 115 00:10:58,600 --> 00:11:03,960 in bankruptcy, Parkinson's Law is visited in the millions and the tens of millions, 116 00:11:03,960 --> 00:11:08,880 monthly two months, because most of us are on an hourly time basis. And these are not 117 00:11:08,880 --> 00:11:13,480 small law firms involved here. But we don't normally have to talk about Parkinson's Law 118 00:11:13,480 --> 00:11:20,880 in bankruptcy cases because we have a dip loan. And dip loans have budgets and milestones, 119 00:11:20,880 --> 00:11:27,320 base controls and near term maturities. And so debbers have to move quickly because the 120 00:11:27,320 --> 00:11:31,480 secured lender is demanded. And those are the rules of engagement in every case. But 121 00:11:31,480 --> 00:11:37,760 not so here. Because what the company did the minutes before bankruptcy is they sold 122 00:11:37,760 --> 00:11:43,040 all the crypto that was domestic. And they've been sitting on 250 plus million dollars in 123 00:11:43,040 --> 00:11:48,920 US currency sitting in a bank account. And no one is tethering the expenditures to that 124 00:11:48,920 --> 00:11:54,840 money. So that makes it my job and in turn Your Honor's oversight job to make sure that 125 00:11:54,840 --> 00:12:03,520 the falling knife of cost is accounted for every single day, week and month of burn, 126 00:12:03,520 --> 00:12:13,080 because that's what these moms and pops deserve. And I don't agree with the 38 iteratives about 127 00:12:13,080 --> 00:12:18,880 how hard this case is that there's oh so much work to do. I do not agree that that is a 128 00:12:18,880 --> 00:12:25,480 accurate narrative of what's going on in this case. This is no business. There is no enterprise 129 00:12:25,480 --> 00:12:31,000 to rehabilitate. There is no business that will be organized. There is nothing viable 130 00:12:31,000 --> 00:12:35,640 or feasible here to come out. There's an M&A process for the platform that is a bundle 131 00:12:35,640 --> 00:12:43,880 of sticks to be sold. Okay. And that process is concluding. Then we have the cash, some 132 00:12:43,880 --> 00:12:50,400 cryptocurrency assets. We have some loans and JB interests in mining companies. We have 133 00:12:50,400 --> 00:12:56,720 the FTX claim. We have pauses of action. Those are the things you shove into a liquidation 134 00:12:56,720 --> 00:13:04,840 trust and give the creditors control of their own fate because we have no secure debt. We 135 00:13:04,840 --> 00:13:10,880 just have unsecured creditors here. They can choose for themselves what and how they want 136 00:13:10,880 --> 00:13:15,320 to handle all those things and how they want to resolve claims and causes of action as 137 00:13:15,320 --> 00:13:20,400 they see fit. If your honor, these issues that have been presented, we have to coordinate 138 00:13:20,400 --> 00:13:24,680 with the JPOs. We have my investigations, which is pretty much wrapping up. We have 139 00:13:24,680 --> 00:13:31,920 intercompany issues. We have the wallet issues. Those are all manufactured complexity. It's 140 00:13:31,920 --> 00:13:37,380 resolved and it's a slow walk. And I'll tell your honor, I'll prove it the point this way. 141 00:13:37,380 --> 00:13:43,600 If your honor were to lift exclusivity today, I could have a plan on file in 10 days, maybe 142 00:13:43,600 --> 00:13:48,960 even sooner. And I feel very, very confident that that plan would be widely accepted by 143 00:13:48,960 --> 00:13:52,840 all creditor classes, would settle out for remaining issues that are out there like wallets 144 00:13:52,840 --> 00:14:00,000 and stuff like that, and would be conformable in June. And that gets us to what's lying 145 00:14:00,000 --> 00:14:04,820 beneath the surface. What is this dispute about? Your honor is probably not used to 146 00:14:04,820 --> 00:14:12,360 seeing the kind of leadings now, at least to the fly, and how personal it got. So quick 147 00:14:12,360 --> 00:14:18,000 it got so personal. Maybe I prompted it by my own rhetoric. I don't know. But it went 148 00:14:18,000 --> 00:14:24,040 from slow to really fast, really quick. So there's got to be something going on beneath 149 00:14:24,040 --> 00:14:33,160 the surface. And in fact, it's not the count, except in this respect. It's not May 15th. 150 00:14:33,160 --> 00:14:37,840 If your honor were to set the deadline tomorrow for filing a plan, they'd have a plan on file. 151 00:14:37,840 --> 00:14:43,080 They already have a plan on file. They filed it on the first days of the case. It's the 152 00:14:43,080 --> 00:14:50,000 solicitation deadline. That's the hard one. Usually you get two months. They want three. 153 00:14:50,000 --> 00:14:53,960 And they put in an affidavit about, well, in this case, for some reason, unlike any 154 00:14:53,960 --> 00:14:59,560 other case that any of us are involved in, they need an extra month here. But let's just 155 00:14:59,560 --> 00:15:05,800 talk about mid-August for a second from a different vantage point. I didn't fall off 156 00:15:05,800 --> 00:15:12,280 the turnip truck yesterday. I know what plan they're going to file. And we've had lots 157 00:15:12,280 --> 00:15:17,560 of conversations among counsel. Again, I talked to counsel before I filed my objection. We've 158 00:15:17,560 --> 00:15:26,240 had conversations since. There is misalignment on a very significant issue in this case. 159 00:15:26,240 --> 00:15:32,320 And we'll talk about that in a second. The plan that I believe they intend to file will 160 00:15:32,320 --> 00:15:38,360 be vigorously opposed by the committee. We don't see how that plan confirms. We won't 161 00:15:38,360 --> 00:15:41,360 get an accepted parent accepting class. We don't think it will be good faith. We don't 162 00:15:41,360 --> 00:15:44,080 think it will be fair and equitable. We've got a whole bunch of other things that we're 163 00:15:44,080 --> 00:15:49,520 thinking about here. And we're setting up for a very ugly case, which means that we 164 00:15:49,520 --> 00:15:56,000 don't get to pick up, according to his schedule, until mid-August, assuming that we're successful 165 00:15:56,000 --> 00:16:02,200 in blowing up that plan. And then we don't get out until Halloween. Meanwhile, we've 166 00:16:02,200 --> 00:16:09,720 incurred tens of millions of dollars of additional incremental cost. And that's terrible. That's 167 00:16:09,720 --> 00:16:16,560 terrible. So I reached out to opposing counsel. I made several different proposals to try 168 00:16:16,560 --> 00:16:22,400 to obviate this matter right now, this dispute right now. But I made this proposal, which 169 00:16:22,400 --> 00:16:30,600 I thought was fair and in the middle. I said, Your Honor's bridge order on exclusivity didn't 170 00:16:30,600 --> 00:16:37,480 have a date certain. It says, exclusivity will automatically bridge until Your Honor 171 00:16:37,480 --> 00:16:42,800 can schedule a hearing. And at that hearing, there'll be a final order on the motion. And 172 00:16:42,800 --> 00:16:47,200 you automatically bridge to that date. I said, let's all agree just to hold off that hearing 173 00:16:47,200 --> 00:16:54,840 for a little bit of time. Let's talk. Let's put some oxygen into our respective positions 174 00:16:54,840 --> 00:16:59,960 and talk it through and see if we can find common ground, as opposed to going immediately 175 00:16:59,960 --> 00:17:08,000 to the fight. I got a voicemail message back midday yesterday. Nope, we're not talking. 