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The Securities and Exchange Commission can proceed with its suit accusing Gemini Trust Co. and bankrupt cryptocurrency lender Genesis Global Capital of illegally offering unregistered securities through their interest-paying Gemini Earn product, Bloomberg News reported. U.S. District Judge Edgardo Ramos in New York yesterday denied a request to throw out civil claims the SEC filed in January 2023. The agency is seeking an order barring Gemini and Genesis from selling unregistered securities, requiring them to give up money they illegally earned from the program plus civil penalties. Earn allowed customers to lend their cryptocurrency to collect interest. The defendants argue that the transactions are loan agreements that don’t constitute securities under U.S. law. Ramos said that according to the SEC’s complaint, Earn met the U.S. Supreme Court’s test for a security because customers were investing in a common enterprise and had a reasonable expectation of profit. Therefore, the SEC “plausibly alleges that defendants offered and sold unregistered securities through the Gemini Earn program,” the judge said. That same test has been used by other judges to determine whether digital assets themselves are securities, though courts have reached different conclusions. Genesis filed for bankruptcy soon after the SEC filed suit. Gemini Trust Co., the crypto exchange founded by twins Cameron and Tyler Winklevoss, last month agreed to return at least $1.1 billion to customers through the Genesis bankruptcy as part of a settlement with the state of New York. Wednesday’s ruling allows both sides to go forward with pretrial evidence-gathering. The companies may try again to have the case thrown out once they have exchanged records and taken pretrial deposition testimony from witnesses.

Enviva, the largest U.S. wood-pellet exporter, filed for bankruptcy Tuesday after a bad bet on future prices of the commodity triggered nine-figure losses, WSJ Pro Bankruptcy reported. The Bethesda, Md.-based company filed a chapter 11 petition in the U.S. