The U.S. government filed an objection on Monday to crypto lender Genesis Global’s chapter 11 plan, saying it effectively provides a legal shield to the company and a myriad of related parties, WSJ Pro Bankruptcy reported. The U.S. Trustee, the Justice Department’s bankruptcy monitor, said in a filing with the U.S. Bankruptcy Court in White Plains, N.Y., that the plan fails to meet certain requirements needed for confirmation under bankruptcy code. The plan also contains a provision that, in effect, serves as a “hidden third-party release,” the DOJ said. The crypto lender, which filed for bankruptcy in January of last year, is aiming to get its chapter 11 liquidation plan confirmed in mid-February. Genesis said it had more than 100,000 creditors and owed roughly $5.1 billion a few months before its bankruptcy filing. Lawyers for the company didn’t immediately respond to a request for comment. In its filing, the DOJ said the plan’s release provision is overly broad, appearing to effectively impose a “nonconsensual release on every person and every entity existing in the world.” The provision binds even those who didn’t check the opt-in box in the ballot, the DOJ said. In addition, the Genesis plan seeks to give the parties legal cover for actions taken before and after the bankruptcy filing, including Genesis’s out-of-court restructuring efforts, the filing said. “The court simply is not at the vantage point to make that judgment,” the DOJ said in the filing.
FTX is unloading cryptoassets and hoarding cash as bankruptcy advisers look for a way to repay customers whose accounts have been frozen since the platform collapsed in 2022, Bloomberg News reported. The fraud-tainted crypto firm’s four largest affiliates — including FTX Trading Ltd. and Alameda Research LLC — together nearly doubled the group’s cash pile to $4.4 billion at the end of 2023 from about $2.3 billion in late October, according to chapter 11 monthly operating reports. The company’s total cash is likely higher including the rest of its affiliates. The company said in a court filing last month that FTX raised $1.8 billion through Dec. 8 by selling off some of the firm’s digital assets. FTX also said that it’s conducting Bitcoin derivative trades to hedge exposure to the coin and generate additional yield on its digital holdings — and is exploring options to potentially restart the exchange. An uptick in FTX’s cash stockpile has coincided with the rising value of customer accounts. Since FTX unraveled in November 2022, bankruptcy advisers have been tracking down assets and struck deals intended to benefit customers who had smaller accounts on the platform. The company has also brought major lawsuits against former associates of Sam Bankman-Fried and crypto firms like Bybit Fintech Ltd. that withdrew funds from FTX before it filed chapter 11. Customer claims worth more than $1 million traded at around 73 cents on the dollar as of Friday, up from around 38 cents on the dollar in October, according to investment firm and bankruptcy claims broker Cherokee Acquisition. Actual trading prices depend on the value of a specific claim and other factors, Cherokee Acquisition said. Read more.
In related news, Rashit Makhat was paid close to $500 million months before FTX collapsed when he sold most of his stake in a bitcoin-mining enterprise, Genesis Digital Assets, to Bankman-Fried’s hedge fund, the Wall Street Journal reported. Makhat’s lawyers in London say he remains in possession of the proceeds. The peak-of-market deal made Makhat one of the biggest individual beneficiaries of what U.S. prosecutors in Bankman-Fried’s recent trial called a “spending spree” of money Bankman-Fried stole from FTX customers. In pressing their case, prosecutors used details such as bank-account data and testimony from insiders to show how much of the $8 billion of customer money went into startups and other investments. Bankman-Fried was convicted and is in custody awaiting sentencing. The early 2022 Genesis Digital deal was among the largest highlighted by prosecutors, who displayed to jurors a diagram showing how more than $1 billion of funds went from customers to an account owned by Bankman-Fried’s hedge fund and then into Genesis Digital shares. Prosecutors didn’t mention Makhat, who hasn’t been accused of wrongdoing. Prosecutors also singled out Bankman-Fried-led deals including Bahamas property purchases and $1.2 billion that went toward buying out the rival crypto exchange Binance, which had been an FTX shareholder. Read more. (Subscription required.)
A Texas-based trucking company has filed for bankruptcy liquidation four days before a wrongful death civil trial filed by the family of one of its former drivers who drowned in 2016 was slated to start in El Paso County, Texas, Freight Waves reported. J.J. & Sons Logistics, doing business as JJ Transport, of Clint, Texas, filed its petition Monday in the U.S. Bankruptcy Court for the Western District of Texas. In its Chapter 7 petition, JJ Transport listed its assets as up to $500,000 and liabilities as between $100 million and $500 million. The shuttered company states that it has up to 49 creditors and maintains that funds will be available for unsecured creditors once it pays administrative fees. JJ Transport once had 19 drivers and 18 power units prior to filing for bankruptcy. In its bare-bones petition, the company listed Fleetone Factoring LLC of Antioch, Tennessee; Auxillior Capital Partners of Plymouth Meeting, Pennsylvania; and Wells Fargo Bank of Des Moines, Iowa, as creditors, although no amounts were given. Its trucks had been inspected 27 times and two had been placed out of service in a 24-month period, resulting in a 7.4% out-of-service rate. This is lower than the industry’s national average of around 22.3%, according to the Federal Motor Carrier Safety Administration’s SAFER website. JJ Transport’s drivers had been inspected 53 times over the same 24-month period and one driver was placed out of service, resulting in a 1.9% out-of-service rate. This is lower than the national average of around 6.7%, according to FMCSA data. In the past two years, the company’s trucks had been involved in five crashes, including two injuries and three towaways.
