%1

Early last year, cryptocurrency exchange FTX US was setting its sights on a vast pool of money: individual retirement accounts (IRAs), Bloomberg News reported. “We have IRAs trading on FTX today, and are making a push to serve this segment,” Nate Clancy, FTX US’s vice president of business development, wrote in a March email to a New Jersey-based investment adviser, a copy of which was seen by Bloomberg News. Americans held more than $11 trillion in IRAs as of last year. The outreach, part of a multifaceted effort by the wider FTX Group to expand its base of everyday retail customers, casts light on the exchange’s sprawling ambitions in the months leading up to its implosion — and gives a glimpse into how the damage might have been even worse had the plans had longer to gestate. FTX and former Chief Executive Sam Bankman-Fried’s broader crypto empire collapsed in November. U.S. authorities allege he fraudulently used customer money to prop up his trading firm Alameda Research, leaving legions of clients high and dry when FTX went bankrupt. The charges center on the group’s global trading platform FTX.com, but FTX US, its smaller unit for US investors, was part of the bankruptcy.

The New York Attorney General Letitia James is suing Alex Mashinsky, co-founder and former CEO of bankrupt crypto lender Celsius Network, alleging he defrauded hundreds of thousands of investors, including 26,000 New Yorkers, YahooFinance.com reported. The lawsuit claims that Mashinsky of lying to investors, concealing Celsius’s financial problems, and failing to meet state law registration requirements under his watch. "The law is clear that making false and unsubstantiated promises and misleading investors is illegal," James said in a statement. "Today, we are taking action on behalf of thousands of New Yorkers who were defrauded by Mr. Mashinsky to recoup their losses." Celsius Network was a lending platform that took in crypto and cash deposits from retail investors, and then lent them out to institutional investors to pay customers high rates of interest. In its statement, the New York AG's office said: "Mashinsky repeatedly claimed that Celsius made safe, low-risk investments and only lent assets to credible and reputable entities. However, investors' assets were routinely exposed to high-risk counterparties and strategies, many of which resulted in losses that Mashinsky concealed from investors."

A Texas bankruptcy judge ordered Hess Corp. to make a written commitment of financial support in subsidiary Honx’s chapter 11 case, which aims to resolve hundreds of asbestos-injury claims from an oil refinery it used to own in St. Croix in the U.S. Virgin Islands, WSJ Pro Bankruptcy reported. Judge Marvin Isgur of the U.S. Bankruptcy Court in Houston, Texas, said in his bench ruling Wednesday he agreed with asbestos claimants’ argument that no rational negotiation can happen until Hess spells out its financial contribution. “That financial commitment must be non-discretionary on its part. It can be mathematically based in terms of a formula, or it can be in a fixed amount, or it can be a combination of those,” Judge Isgur said, adding that if Hess fails to submit the commitment within 30 days, he will throw the bankruptcy case out of court. Hess pushed Honx Inc., previously known as Hess Oil New York Corp., into bankruptcy in April to drive a settlement of hundreds of personal-injury lawsuits stemming from alleged exposure to asbestos, silica and other toxic substances, court papers say. At the time of the bankruptcy filing, about 580 claims had been filed and hundreds more were in the pipeline.

A bankruptcy judge ruled that digital coins deposited in Celsius Network LLC’s interest-bearing accounts belong to the firm, ruling against thousands of customers and deciding a key legal issue in crypto-related insolvencies, the Wall Street Journal reported. Judge Martin Glenn said yesterday that $4.2 billion in cryptocurrency deposits are the property of Celsius, clearing the way for the company to use its digital assets as it sees fit, while also dealing a blow to the hopes of thousands of customers by declaring them unsecured creditors. The question of who has ownership rights over crypto assets at bankrupt digital exchanges, trading firms and other platforms is central to the chapter 11 cases of Celsius and other firms that went bankrupt last year, including FTX and BlockFi Inc. Each firm’s rights to its customers’ digital assets are spelled out in their terms of use, and Celsius’s contract with its users is “unambiguous” about the firm’s ownership rights, Judge Glenn said in his ruling. Bankruptcy courts have only begun to unravel what those terms of use mean for the billions of dollars in cryptocurrencies trapped on insolvent platforms.