176 00:17:08,000 --> 00:17:13,260 Let's get on with the fight. That's why we're having this dispute, Your Honor. That's what's 177 00:17:13,260 --> 00:17:23,360 going on. I want to talk. I want to share perspective. They want exclusivity in their 178 00:17:23,360 --> 00:17:28,040 positioning, not unlike another case that Your Honor may have been dealing with yesterday 179 00:17:28,040 --> 00:17:33,320 on injunctions and controls and rights. And we want the ability to talk, as opposed to 180 00:17:33,320 --> 00:17:39,960 being held in the gulag for a while and have to essentially be extorted by time and cost 181 00:17:39,960 --> 00:17:47,040 funds to giving in on something we feel very strongly about. And that's a bad dynamic. 182 00:17:47,040 --> 00:17:54,760 I wanted in this presentation, Your Honor, to not want to talk about the issue, the big 183 00:17:54,760 --> 00:17:59,080 issue in this case. I wanted to measure my words because maybe Pollyanna-ish. I thought 184 00:17:59,080 --> 00:18:04,920 if we actually, if Your Honor found my proposal acceptable, put the hearing out for the end 185 00:18:04,920 --> 00:18:09,040 of the month, let's see if we can't talk it through, just try to find some common ground 186 00:18:09,040 --> 00:18:16,000 before we went and talk with each other. I didn't want to put it out in the public right 187 00:18:16,000 --> 00:18:21,320 now. We have a very active community and one that is watching everything we say and talking 188 00:18:21,320 --> 00:18:26,280 amongst themselves about. I didn't necessarily think feeding the fire was a good idea. I'm 189 00:18:26,280 --> 00:18:32,400 happy to talk about it further because I think Mr. Susberg kind of alluded to it. But I think 190 00:18:32,400 --> 00:18:36,120 I'm going to hold my tongue at this moment. Perhaps, Your Honor, if Your Honor asks me, 191 00:18:36,120 --> 00:18:41,680 Mr. Susberg prompts me, we can talk about it further. My proposal stands, Your Honor. 192 00:18:41,680 --> 00:18:47,400 I think the right answer for this case, before we go ahead and go hammer and tongue, go into 193 00:18:47,400 --> 00:18:54,360 tens of millions of dollars of expense on mom and pop money over something that seems 194 00:18:54,360 --> 00:19:00,240 awfully parochial and not necessarily what the creditors want, we should talk. But if 195 00:19:00,240 --> 00:19:06,160 we can't make a resolution on talking, then I'd rather have the trial now at exclusivity 196 00:19:06,160 --> 00:19:10,600 and put it all on the table for everyone to see and the creditors to realize so that Your 197 00:19:10,600 --> 00:19:14,400 Honor can make a decision before we incur all that expense and take this case all the 198 00:19:14,400 --> 00:19:20,520 way out to Halloween. I think that's the proper staging of how we end the block-fired case 199 00:19:20,520 --> 00:19:25,840 and make it unlike Voyager and Celsius and Lord knows FDX. You want to have any questions 200 00:19:25,840 --> 00:19:26,840 for me at this point? 201 00:19:26,840 --> 00:19:34,640 Now, thank you, Mr. Stark. Let me go back to Mr. Susberg and hear from his company. 202 00:19:34,640 --> 00:19:35,640 Any response? 203 00:19:35,640 --> 00:19:42,280 Yeah, I have a few, Your Honor. Thank you. Joshua Susberg, Kirkland & Ellis. As I've 204 00:19:42,280 --> 00:19:48,560 told Mr. Stark before, none of this is personal. We're all trying to get to the right answer. 205 00:19:48,560 --> 00:19:54,720 But the one thing he said that demonstrates that exclusivity and an extension is critical 206 00:19:54,720 --> 00:20:00,280 here is he said, and he hasn't even seen a plan from the debtors, he said there is no 207 00:20:00,280 --> 00:20:06,920 plan that the debtors will propose that he will recommend his constituents agree to. 208 00:20:06,920 --> 00:20:12,200 And that is the posture that he's taken. And the commentary that has come back as far as 209 00:20:12,200 --> 00:20:18,220 trying to bridge the gap here in a conversation is give the committee a consent and veto right 210 00:20:18,220 --> 00:20:23,920 over the filing of a plan, which is effectively the same as terminating exclusivity. And I'm 211 00:20:23,920 --> 00:20:29,080 reminded of the Dow Corning case because it's cited in Mr. Stark's pleading. And the one 212 00:20:29,080 --> 00:20:35,360 thing that stuck out to me was the chaos factor that the courts allude to in Dow Corning. 213 00:20:35,360 --> 00:20:42,840 This is our first exclusivity request extension. We are asking on April 19th today to have 214 00:20:42,840 --> 00:20:48,380 a deadline of May 15th to file a plan. We intend to share that plan with the committee 215 00:20:48,380 --> 00:20:52,240 in the next week or so and then get it on file. And then we'll move forward with that 216 00:20:52,240 --> 00:20:57,040 plan. And just like all chapter 11 plans, this is no different, notwithstanding the 217 00:20:57,040 --> 00:21:02,240 constituencies. There are differences in the case, I admit, but just like in Voyager, where 218 00:21:02,240 --> 00:21:06,760 we built consensus, not only with individuals, but with the committee. And just like we're 219 00:21:06,760 --> 00:21:12,720 doing in Celsius, this is exactly the same. This is about a leverage play by Mr. Stark 220 00:21:12,720 --> 00:21:19,920 to try to thwart the cases and increase and enhance an agenda that he has that he doesn't 221 00:21:19,920 --> 00:21:24,840 even know what our document says. And it's all the more reason, Your Honor, that I believe 222 00:21:24,840 --> 00:21:29,480 on the pleadings and on this record and on the factors, because Your Honor has sat here 223 00:21:29,480 --> 00:21:35,280 for four months. And I know you know the complications of this case. It is not a simple case. It 224 00:21:35,280 --> 00:21:41,240 is global. It involves international. It involves U.S. There are wallet issues, not to mention 225 00:21:41,240 --> 00:21:46,320 the fact that we're in the middle of a sale process and we may end up going with a sponsored 226 00:21:46,320 --> 00:21:51,120 deal and there could end up being an auction, all of which needs to play out in the context 227 00:21:51,120 --> 00:21:56,760 of filing a chapter 11 plan. We've worked on the standalone, but it could be that the 228 00:21:56,760 --> 00:22:01,060 sale process makes sense. And then there's dealing with all the regulators and making 229 00:22:01,060 --> 00:22:06,620 sure that they're on board with the plan. We have done this before in similar circumstances. 230 00:22:06,620 --> 00:22:12,200 We know what's involved and it absolutely merits and warrants a modest, again, a very 231 00:22:12,200 --> 00:22:17,440 modest exclusivity extension. We did not come in here and ask for the sun and the moon and 232 00:22:17,440 --> 00:22:22,720 the stars. We asked to get a plan on file by the middle of May and then to proceed down 233 00:22:22,720 --> 00:22:27,520 a path as quickly as we can. And if we can beat those dates and if solicitation goes 234 00:22:27,520 --> 00:22:33,080 faster, by all means, we're going to pursue that. We are not looking to draw this out 235 00:22:33,080 --> 00:22:38,200 for the sake of drawing it out. That is unfair. And I hope every single customer knows that 236 00:22:38,200 --> 00:22:43,080 I mean what I said on the first day of this case. It is our job to deliver people back 237 00:22:43,080 --> 00:22:46,880 their money. And that's exactly what we're going to do. But we're going to do it in a 238 00:22:46,880 --> 00:22:51,640 thoughtful manner and not a chaotic matter consistent with doubt warning. And I would 239 00:22:51,640 --> 00:22:56,600 submit, Your Honor, again, that you can decide this today on these pleadings, but we obviously 240 00:22:56,600 --> 00:23:01,920 will do whatever Your Honor recommends as far as moving this forward. 241 00:23:01,920 --> 00:23:10,360 Mr. Stark. Your Honor, I don't this is where I do part company with Mr. Suspett on a personal 242 00:23:10,360 --> 00:23:15,720 level. This is not a leverage play. And by the way, it's not Mr. Stark's decisions. This 243 00:23:15,720 --> 00:23:20,200 is the committee's decision. I have an active committee. I have an active client. And I 244 00:23:20,200 --> 00:23:24,400 prefer if my client if my opposing counsel actually refer to my client as opposed to 245 00:23:24,400 --> 00:23:29,440 making this all personal about me. Your Honor knows me. This isn't my first rodeo. I've 246 00:23:29,440 --> 00:23:32,960 been doing this for nearly 30 years. I had a little more experience than Mr. Suspett 247 00:23:32,960 --> 00:23:37,120 doing only committee work. So I don't really appreciate that. What's happening, Your Honor, 248 00:23:37,120 --> 00:23:43,000 it's not a leverage play. Quite the opposite. My proposal is let's talk to one another. 249 00:23:43,000 --> 00:23:50,360 Let's not jam litigation at this moment. But I'm not an idiot. I sat in the room. I've 250 00:23:50,360 --> 00:23:54,960 seen the plan they filed and I've talked to these people. I know what plan they're going 251 00:23:54,960 --> 00:24:02,240 to file. Mr. Suspett even said he's conducting his own investigation and he's going and talking 252 00:24:02,240 --> 00:24:09,000 to independent directors that he installed in this company. And we've done the investigation 253 00:24:09,000 --> 00:24:13,720 ourselves and we have views about what the plan should look like in contravention to 254 00:24:13,720 --> 00:24:21,260 what we've been told. Right. It's not like I'm making this stuff up. I said, let's talk. 255 00:24:21,260 --> 00:24:27,860 Let's go into a room and see if we can figure this out. But no, you don't get to have exclusivity 256 00:24:27,860 --> 00:24:33,000 because possession is not intense with the law and you don't get to use the cost and 257 00:24:33,000 --> 00:24:38,240 the burden and the time delay on people who are desperate to extort what you want without 258 00:24:38,240 --> 00:24:42,340 a rational conversation. That is wrongful. And if that's the position the debtor wants 259 00:24:42,340 --> 00:24:46,640 to take, then we rely upon the jurors' release that says we want to have trial, say, to an 260 00:24:46,640 --> 00:24:51,560 open court. Let's have that. And that's where we are, Your Honor, but I don't appreciate 261 00:24:51,560 --> 00:24:55,400 that this is anything personal or anything like that. We just don't agree with their 262 00:24:55,400 --> 00:25:00,240 positioning and we want to talk about it instead of litigating it. It wasn't the decision of 263 00:25:00,240 --> 00:25:08,360 mine to move this hearing this way. All right. Before I start addressing the issues, is there 264 00:25:08,360 --> 00:25:19,080 anyone else who wishes to be heard on this? All right. I don't see anybody with a raised 265 00:25:19,080 --> 00:25:34,040 hand. Probably yesterday, towards the end of a nine-hour-plus hearing, was not the right 266 00:25:34,040 --> 00:25:45,160 time to read a letter requesting another evidentiary hearing. It certainly, I'm not sure whether 267 00:25:45,160 --> 00:25:54,680 I would be receptive yesterday. I've had the time to consider the issue over the evening 268 00:25:54,680 --> 00:26:03,160 and listening to the arguments. I don't view any of this as personal. This is zealous advocacy 269 00:26:03,160 --> 00:26:10,560 on each side, with Mr. Stark trying to protect the committee and the clients and the customers 270 00:26:10,560 --> 00:26:19,560 and Mr. Susberg in his way of also trying to protect the customers. It's a difference 271 00:26:19,560 --> 00:26:26,000 as to what's the best pathway. I will say that I believe the professionals in this case 272 00:26:26,000 --> 00:26:33,520 have acted as such, professionals. You've kept most of the issues out of my court to 273 00:26:33,520 --> 00:26:37,960 date, which has been tremendous because it does preserve. I'm not saying there aren't 274 00:26:37,960 --> 00:26:44,800 dollars being spent in this case. There are. Every case of this magnitude and complexity, 275 00:26:44,800 --> 00:26:56,760 and it has complexities involved, generates, unfortunately, litigation and time-consuming 276 00:26:56,760 --> 00:27:03,760 discovery and investigations. I am pleased that the committee, through Mr. Stark's efforts 277 00:27:03,760 --> 00:27:11,720 and his colleagues, have pursued their investigation and done so without running to the court on 278 00:27:11,720 --> 00:27:23,720 every issue and working with the debtors council and other council in trying to resolve issues. 279 00:27:23,720 --> 00:27:29,440 I refer to this case almost as my stealth cryptocurrency case because I don't see a 280 00:27:29,440 --> 00:27:35,560 lot of what I know is going on, looking at all the records, looking at what's on the 281 00:27:35,560 --> 00:27:42,040 docket. I know the communications. I know the discussions by and among the professionals. 282 00:27:42,040 --> 00:27:50,560 I know the investigation that's being taken. And because of that and that effort to try 283 00:27:50,560 --> 00:27:57,960 by all the professionals to reduce the administrative burdens, I am leery of moving forward with 284 00:27:57,960 --> 00:28:08,960 an evidentiary hearing on a first-time exclusivity request extension when the result, if the 285 00:28:08,960 --> 00:28:15,040 committee is successful, will be competing plans which have their own inherent administrative 286 00:28:15,040 --> 00:28:28,640 costs and burdens. The estate does not benefit from necessarily from competing plans. There 287 00:28:28,640 --> 00:28:36,960 may come a point where there has to be when negotiations simply are at an impasse or where 288 00:28:36,960 --> 00:28:47,800 the plans are just unacceptable. But my concern is that we go down a path of spending what 289 00:28:47,800 --> 00:28:57,440 I view as wasted dollars and efforts fighting over weeks. I've seen in Celsius, I've seen 290 00:28:57,440 --> 00:29:03,640 in Voyager, you all have more experience in these cases, the complexities and the stop 291 00:29:03,640 --> 00:29:11,080 and goes of the processes. We see confirmed plans that are suddenly on hold because not 292 00:29:11,080 --> 00:29:18,000 all the ducks were in order. We're stays in place. And then appeals to district courts 293 00:29:18,000 --> 00:29:29,560 and circuits. We see a very active regulatory scheme in which just from reading the papers, 294 00:29:29,560 --> 00:29:36,800 we understand the SEC pursuing regulatory actions against exchanges and platforms which 295 00:29:36,800 --> 00:29:42,840 adds to the complexity in trying to find an exit strategy for this debtor, BlockFi. That's 296 00:29:42,840 --> 00:29:48,680 appropriate. I agree a wholeheartedly with Mr. Stark that speed is important. The interest 297 00:29:48,680 --> 00:29:56,720 of these customers are important and this needs to move forward. I guess where I differ 298 00:29:56,720 --> 00:30:04,840 respectfully Mr. Stark is the idea that we just have the trial now because I don't believe 299 00:30:04,840 --> 00:30:10,640 on exclusivity because I don't think we limit the trial there. That's just the first trial. 300 00:30:10,640 --> 00:30:20,680 And then we have a trial with competing plans and competing disclosure statements. And let 301 00:30:20,680 --> 00:30:28,480 alone two different proponents of plans trying to come to terms with regulatory issues, international 302 00:30:28,480 --> 00:30:38,880 issues, liquidation issues. I've read the two declarations that were filed. Ms. Pula 303 00:30:38,880 --> 00:30:48,520 which speaks from Crowell as to a timing and Mr. Renzi's declaration which frankly, and 304 00:30:48,520 --> 00:30:53,560 it's no disrespect to Mr. Renzi, he outlines everything that's going on. I can look at 305 00:30:53,560 --> 00:31:00,560 the docket and get 80% of the content of the declaration just by looking at the docket 306 00:31:00,560 --> 00:31:09,340 because it shows the activity of the debtor and the committee in this case. These declarations 307 00:31:09,340 --> 00:31:17,520 aren't dispositive. I want to turn to Mr. Stark and ask, is there, and my preference 308 00:31:17,520 --> 00:31:23,200 in all candor is to decide this on papers rather than evidentiary hearings which necessarily 309 00:31:23,200 --> 00:31:34,840 involve discovery, argument, court time. Are there declarations or additional affidavits 310 00:31:34,840 --> 00:31:41,480 you think would be dispositive that you would like to submit for my consideration in response 311 00:31:41,480 --> 00:31:47,400 to the declarations? I don't want necessarily to leave the declaration as the last word 312 00:31:47,400 --> 00:31:51,720 although I think you can address it in argument but what would be your preference? 313 00:31:51,720 --> 00:31:58,520 Well, Your Honor, apologies if I can't directly answer the question or I can but I think I 314 00:31:58,520 --> 00:32:05,520 want to get to the place where I think Your Honor is more inclined to go. Look, I've now 315 00:32:05,520 --> 00:32:11,160 made my argument. I believe that the debtors, if they want to go down a path that we perceive 316 00:32:11,160 --> 00:32:17,060 will be war, I think that before we incur the expense and the time delay, they should 317 00:32:17,060 --> 00:32:21,560 come in answers in the community for it but I understand Your Honor's views on that. I 318 00:32:21,560 --> 00:32:31,200 respect it and I suppose we have a legal right to press the evidentiary point but I understand 319 00:32:31,200 --> 00:32:36,240 Your Honor's ruling and I respect it and so therefore if 80% of what Your Honor feels 320 00:32:36,240 --> 00:32:42,120 confident in rendering the ruling on is from the docket itself and is not going to be reliant 321 00:32:42,120 --> 00:32:47,800 on the declarations in any way, shape and form, then it would not be a good advocate's 322 00:32:47,800 --> 00:32:52,360 role I think to get in the way of where the judge is inclined to go and let's just move 323 00:32:52,360 --> 00:32:57,640 forward but as long as the record is clear when and if we find ourselves back in the 324 00:32:57,640 --> 00:33:07,840 future back to a moment that I've presaged at this moment, then we may. You won't hit 325 00:33:07,840 --> 00:33:10,280 me too hard, Your Honor, if I said I told you so. 326 00:33:10,280 --> 00:33:15,360 I was just going to say you reserve the right to have an I told you so moment. I get it 327 00:33:15,360 --> 00:33:16,360 in other cases. 328 00:33:16,360 --> 00:33:17,360 With respect. 329 00:33:17,360 --> 00:33:27,960 Always with respect. And I appreciate it. Is there other argument that either side wishes 330 00:33:27,960 --> 00:33:35,640 to make? Well, sorry, Mr. Susberg, anything you wish to add to what you've already laid 331 00:33:35,640 --> 00:33:37,640 out before the court or in the papers? 332 00:33:37,640 --> 00:33:43,200 No, Your Honor, we appreciate the court taking the time today. And I just do want to mention 333 00:33:43,200 --> 00:33:50,720 that, you know, Mr. Stark is pre assuming an outcome. It's our job to work together 334 00:33:50,720 --> 00:33:56,760 to try to avoid that. We will get them drafts of documentation. And Mr. Stark and I had 335 00:33:56,760 --> 00:34:01,180 already talked about sitting down and seeing how we can reach middle ground. We've done 336 00:34:01,180 --> 00:34:06,400 it many, many times before. I'm hopeful that we will do it yet again. So thank you. 337 00:34:06,400 --> 00:34:09,600 All right. Thank you, Mr. Susberg. Mr. Stark. 338 00:34:09,600 --> 00:34:13,760 I'm looking forward to that phone call and we'll have a meal and hopefully we can find 339 00:34:13,760 --> 00:34:17,360 some common ground. But I respect your honor's decision today. 340 00:34:17,360 --> 00:34:24,200 And thank you. And Mr. Stark, I want to definitely express my appreciation for the professionalism. 341 00:34:24,200 --> 00:34:34,880 Yes, when we have lawyers who are very knowledgeable about both substance and procedure and know 342 00:34:34,880 --> 00:34:43,000 their way around a courtroom. But that's one thing. But to recognize expediency for the 343 00:34:43,000 --> 00:34:53,160 benefit of their clients is more of a rarity. And I appreciate those efforts. I made my 344 00:34:53,160 --> 00:35:00,080 judgment and my ruling, which will be to grant the extensions primarily because of the limited 345 00:35:00,080 --> 00:35:07,000 nature of the extension. With a proviso that it would have to be extraordinary, there would 346 00:35:07,000 --> 00:35:13,040 have to be an extraordinary event to deviate from it going forward if something were to 347 00:35:13,040 --> 00:35:22,640 go awry. I don't foreclose that. But certainly I take Mr. Susberg and the debtor's position 348 00:35:22,640 --> 00:35:29,560 at face value that this can proceed along the timeframe that's been laid out in the 349 00:35:29,560 --> 00:35:37,120 documents. I anticipate that there's going to be pushback from the committee and maybe 350 00:35:37,120 --> 00:35:42,880 other parties of interest. There's an ad hoc committee. There's other creditors involved. 351 00:35:42,880 --> 00:35:50,040 That's part and parcel of the process. In gauging whether or not to extend exclusivity, 352 00:35:50,040 --> 00:36:01,240 the court recognizes that there are built into the code by Congress leverage points. 353 00:36:01,240 --> 00:36:11,680 The debtor's exclusivity is a tool. The requirements for voting and confirming a plan are creditors' 354 00:36:11,680 --> 00:36:21,880 tools. Congress built in a pathway for extensions. They've limited since going back to 2005. 355 00:36:21,880 --> 00:36:31,760 We're not going to approach the caps on the extensions. We're talking about a plan being 356 00:36:31,760 --> 00:36:40,100 filed somewhere in early May and a process that will take us into the summer. The good 357 00:36:40,100 --> 00:36:46,280 news is I have relatively few travel plans in July and August, so I won't be holding 358 00:36:46,280 --> 00:36:58,160 you all up. I will make the court available. It is important that the parties start the 359 00:36:58,160 --> 00:37:04,200 negotiation process yesterday. We'll get into that when we discuss the status of the 360 00:37:04,200 --> 00:37:13,040 wallets and other matters. I'm extending exclusivity because I do agree that the case, 361 00:37:13,040 --> 00:37:21,160 even though Mrs. Clark may question the level of complexity, the unusual nature of the cryptocurrency 362 00:37:21,160 --> 00:37:28,200 cases is evident just from what we see going on in FTX and Celsius and Voyager. What we 363 00:37:28,200 --> 00:37:37,280 see going on with issues as to property of the state, ownership, how to handle the regulatory 364 00:37:37,280 --> 00:37:43,760 issues, international aspects, those complexities. A liquidation is not necessarily complex, 365 00:37:43,760 --> 00:37:51,160 but the best way to do so to maximize returns can be. I want this process to go forward 366 00:37:51,160 --> 00:37:59,000 with all eyes wide open, especially in light of the pending sale process, that all the 367 00:37:59,000 --> 00:38:07,120 parties are able to identify the best pathway forward to maximize the returns to the creditors. 368 00:38:07,120 --> 00:38:15,800 Because the request extension is minimal compared to what may be the norm in Chapter 11, I'm 369 00:38:15,800 --> 00:38:22,480 going to approve it, but hold the debtor to the task fire to their feet, however the phrase 370 00:38:22,480 --> 00:38:29,000 goes. I don't need to do so as much as I know Mr. Stark and other ad hocs and everyone else 371 00:38:29,000 --> 00:38:39,320 will as well. The court is open to assist if in any way through at any point a neutral 372 00:38:39,320 --> 00:38:44,500 would assist in trying to reach an accord if there is a gap. Again, we're assuming 373 00:38:44,500 --> 00:38:52,900 a lot, maybe communication by strong professionals, we won't have such a huge gap. So I will 374 00:38:52,900 --> 00:39:01,020 enter the order based on the pleading submitted, based primarily on what the court can take 375 00:39:01,020 --> 00:39:07,320 judicial notice of with respect to the docket and we'll move forward. I appreciate the 376 00:39:07,320 --> 00:39:17,160 advocacy involved in the professionalism. Do we want to turn to Mr. Sussberg or how 377 00:39:17,160 --> 00:39:24,160 do we move on to other agenda items? I think we should proceed with the agenda. We can 378 00:39:24,160 --> 00:39:32,160 move to agenda item 2 and then we have some status conference items to be heard. So I'm 379 00:39:32,160 --> 00:39:34,920 going to leave it to the rest of the team to pick that up. 380 00:39:34,920 --> 00:39:41,520 All right. Who will be taking the mantle? Good morning, your honor. Jordan Chavez on 381 00:39:41,520 --> 00:39:46,040 behalf of the debtors. I'll be addressing the second item on the agenda, which is the 382 00:39:46,040 --> 00:39:50,880 debtor's motion for an order authorizing the debtors to direct scratch to return the post 383 00:39:50,880 --> 00:39:57,520 pause payments made by retail clients, which we filed at docket number 559. I set forth 384 00:39:57,520 --> 00:40:03,120 in the motion, your honor, the US based retail client loans are serviced by scratch services 385 00:40:03,120 --> 00:40:08,840 LLC pursuant to a sub servicing agreement that was executed between the parties back 386 00:40:08,840 --> 00:40:15,760 in 2018 when a US retail client would make a loan payment, scratch would service the 387 00:40:15,760 --> 00:40:21,520 loan payment and coordinate with block five to allow block five to then apply the payment 388 00:40:21,520 --> 00:40:28,000 to the balance on the loan. Now, when the platform paused on November 10th, subsequently 389 00:40:28,000 --> 00:40:34,960 all the activities related to the platform were paused, including the retail loans and 390 00:40:34,960 --> 00:40:40,040 any payments made there too. And they were placed into administrative forbearance. So 391 00:40:40,040 --> 00:40:44,760 there were no margin calls or liquidation that have taken place since the platform pause. 392 00:40:44,760 --> 00:40:50,460 Nevertheless, it was impossible for block five or scratch to prevent parties from sending 393 00:40:50,460 --> 00:40:56,840 payments to scratch to try and make payment on their retail loans. The payments have largely 394 00:40:56,840 --> 00:41:02,080 slowed down since more parties have become aware of the administrative forbearance and 395 00:41:02,080 --> 00:41:08,000 these chapter 11 cases. However, at the moment, scratch is holding over half a million dollars 396 00:41:08,000 --> 00:41:14,200 in post pause payments, which necessitated the motion before your honor today. And at 397 00:41:14,200 --> 00:41:20,920 the time of the motion, the specific amount scratch was holding was $585,100 and three 398 00:41:20,920 --> 00:41:26,400 cents. And again, those payments have largely slowed down since the case has progressed, 399 00:41:26,400 --> 00:41:34,800 but scratch is now has received some additional payments and is now holding $596,670 and 77 400 00:41:34,800 --> 00:41:41,920 cents. So we filed a revised proposed order on the docket yesterday at docket number 746 401 00:41:41,920 --> 00:41:47,840 to reflect the new amount and both the original and the revised proposed order provide that 402 00:41:47,840 --> 00:41:52,880 scratch were to receive additional payments after the order was to be entered. If your 403 00:41:52,880 --> 00:41:58,000 honor grants the motion, then scratch would notify the debtors of those payments and the 404 00:41:58,000 --> 00:42:04,200 debtors can then direct scratch to also return any subsequent payments that were made to 405 00:42:04,200 --> 00:42:09,600 scratch. There were no objections that were filed, your honor, to the motion. I did want 406 00:42:09,600 --> 00:42:14,800 to clarify for the record that there were some cryptocurrency news outlets that had 407 00:42:14,800 --> 00:42:21,360 reported that the payments were going to be returned to residents in one particular state. 408 00:42:21,360 --> 00:42:27,900 However, your honor, the motion and the relief requested in it and the proposed order encompasses 409 00:42:27,900 --> 00:42:34,240 all payments made by U.S. retail loan clients after the pause nationwide. So the half a 410 00:42:34,240 --> 00:42:38,920 million dollar amount will be returned to all residents, regardless of which state they 411 00:42:38,920 --> 00:42:44,640 are located in. Unless your honor has any questions, I would ask that your honor grant 412 00:42:44,640 --> 00:42:45,640 the motion. 413 00:42:45,640 --> 00:42:55,560 Thank you, Ms. Chavez. I've read the proposed order and needless to say, there's been no 414 00:42:55,560 --> 00:43:01,960 objection to the relief, nor should there be. It is surprising that a lender has to 415 00:43:01,960 --> 00:43:10,800 work so hard to not take payments. You don't normally see this. But I will enter the orders 416 00:43:10,800 --> 00:43:15,840 to allow the money to go back, as well as payments that are collected in the future. 417 00:43:15,840 --> 00:43:19,320 I think it makes absolute sense. Thank you. 418 00:43:19,320 --> 00:43:23,880 Thank you, your honor. I'll also be addressing the next item on the agenda, which is item 419 00:43:23,880 --> 00:43:27,160 number three, the debtor's first omnibus objection to claims. 420 00:43:27,160 --> 00:43:28,160 Let me just 421 00:43:28,160 --> 00:43:29,160 Which filed it. 422 00:43:29,160 --> 00:43:37,760 I'm sorry. As far as the proposed order that came with the notice of filing its document 423 00:43:37,760 --> 00:43:42,840 746, is that the order that can't be entered or are we going to be getting a new one? 424 00:43:42,840 --> 00:43:47,680 Yes, your honor. That order can be entered, but we're happy to submit a copy to chambers 425 00:43:47,680 --> 00:43:49,080 if your honor prefers. 426 00:43:49,080 --> 00:43:51,480 I think it's always clear to send it directly to chambers. 427 00:43:51,480 --> 00:43:54,640 Sure. We'll do that following the hearing. Thank you, your honor. 428 00:43:54,640 --> 00:43:56,120 Thank you. Now as to the objection. 429 00:43:56,120 --> 00:44:02,440 Yes, your honor. We filed the objection at docket number 573, which was accompanied by 430 00:44:02,440 --> 00:44:08,360 a certification of CRO Mark Renzi that we attached as exhibit A, and I would ask that 431 00:44:08,360 --> 00:44:11,640 your honor admit the exhibit into evidence. 432 00:44:11,640 --> 00:44:12,640 So admitted. 433 00:44:12,640 --> 00:44:18,920 Thank you. For the record, as your honor and as properly aware, this hearing was adjourned 434 00:44:18,920 --> 00:44:23,800 from April 11th to April 19th, but I did want to state on the record that we did serve the 435 00:44:23,800 --> 00:44:30,040 claimant with a notice of the adjournment at docket number 684. The claim numbers that 436 00:44:30,040 --> 00:44:35,640 were filed that were included in the objection are claim number 1363, which was filed for 437 00:44:35,640 --> 00:44:41,560 a hundred million dollars secured claim against all of the debtors and then claim numbers 438 00:44:41,560 --> 00:44:50,800 1649 and 3217, a third, a secured 2.2 trillion dollar claim against Box by Inc. So the basis 439 00:44:50,800 --> 00:44:55,800 for the objection is that the debtors have no record at all of this account holder with 440 00:44:55,800 --> 00:45:00,360 the name and address that were provided in the claim and no documentation supported a 441 00:45:00,360 --> 00:45:06,280 valid claim against the debtors, let alone a secured claim for such an exorbitant amount. 442 00:45:06,280 --> 00:45:11,440 The debtors did reach out to the claim that multiple times as we step forth in the objection 443 00:45:11,440 --> 00:45:18,160 to try and get more information and more documentation to try and support the claim. I think on one 444 00:45:18,160 --> 00:45:22,240 particular date, March 2nd, we did receive some documentation from the claimant, but 445 00:45:22,240 --> 00:45:28,560 it was largely non-responsive and duplicative of what was already attached to the claims. 446 00:45:28,560 --> 00:45:33,840 We did explain the claim objection process as the claimant is pro se and including that 447 00:45:33,840 --> 00:45:40,200 they could file a formal response by the deadline and attend this hearing if they desired to 448 00:45:40,200 --> 00:45:45,160 defend their objection. No timely response was filed to the objection by the deadline 449 00:45:45,160 --> 00:45:50,240 and the claimant has not amended or withdrawn the claim. With all of that, Your Honor, I 450 00:45:50,240 --> 00:45:54,720 respectfully request that the court sustain the objection and enter the proposed order 451 00:45:54,720 --> 00:46:01,440 that was attached to the objection and disallow the claims in their entirety. 452 00:46:01,440 --> 00:46:09,480 Is there anyone who wishes to be heard on this? All right. Mr. Ouellette? 453 00:46:09,480 --> 00:46:15,800 Yes. Good morning, Your Honor. The committee fully supports this objection as you might 454 00:46:15,800 --> 00:46:23,920 expect. We just wanted to note that claims like this are extremely serious. It's a $2.2 455 00:46:23,920 --> 00:46:29,160 trillion claim, which had the debtors not timely addressed it, would have prevented 456 00:46:29,160 --> 00:46:37,080 any sort of distributions due to the massive reserves that would be required. We just urge 457 00:46:37,080 --> 00:46:45,720 the court to enter the order and we'd urge claimants not to submit such claims in the 458 00:46:45,720 --> 00:46:50,040 court. Actually, you beat me to the punch. Thank you, Mr. Ouellette. I was going to give 459 00:46:50,040 --> 00:47:00,160 an admonition. Not only does this cost the estate and all proper claimants time and money 460 00:47:00,160 --> 00:47:07,680 and having to address, I think claimants are well advised to look at the references to 461 00:47:07,680 --> 00:47:15,640 Title 18 and bankruptcy fraud when filing claims and realize that there can be a consequence 462 00:47:15,640 --> 00:47:23,320 in reaching for this pathway. Thank you. The motion is granted. 463 00:47:23,320 --> 00:47:27,840 Thank you, Your Honor. That's all for me today. So I will turn it over to my co-counsel 464 00:47:27,840 --> 00:47:31,440 and the U.S. trustee to address the status conference. Thank you. 465 00:47:31,440 --> 00:47:35,440 All right. Thank you. Good morning, Your Honor. Christina Kike of 466 00:47:35,440 --> 00:47:40,220 Kirkland and Ellis on behalf of the debtors. I think it makes sense for me to provide just 467 00:47:40,220 --> 00:47:45,620 a brief update on the debtors' cash position, which kind of relates to the U.S. trustee's 468 00:47:45,620 --> 00:47:51,080 motion to compel the debtors to comply with section 345, if that's all right with Your 469 00:47:51,080 --> 00:47:52,080 Honor. Yes, please. 470 00:47:52,080 --> 00:47:57,360 So, Your Honor, while the debtors have opened up several new bank accounts that authorize 471 00:47:57,360 --> 00:48:03,880 depositories, those banks continue to struggle to obtain surety bonds. My understanding from 472 00:48:03,880 --> 00:48:09,440 conversations with the banks is that the surety bond market has essentially dried up in the 473 00:48:09,440 --> 00:48:14,440 wake of the collapse of Silicon Valley Bank and Signature Bank. And I know that other 474 00:48:14,440 --> 00:48:17,760 debtors are struggling also to obtain surety bonds. 475 00:48:17,760 --> 00:48:25,200 So, Your Honor may recall that we had a substantial amount of cash invested in money market funds 476 00:48:25,200 --> 00:48:31,760 at Silicon Valley Bank, where the counterparties were BlackRock and Morgan Stanley. And those 477 00:48:31,760 --> 00:48:37,040 money market funds were invested in government securities. 478 00:48:37,040 --> 00:48:41,120 During discussions with the U.S. trustee, we converted those money market funds into 479 00:48:41,120 --> 00:48:47,440 cash and that cash was sitting at Silicon Valley Bridge Bank. At the time that we made 480 00:48:47,440 --> 00:48:53,320 the conversion, all funds in the bridge bank were fully insured when the government took 481 00:48:53,320 --> 00:49:00,440 over. But now that deposits have been transferred from the bridge bank to First Citizens, FDIC 482 00:49:00,440 --> 00:49:07,800 protection has dropped back down to 250,000K. So, given just the inability right now to 483 00:49:07,800 --> 00:49:13,720 obtain surety bonds and also the desire to be responsive to the U.S. trustee's request, 484 00:49:13,720 --> 00:49:19,920 the debtors intend to file a motion in the near term seeking authority to invest in treasuries 485 00:49:19,920 --> 00:49:27,560 that are backed by the U.S. or alternatively to invest in money market funds that are invested 486 00:49:27,560 --> 00:49:32,360 in government securities. The debtors continue to believe that money market funds are safe 487 00:49:32,360 --> 00:49:37,920 investments because the exposure is to the funds themselves and not the bank, which I 488 00:49:37,920 --> 00:49:43,280 think is probably a good thing just given the uncertainty in the banking industry right 489 00:49:43,280 --> 00:49:48,480 now. So, with that, I'll turn it over to the U.S. trustee. I know we've been having several 490 00:49:48,480 --> 00:49:54,600 conversations to try to find a way to move forward. But unfortunately, just given the 491 00:49:54,600 --> 00:49:59,720 banking situation, we have not been able to obtain surety bonds and we obviously have 492 00:49:59,720 --> 00:50:07,280 cash above FDIC limits. All right. Thank you. It is an issue and a difficulty. Mr. Sponder, 493 00:50:07,280 --> 00:50:11,400 or did you want to speak? Thank you, Your Honor. Jeff Sponder from the 494 00:50:11,400 --> 00:50:16,360 Office of the United States Trustee. I appreciate the position or the United States trustee, 495 00:50:16,360 --> 00:50:20,440 I should say, appreciates the position that the debtors find themselves in. However, they 496 00:50:20,440 --> 00:50:28,960 still are not complying with 345 and I think it's even worse now, be it that SBB Bridge 497 00:50:28,960 --> 00:50:35,280 Bank has gone to First Citizens and has limited back down to the 250,000. With that said, 498 00:50:35,280 --> 00:50:40,360 I understand that a motion would be forthcoming in the near term. What my suggestion would 499 00:50:40,360 --> 00:50:47,280 be is that the near term be today, tomorrow, this week, not something that gets that that's 500 00:50:47,280 --> 00:50:54,080 negotiated on, as well as seeking shortening time to get this on the docket and a ruling 501 00:50:54,080 --> 00:51:00,240 from Your Honor, because I don't think we have the ability to move from off of our position 502 00:51:00,240 --> 00:51:05,160 that 345 needs to be applied with. Thank you, Your Honor. 503 00:51:05,160 --> 00:51:12,360 Thank you. I certainly will schedule it on shortened time when the debtor get the motion 504 00:51:12,360 --> 00:51:19,440 to us. Yes, Your Honor, we will endeavor to get it on file. It may not be today, but definitely 505 00:51:19,440 --> 00:51:28,160 this week. All right. Thank you. We have two other matters. I guess probably the quicker 506 00:51:28,160 --> 00:51:34,560 well, I'll leave it to you. We have an update on the adversary proceeding with respect to 507 00:51:34,560 --> 00:51:44,920 emergent and also the pending wallet motion, which is of most interest, I think, to those 508 00:51:44,920 --> 00:51:50,600 who are watching. Your Honor, good morning. Mike Slade for the debtors. Can you hear me? 509 00:51:50,600 --> 00:51:56,320 Yes, I can. Thank you. Your Honor, I'll give you an update on the wallet motion. We have 510 00:51:56,320 --> 00:52:03,240 been working with the Council for the Ad Hoc Committee and for deferred 1031 and the UCC. 511 00:52:03,240 --> 00:52:08,480 And we do have a path forward. The debtors have provided a substantial amount of diligence 512 00:52:08,480 --> 00:52:14,040 on this matter, including answering about 100 questions in writing and providing some 513 00:52:14,040 --> 00:52:18,920 data that was requested. I am hopeful that we will be in a position to present this to 514 00:52:18,920 --> 00:52:25,720 Your Honor in the form of a set of stipulated facts that you will be able to hopefully rule 515 00:52:25,720 --> 00:52:31,920 on. The parties are going to work on that over the next approximately week. If we are 516 00:52:31,920 --> 00:52:38,280 not able to stipulate to certain facts, we have agreed that we will make a witness available 517 00:52:38,280 --> 00:52:42,800 for the Ad Hoc Committee to ask questions of so that they can, you know, put forth whatever 518 00:52:42,800 --> 00:52:48,280 evidence they have on the matters that can't be stipulated to. The parties have agreed 519 00:52:48,280 --> 00:52:55,480 that they will file any supplemental briefs, and that's the debtors, the creditors committee, 520 00:52:55,480 --> 00:53:01,320 and the Ad Hoc Committee or deferred 1031 on or before May the 3rd. And then we will 521 00:53:01,320 --> 00:53:07,520 present the matter for Your Honor on May the 8th at the next omnibus hearing. Again, the 522 00:53:07,520 --> 00:53:12,640 hope is that we're going to be able to stipulate the relevant facts or at least minimize to 523 00:53:12,640 --> 00:53:18,360 the extent possible any actual evidence that has to be presented to the court. And that's 524 00:53:18,360 --> 00:53:23,240 the plan. And we have discussed this, and I believe all parties are in agreement that 525 00:53:23,240 --> 00:53:27,640 that's the path forward. We know that all of the creditors want to get this resolved 526 00:53:27,640 --> 00:53:32,640 as quickly as possible, and so do we. And this is the most streamlined way that we can 527 00:53:32,640 --> 00:53:37,640 present the issue to the court. So happy to answer any questions that you have, but that 528 00:53:37,640 --> 00:53:46,240 is the plan. I do have a question, but let me first turn to Ms. Koski. Thank you, Your 529 00:53:46,240 --> 00:53:51,960 Honor. Can you hear me okay? Yes, I can. So the schedule that Mr. Slade described is 530 00:53:51,960 --> 00:53:58,280 what we have discussed and what we've agreed to. I think it's important, though, given 531 00:53:58,280 --> 00:54:03,600 the widespread interest in this issue and a number of, as Mr. Stark put it, the mom 532 00:54:03,600 --> 00:54:09,840 and pop investors that this affects. There's been a lot of misinformation online, a lot 533 00:54:09,840 --> 00:54:14,840 of questions about what's going on. Why is this taking so long? What's everybody doing? 534 00:54:14,840 --> 00:54:20,280 Why have there been so many delays? We should have had this resolved already. And I wanted 535 00:54:20,280 --> 00:54:24,920 to emphasize that the ad hoc committee is committed to trying to get this resolved as 536 00:54:24,920 --> 00:54:31,320 quickly as possible. There have been a lot of activities taking place behind the scenes. 537 00:54:31,320 --> 00:54:35,920 We have managed to keep this largely out of your honor's court, and that was very deliberate 538 00:54:35,920 --> 00:54:41,240 trying to resolve any issues we had ourselves. We did not want to bring you discovery disputes. 539 00:54:41,240 --> 00:54:46,040 We did not want to spend money of the estate that we didn't need to. The ad hoc committee 540 00:54:46,040 --> 00:54:51,000 and I'll speak for deferred 1031, as I'll ensure Mr. Bessicault won't mind. We jointly 541 00:54:51,000 --> 00:54:55,180 agreed to forego formal discovery in this matter, even though it's a contested matter 542 00:54:55,180 --> 00:55:00,680 where we would have been entitled to take full blown formal discovery. Instead, we simply 543 00:55:00,680 --> 00:55:06,680 asked a series of questions in plain English and agreed to accept answers on an informal 544 00:55:06,680 --> 00:55:14,040 basis. It has unfortunately been an extremely slow process. For example, it took three written 545 00:55:14,040 --> 00:55:19,200 requests and almost two months to get an answer to the simple question of tell us what assets 546 00:55:19,200 --> 00:55:26,080 are in wallet. What's actually there? So while we have finally obtained the information that 547 00:55:26,080 --> 00:55:30,600 most of the information that we've been seeking from the debtors, I want to make it clear 548 00:55:30,600 --> 00:55:35,160 we're not trying to slow walk this in any way. The ad hoc committee has always been 549 00:55:35,160 --> 00:55:40,240 willing to move expeditiously, but we're entitled to get the information that we need in order 550 00:55:40,240 --> 00:55:46,000 to support our objection to what the debtors are seeking to do to their customers. And 551 00:55:46,000 --> 00:55:53,580 so that that's really the reason for the repeated adjournments and extensions and why this matter 552 00:55:53,580 --> 00:56:00,000 hasn't been heard yet. It's really simply we've needed to obtain the necessary information 553 00:56:00,000 --> 00:56:05,760 to understand how the debtors processes work behind the scenes. What exactly was happening? 554 00:56:05,760 --> 00:56:13,480 What assets are where? And so I wanted to just make it clear to the wallet account holders 555 00:56:13,480 --> 00:56:17,760 who are not members of the ad hoc committee who perhaps have not been able to hear on 556 00:56:17,760 --> 00:56:22,400 a periodic basis and get updates about what's been going on. Just tell them that we have 557 00:56:22,400 --> 00:56:28,040 been working expeditiously to try to get this resolved. Thank you. That was the direction 558 00:56:28,040 --> 00:56:39,040 of my questions. And I'm aware of some of the complexities inherent in the potential 559 00:56:39,040 --> 00:56:47,360 differences from pause dates to potential preferential transfers. But let me ask what 560 00:56:47,360 --> 00:56:54,680 may be a naive question. Are there funds held currently now in wallets that are not subject 561 00:56:54,680 --> 00:57:01,160 to dispute that can be released to wallet holders that are not subject to any set off 562 00:57:01,160 --> 00:57:11,440 claims or defenses or any issues as to pause dates, et cetera? I apologize if it's not 563 00:57:11,440 --> 00:57:16,560 a simple question to answer. Yeah. Mike Slade for the debtors, Your Honor. I think that 564 00:57:16,560 --> 00:57:23,160 depends on the outcome of this motion. If the court agrees with the position of the 565 00:57:23,160 --> 00:57:30,400 creditors and the creditors committee that the attempts after the program pause to move 566 00:57:30,400 --> 00:57:38,400 assets from the BIA accounts to the wallet, if you agree with us that those are not effective, 567 00:57:38,400 --> 00:57:45,720 then the answer to your question is yes. We believe that there will be some funds that, 568 00:57:45,720 --> 00:57:50,760 you know, in cooperation with the creditors committee, we are going to be in a position 569 00:57:50,760 --> 00:58:00,600 to be able to release. That's a substantially more complicated question. If my colleague 570 00:58:00,600 --> 00:58:07,200 on the other side, Ms. Kovsky, succeeds in her motion, then to be honest, I'm not quite 571 00:58:07,200 --> 00:58:11,680 sure what we're going to do. But I believe the answer is that there won't be the ability 572 00:58:11,680 --> 00:58:19,640 to release any funds until certainly a plan is confirmed. That's at least my belief sitting 573 00:58:19,640 --> 00:58:26,600 here today. Well, thank you. I think customers, wallet holders are entitled to at least to 574 00:58:26,600 --> 00:58:33,840 understand and appreciate the realities. Ms. Kovsky, is your hand still up or is that from 575 00:58:33,840 --> 00:58:39,600 before? It is, Your Honor. I just wanted to clarify a couple of points. Mr. Slade referred 576 00:58:39,600 --> 00:58:44,160 to the ad hoc committee's motion. The ad hoc committee doesn't have a motion on file. The 577 00:58:44,160 --> 00:58:50,280 creditors filed a motion and bear the burden of proving their entitlement to reverse transfers 578 00:58:50,280 --> 00:58:55,160 that actually took place. And that's what they're seeking to do. And the ad hoc committee 579 00:58:55,160 --> 00:59:01,480 has objected to that. I also wanted to clarify that the sole issue that we're seeking to 580 00:59:01,480 --> 00:59:11,000 have the court determine on May 8th is simply were those transfers that were made while 581 00:59:11,000 --> 00:59:16,320 the system was still operational, were those transfers effective or not? And it sort of 582 00:59:16,320 --> 00:59:23,240 goes to the definite, what does transfer mean in this context? What constitutes a transfer? 583 00:59:23,240 --> 00:59:28,320 We're not asking the court to determine, well, if the transfers were effective, where do 584 00:59:28,320 --> 00:59:32,520 they get paid out of? What assets are available to satisfy them? Are they subject to potential 585 00:59:32,520 --> 00:59:38,480 preference clawback? That's all for another day. This is really the gating issue of did 586 00:59:38,480 --> 00:59:47,320 transfers happen? Understood. Thank you, Ms. Kovsky. Mr. Ouellette? Thank you, Your Honor. 587 00:59:48,580 --> 00:59:55,720 Road Next Record. Just to clarify one key issue, it's the committee's understanding that the 588 00:59:55,720 --> 01:00:06,360 debtors essentially cannot release portions of a wallet account, which is why if the position 589 01:00:06,360 --> 01:00:11,960 of the ad hoc group is correct, there are no funds that could be released. Obviously, 590 01:00:11,960 --> 01:00:19,040 there would be funds that nobody disputes, even if all of those funds are moved into 591 01:00:19,040 --> 01:00:25,200 wallet and there's a large shortfall. The issue is that to our understanding, the debtors 592 01:00:25,200 --> 01:00:32,480 outside the plan construct have the ability to potentially make 100% distributions, but 593 01:00:32,480 --> 01:00:39,920 not, for example, to pick a number of 50% distributions or anything aside from 0 or 594 01:00:39,920 --> 01:00:47,040 100%. There's a substantial amount of funds where there is no dispute, but that technical 595 01:00:47,040 --> 01:00:57,960 issue prevents those funds from being sent out because the funds that are not in dispute 596 01:00:57,960 --> 01:01:07,120 represent less than 100% of an account. All right. Thank you for that addition. All right. 597 01:01:07,120 --> 01:01:13,920 That certainly helps. It points to how important May 8th will be and what I can expect to have 598 01:01:13,920 --> 01:01:21,800 in front of me. And of course, I will do my best to try to do the quickest turnaround 599 01:01:21,800 --> 01:01:30,240 that the court can achieve. Let's turn, I think, to the emergent matter. Is there an 600 01:01:30,240 --> 01:01:33,880 update, Mr. Kanowitz? Yes, Your Honor. Thank you. Richard Kanowitz, 601 01:01:33,880 --> 01:01:38,320 Haynes and Boone, co-counsel to the debtors and debtors in possession. Your Honor, real 602 01:01:38,320 --> 01:01:47,160 quick, at Dock at 738, we submitted to Your Honors for approval subject to the April 21st 603 01:01:47,160 --> 01:01:53,000 deadline for objections, the standstill stipulation, I'll call it, between emergent debtor as 604 01:01:53,000 --> 01:01:59,120 well as the FTX debtors and the block five debtors. Basically, this was to carve out 605 01:01:59,120 --> 01:02:04,720 any and all disputes concerning the liens, claims and encumbrances concerning the Robinhood 606 01:02:04,720 --> 01:02:09,640 shares and only the Robinhood shares. And we spent a lot of time between counsel for 607 01:02:09,640 --> 01:02:14,600 the various estates coming to that stipulation and making sure that we captured the right 608 01:02:14,600 --> 01:02:22,200 type of procedure as well as substantive to put on hold pending the criminal prosecution 609 01:02:22,200 --> 01:02:27,000 of Sam Van Den Vrede as well as any forfeiture proceedings that arise from that criminal 610 01:02:27,000 --> 01:02:35,160 prosecution. So that was put before Judge Dorsey and he approved it. He did it under 611 01:02:35,160 --> 01:02:41,800 certification of counsel and that was entered on April 17th. So Your Honor has before the 612 01:02:41,800 --> 01:02:47,720 court subject again to the objection deadline passing on April 21st and I don't anticipate 613 01:02:47,720 --> 01:02:53,960 anybody objecting since we've kept all parties in interest involved in the stipulation step 614 01:02:53,960 --> 01:03:00,280 by step, comment by comment, issue by issue, that Your Honor will hopefully approve it 615 01:03:00,280 --> 01:03:07,600 and that will again put on hold the Robinhood issue. As to defendant Marix, we are likewise 616 01:03:07,600 --> 01:03:13,920 working with them as to a standstill stipulation because we do have a live adversary proceeding 617 01:03:13,920 --> 01:03:19,600 against them and we would like that adversary proceeding to remain on the docket. We do 618 01:03:19,600 --> 01:03:25,400 not know what's going to happen in connection with the again prosecution and or forfeiture 619 01:03:25,400 --> 01:03:30,120 proceedings. We were first in time from our perspective and everybody reserves rights 620 01:03:30,120 --> 01:03:35,460 as to what should happen if the forfeiture proceedings don't go forward or there is 621 01:03:35,460 --> 01:03:40,120 no conviction. So that's where we are with the emergent matter, Your Honor. Happy to 622 01:03:40,120 --> 01:03:44,920 answer any questions if you have. Can you give me the docket number again for the stipulation? 623 01:03:44,920 --> 01:03:51,880 I want to make sure my staff. Yes, we did it by application. It's 738, Your Honor. 624 01:03:51,880 --> 01:03:58,600 738, great. I did speak with Judge Dorsey coincidentally and I understood it was coming. 625 01:03:58,600 --> 01:04:04,240 So we'll keep an eye out for it and wait for the passage of time. All right. Thank you, 626 01:04:04,240 --> 01:04:20,480 Mr. Hanowitz. Is there anyone else who wishes to be heard? All right. I'm not seeing anyone. 627 01:04:20,480 --> 01:04:29,640 I thank everyone for their time and effort and I guess the next date is the May 8th date 628 01:04:29,640 --> 01:04:35,760 unless there's something emerging in between. So be well. Thank you. Thank you, Your Honor.