A federal judge moved to limit the cost and length of a new outside investigation of FTX Trading, the fraud-tainted crypto firm, saying its insolvency case should not be disrupted by another multimillion-dollar probe, Bloomberg News reported. Bankruptcy Judge John Dorsey sided with lawyers for FTX and its creditors, who argued that the new investigation ordered by an appellate court should be short and limited in scope. Earlier this month, a federal appeals court in Philadelphia ordered the appointment of an examiner for the chapter 11 case, but left the details of any investigation up to Judge Dorsey. The Office of the U.S. Trustee, the federal watchdog that monitors corporate bankruptcies, had argued that the cost, length and scope of the new investigation should be left open until after the appointment of an examiner. Judge Dorsey said that was a recipe for runaway costs that won’t turn up anything new. “Left to an open process, that could involve tens of millions of dollars,” Judge Dorsey said during a court hearing in Wilmington, Delaware. In the coming weeks, attorneys for the company, its creditors and the U.S. Trustee should work together on a formal proposal to appoint an examiner, Judge Dorsey said.
WeWork hasn’t paid certain landlords January rent as part of its negotiation strategy, lawyers representing the creditor committee in bankruptcy said in a court filing on Tuesday, WSJ Pro Bankruptcy reported. The co-working company is withholding January rent payments of about $33 million “in an effort to strong-arm negotiations with certain landlords,” while receiving fees from its members that occupy the space, according to the bankruptcy court filing. The lawyers said in the filing that while they understand WeWork’s need to rationalize its lease portfolio as part of financial restructuring, the bankruptcy code clearly states that while in bankruptcy, rent payments for unrejected leases must be paid. In fact, WeWork’s budget recently approved by the court “expressly provided for the payment of January rent,” the lawyers said. The company in November filed for chapter 11 protection with the U.S. Bankruptcy Court in New Jersey. A WeWork spokesman said that the company’s temporary actions of nonpayment “are intended to expedite conversations to reach resolutions that are in the best interests of our entire ecosystem.” “We remain committed to finding mutually beneficial solutions that are better aligned with today’s market conditions, and that will enable us to successfully move forward in our restructuring process,” the spokesman said. Landlords that weren’t paid January rent include City Office REIT, which owns and operates office properties mostly in Sunbelt cities such as Dallas, Phoenix and Tampa, according to the court filings and the company’s website.
Sandy Hook conspiracy theorist Alex Jones could exit chapter 11 bankruptcy by late March or early April, his lawyer said on Wednesday after a judge decided families whom he owes $1.5 billion for lying about the 2012 school shooting can vote on competing plans to resolve their claims, Reuters reported. Bankruptcy Judge Christopher Lopez in Houston allowed Jones to solicit votes on a proposal that would pay at least $55 million to the relatives of 20 students and six staff members killed in the 2012 mass shooting at Sandy Hook Elementary School in Newtown, Conn. Jones, who hosts a radio show, claimed for years that the massacre was a hoax, staged with actors as part of a government plot to seize Americans’ guns. He has since acknowledged the shooting occurred, but the families, who said Jones cashed in for years off his lies, sued him for defamation. Courts in Connecticut and Texas have ruled that Jones intentionally defamed them and have ordered Jones to pay $1.5 billion in damages. Judge Lopez on Wednesday also allowed the family members, whose defamation judgments make them the main creditors in Jones' bankruptcy, to solicit votes on their own plan, which would liquidate Jones' assets and pursue litigation against his associates. The families previously estimated that they would receive at least $85 million from Jones under their plan. Judge Lopez said at a court hearing that both proposals contained enough information for creditors to make an informed vote. Lopez set a Feb. 12 deadline for votes.
Lucky Bucks’ bankruptcy trustee has sued the new management of the slot machine operator, seeking to revoke the bankruptcy plan, WSJ Pro Bankruptcy reported. According to a lawsuit filed Tuesday, the trustee for the remnants of Lucky Bucks still in bankruptcy said that the people running the business during the bankruptcy failed to disclose alleged fraud that has led to a multimillion-dollar lawsuit by new owners that were also secured lenders in the business. Earlier this month, the reorganized Arc Gaming and Technologies sued several former Lucky Bucks employees under Georgia’s Racketeer Influenced and Corrupt Organizations Act, seeking the return of more than $200 million in “illegal dividends” and accusing the former managers of defrauding the company, leading to its bankruptcy. The silence about alleged misdeeds before and during the bankruptcy means that millions of dollars that could have gone to other creditors could now be out of reach in state court, according to the Tuesday lawsuit against Arc Gaming. The chapter 7 trustee for the remnants of Lucky Bucks said none of the allegations of “looting Lucky” were disclosed during the bankruptcy. That is despite members of Lucky Bucks’ board, managers and employees being aware of the alleged fraud, said chapter 7 trustee Marc Abrams.
Johnson & Johnson’s agreement to settle litigation with multiple states over its talcum-based baby powder is putting the company on a new path to addressing mounting lawsuits against its former flagship product, according to a WSJ Pro Bankruptcy commentary. After two failed attempts to address them in bankruptcy through its subsidiary, the healthcare-products company has pivoted toward a new strategy to tackle mass lawsuits against its talc-based baby powder, focusing on aligning various litigating groups for settlements. With Tuesday’s proposal to pay roughly $700 million to more than 40 states over alleged false marketing of the talc powder, J&J has potentially snatched victory with one group of claimants. Now, it can focus on settling with its most significant group of claimants — ovarian and mesothelioma cancer patients that have filed more than 50,000 cases alleging harm from the asbestos content in the baby powder. J&J’s ability to settle these cases would be crucial for successfully addressing all talc-related liabilities either in or out of court. Settling with each group would allow injury claimants to receive distribution more quickly than trying each case in federal courts. Reaching settlements with various groups would also be helpful in securing bankruptcy court approval for its restructuring plan, if J&J decides to pursue another chapter 11 filing.
