Commentary: Valuing Crypto in the Bankruptcy Multiverse*​​​

The recent bankruptcy filings by several major crypto platforms have given rise to unexpected realities for customers and investors. The sudden change in rights, legal exposure in bankruptcy litigation and varying outcomes in the several different proceedings can be reminiscent of a Hollywood multiverse where infinite realities are possible, according to a Reuters commentary. Perhaps the area in which an alternate reality is most accessible is the valuation of digital assets. The Bankruptcy Code does not specifically address how, and as of what date, digital assets are to be valued, and although certain bankruptcy courts have provided guidance, the outcomes appear highly dependent on context. Section 502(b) of the Bankruptcy Code provides that courts "shall determine the amount of [a] claim in lawful currency of the United States as of the date of the filing of the [bankruptcy] petition." While this is the general rule, at least two approaches for crypto-based claims have emerged: the petition-date approach and the distribution-date approach. The petition-date approach is the most straightforward application of § 502(b). This approach was taken in the Celsius, FTX and BlockFi bankruptcies, where, under each chapter 11 plan, claims for digital assets were based on the value of those assets as of the bankruptcy filing. Unfortunately for claimants, because these bankruptcies were filed during the "crypto winter" — when the crypto market experienced unprecedented losses — claim amounts do not reflect the recent rebound of the crypto market. In contrast to the petition-date approach, the distribution-date approach values claims as of the date distributions are made to creditors. This approach was proposed in the Genesis bankruptcy, with the stated goal of maximizing in-kind distributions to creditors. Although the approach was met with fierce opposition by certain equity-holders who argued it resulted in creditors receiving over 100% on their claims, the bankruptcy court ultimately confirmed the plan over their objections. Read the full commentary.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
 

When Private Equity Buys a Hospital, Assets Shrink, New Research Finds​​​

A new study by physician researchers has found that when private-equity firms buy hospitals, they sell off assets, challenging longtime industry claims that the purchases lead to investment in patient care, the Washington Post reported. “While private-equity investors claim they infuse much-needed capital into the hospitals they buy, we found just the opposite: Private-equity firms quickly liquidate hospitals’ assets,” said lead author Elizabeth Schrier, a resident physician at the University of California at San Francisco. The study, which examined 156 purchases over the past decade, was published on Tuesday in JAMA, the journal of the American Medical Association. Researchers were unable to detail what happened to the lost assets in every case but noted that private-equity investors “have sometimes sold acquired hospitals’ land and buildings, repaying investors with proceeds and burdening hospitals with rent payments for facilities they once owned.” Federal Trade Commission Chair Lina Khan said in a statement at the time that the agency would investigate “strip-and-flip tactics” and “other financial plays that can enrich executives but leave the American public worse off.” “When private equity firms buy out healthcare facilities only to slash staffing and cut quality, patients lose out,” Khan said in the statement. The American Investment Council on Monday continued to defend the role of private equity in U.S. health care. Read more.
 

Online Sports Betting Adds to Consumer Credit Stress, Study Says​​​

Online sports betting is increasing consumer stress as access to gambling proliferates, a new study found, Bloomberg News reported. A U.S. Supreme Court ruling in 2018 led to 38 states legalizing sports gambling. In its wake, researchers found a “substantial increase” in auto loan delinquencies, bankruptcies and debt collections in states that permitted online sports betting, according to the working paper that has yet to be peer-reviewed. “While many states may have opted for legalization with the hope of increasing tax revenue, the negative effect we document can partially offset tax revenue benefits as more consumers’ financial health deteriorates,” the authors, led by Brett Hollenbeck, associate professor at University of California Los Angeles Anderson School of Management, wrote. The results were based on data from more than 4 million people in a range spanning between March 2016 and June 2023. Sports gambling has quickly expanded from tribal and commercial casinos following the 2018 ruling that struck down a 1992 federal law, which banned state-authorized bets on sports with some exceptions. Since then, major sportsbooks have stepped in, drawing in more than a hundred billion dollars in bets just last year, rising by more than a quarter from the year before. The researchers studied the difference between online betting and gambling that takes place in person, and discovered similar but stronger consumer stress in states that allow online gambling, according to Hollenbeck. That trend showed up in average credit scores, which fell slightly, but at a rate around three times higher in states that allowed online betting. “We find fairly significant, fairly convincing evidence that when states legalize sports betting that people significantly increase problematic betting, and this is especially true when states legalize mobile betting,” Hollenbeck said. Conversely, credit card delinquencies declined for sports-betters, a trend that showed up a couple of years after legalization and surprised Hollenbeck. “There’s a pretty significant decrease in credit card limits, and it suggests that credit card companies are aware and preventing their consumers from placing bets,” he said. Read more.
 

U.S. Weekly Jobless Claims Highest in Nearly a Year Amid Summer Volatility​​​

The number of Americans filing new applications for unemployment benefits increased to an 11-month high last week, suggesting some softening in the labor market, though claims tend to be volatile around this time of the year, Reuters reported. The report from the Labor Department today also showed the number of people on jobless rolls swelling in mid-July to the highest level since late 2021. Initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 249,000 for the week ended July 27, the highest level since August last year. Claims broke above the upper end of their 194,000-245,000 range for this year. The four-week moving average of claims, which strips out seasonal fluctuations from the data, rose 2,500 to 238,000 last week. Filings have been on an upward trend since June, with part of the rise blamed on the temporary motor vehicle plant shutdowns and disruptions caused by Hurricane Beryl in Texas. Unadjusted claims dropped 10,012 to 215,827 last week. That was less than half of the 21,901 decline that the seasonal factors, the model used by the government to iron out seasonal fluctuations from the data, had expected. Read more.
 

U.S. Productivity Picks Up While Labor Cost Growth Moderates​​​

U.S. worker productivity increased in the second quarter by more than forecast, helping temper growth in labor costs and adding to evidence of diminishing inflationary pressures, Bloomberg News reported. Productivity, or nonfarm business employee output per hour, rose at a 2.3% annualized rate in the April-to-June period after rising only slightly during the first three months of the year, data from the Bureau of Labor Statistics showed today. Unit labor costs, or what a business pays employees to produce one unit of output, increased at a 0.9% rate in the April-to-June period after climbing 3.8% at the start of the year. Revisions to the first quarter also show a trend of improving productivity helping to keep a lid on pay growth. That was evident in the annual figures, too — on a year-over-year basis, productivity increased 2.7% in the second quarter, after rising the most in three years. Unit labor costs were up 0.5%, the smallest advance since before the pandemic. Read more.
 

Donate to the Kevin J. Carey Memorial Scholarship ​​​

Hon. Kevin J. Carey (ret.), who served as ABI’s President from 2022-23 after previously having served as ABI’s Vice President-Membership, among other leadership roles, died on April 11 at his home in Devon, Pa., at the age of 69. An ABI member since 1997, he had served as a U.S. Bankruptcy Judge for the District of Delaware from 2001-19, then as senior counsel at Hogan Lovells in Philadelphia from 2019 until his death. The Carey family is grateful for the continued prayers and support they have received since Judge Carey’s passing, and have since formed a scholarship in his name at Villanova University School of Law, which will be awarded to academically talented students enrolled in the Charles Widger School of Law with demonstrated financial need. To donate in support of the Kevin J. Carey Memorial Scholarship, please send a check to Villanova University at 299 North Spring Mill Road, Villanova, PA 19085, with “The Kevin J. Carey Memorial Scholarship” in the memo. Donations also can be made online at givecampus.com/campaigns/36916/donations/new. From there, select “Other/Your Choice” to write in “The Kevin J. Carey Memorial Scholarship.”  

Get Your Copy of The Purdue Papers — Now Updated with the Supreme Court’s Ruling!​​​

The Purdue Pharma L.P. case, overturned at the end of June by the U.S. Supreme Court, generated a mountain of commentary in the form of amicus briefs, petitions and other related background material. Guided by editor David R. Kuney (who represented one group of amicus filers), ABI has gathered together all of this material in a fully searchable form — more than 3,500 pages worth! This digital book includes the final Supreme Court decision, a commentary by ABI Editor-at-Large Bill Rochelle, and a transcript of ABI’s July 2 webinar discussing the implications of the decision. It’s an invaluable resource for anyone working in the area of third-party releases, whether as a practitioner, an academic or just an interested party. Get your digital copy for only $25!

Pick Up Your Copy of Driving the Recovery Bus​​​

Make sure to pick up your copy of Driving the Recovery Bus: Augmenting Creditor Recoveries Through Claims Brought by a Litigation Trustee. Written by Gordon Z. Novod, this book is not only for litigation trustees, but also for creditors who serve on official committees of unsecured creditors, attorneys and other professionals who frequently represent official committees of unsecured creditors, and others with a general interest in the pursuit of causes of action by litigation trustees. Get your copy of Driving the Recovery Bus. 
 

Have an Idea for a Topic for an ABI Conference Session? Submit Your Proposal via ABI’s “Call for Abstracts” Page!​​​

ABI has launched an online portal for professionals to submit proposals for educational sessions at future ABI conferences. Submitters can describe their proposed topic, outline the session’s focus and learning goals, suggest speakers, and provide contact information via the portal’s detailed form. The portal can be accessed here.

All submissions will be reviewed by an internal Education Committee, which will contact the submitter to ask questions as needed and to discuss the status of the proposal. Submissions will be reviewed on a rolling basis.

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