U.S. prosecutors are in the process of seizing shares of Robinhood Markets Inc. tied to Sam Bankman-Fried, who has been charged with fraud in the collapse of the FTX cryptocurrency exchange, a U.S. attorney told a judge yesterday, Reuters reported. The Department of Justice did not believe the 56 million shares of Robinhood, worth about $465 million, were property of a bankruptcy estate, U.S. attorney Seth Shapiro told U.S. Bankruptcy Judge John Dorsey, who is overseeing the FTX bankruptcy. Shapiro said that competing claims to shares of the stock-trading app could be worked out in a forfeiture proceeding. Bankrupt crypto firm BlockFi, FTX and liquidators in Antigua have all laid claim to the Robinhood stock, along with Bankman-Fried. Prosecutors have accused Bankman-Fried of engaging in a years-long "fraud of epic proportions" that cost investors, customers and lenders potentially billions of dollars by using customer deposits to support his Alameda Research hedge fund. Bankman-Fried pleaded not guilty to counts of wire fraud and conspiracy. He has acknowledged risk-management failures at FTX, but has said he did not believe he was criminally liable. Bankman-Fried purchased about 7.42% of Robinhood's stock through Emergent Fidelity Technologies Ltd, using funds borrowed from Alameda Research, according to an affidavit he filed in December in an Antigua court.

Nearly two weeks after he was released by a Manhattan judge on a $250 million bond and ordered to stay with his parents in Palo Alto, Calif., Sam Bankman-Fried, the disgraced cryptocurrency executive, returned to New York and pleaded not guilty yesterday to charges that he engaged in widespread fraud, paving the way for a possible trial, the New York Times reported. Bankman-Fried appeared in Federal District Court in Manhattan, where he faces charges stemming from the implosion of FTX, the cryptocurrency exchange he founded and led. Its collapse resulted in billions of dollars in customer losses. Bankman-Fried could ultimately change his mind and plead guilty to at least some of the charges. But his initial response tees up a potentially titanic court fight. The judge, Lewis A. Kaplan, set a tentative trial date of Oct. 2.

The Securities Commission of the Bahamas (SCB) yesterday rebuffed FTX's claims about the digital assets of its Bahamas unit held by the regulator, saying the debtors of the bankrupt cryptocurrency exchange had "incomplete information," Reuters reported. Last month, the SCB said it had seized more than $3.5 billion in cryptocurrency from the unit, FTX Digital Markets, which it was holding for future repayment to customers and other creditors. FTX disputed SCB's calculations, saying its digital assets seized in November were worth just $296 million and not $3.5 billion. "Such public assertions by the chapter 11 debtors were based on incomplete information," the regulator said in a statement yesterday. There was no immediate response from FTX, which has been at odds with Bahamian officials since filing for bankruptcy protection on Nov. 11. Bahamas officials have sought access to FTX's records to help liquidate FTX Digital Markets, but the company's U.S. bankruptcy team said it did not trust them with the information. FTX's founder and former chief executive, Sam Bankman-Fried, was arrested on fraud charges and is expected to be arraigned today before U.S. District Judge Lewis Kaplan in Manhattan federal court. Read more.

In related news, the committee of FTX customers chosen to represent the interests of all exchange users in its chapter 11 case hired Jefferies and FTI Consulting Inc. as financial advisers, WSJ Pro Bankruptcy reported. Last week, the official committee brought on the law firm Paul Hastings LLP. Made up of nine members, the official committee is the sole customer group that can currently bill its legal and advisory fees to FTX. Representatives from cryptocurrency-sector companies Pulsar Global Ltd., Coincident Capital International Ltd. and Wintermute Asia PTE are among the committee members, according to court documents. A separate group of 15 international customers with $1.9 billion in claims recently hired their own lawyers at Eversheds Sutherland LLP and on Wednesday filed a lawsuit seeking a ruling from the bankruptcy court that their crypto deposits on FTX.com belong to them and that they didn’t sign over rights to their property to the exchange. The question of ownership of customers’ crypto assets has been in dispute in other crypto bankruptcy cases, with some companies in chapter 11, such as Celsius Network LLC, asserting the right to sell or otherwise use their users’ coins in chapter 11.
Read more.

A group of FTX’s international customers asked for a court order shielding their names from the public, spotlighting a privacy issue that has divided bankruptcy courts in other crypto-related cases, WSJ Pro Bankruptcy reported. Unnamed customers of FTX.com, the failed company’s largest exchange platform outside the U.S., said in court papers Wednesday their interest in keeping their identities and contact information secret trumps the public’s interest in an open and transparent bankruptcy process. Public disclosure of customer identities puts them at risk of identity theft and cyber scams, and could diminish whatever value remains in FTX, according to the customer group. “It is difficult to imagine a more compelling case that would warrant withholding and redacting the information of the thousands of FTX.com customers who had their funds stolen and never anticipated that their use of cryptocurrency and FTX.com would become publicly known,” the customers’ filing said. Justice Department lawyers and media organizations including The Wall Street Journal have asked in bankruptcy court for FTX customers’ names to be disclosed in its public filings. The judge overseeing FTX’s chapter 11 case is scheduled to consider next month if the identifying information should be redacted. Bankruptcy courts normally require transparency into the affairs of troubled businesses, including their creditors, in return for the protections of chapter 11. FTX, Celsius Network LLC and other crypto platforms moving through bankruptcy have said their customers should nonetheless stay anonymous.

Lawmakers around the U.S. have tried to grant justice to victims of decades-old incidents of child sexual abuse by giving them extra time to file lawsuits. Now some of the defendants in these cases, including church and youth organizations, are finding a safe haven: America’s bankruptcy courts, Reuters reported. In New York, nearly 11,000 cases flooded state courts, many seeking to hold Catholic dioceses responsible for sexual abuse by clergy, after a 2019 law suspended statutes of limitations that would have otherwise barred many of the lawsuits. In response, four New York dioceses that collectively faced more than 500 sexual-abuse claims filed for bankruptcy. That halted the cases — and blocked those from anyone who might sue later — and forced the plaintiffs to negotiate a one-time settlement for all abuse claims in bankruptcy court. The pattern has taken hold across the United States, a Reuters review of bankruptcies precipitated by mass child sexual-abuse litigation found. Many of the defendants turning to bankruptcy court are nonprofit organizations. In court filings dating back to 2009, the Boy Scouts of America, a New York boys & girls club and 13 separate Catholic institutions each have cited state laws extending abuse victims’ right to sue as factors in their decisions to seek bankruptcy protection.

Almost five years after filing for chapter 11 bankruptcy, former NASCAR Cup Series car owner Ron Devine has been ordered to pay $31 million after proceedings, Fox News reported. Associated companies and trusts will also have to pay the bank that issued loans, the IRS, employees and others still owed money through approved claims of the bankruptcy, according to FOX Sports. Devine owned BK Racing from 2012 to 2018, which paid Devine-affiliated trusts and companies $6 million and another $11 million in debt that a trustee claims requires reimbursement. A judge ruled that Devine did not comply with discovery procedures of financial disclosures, so he owes the full $31 million. Devine testified that the payments in question often covered short-term loans and that he had done all he could to comply with requests of financial disclosures. "I'm trying as hard as I can ... to keep up with this thing," he said. Devine, also a Burger King franchise owner, filed for chapter 11 bankruptcy just three days before the 2018 Daytona 500. He was stripped of team ownership in favor of a trustee.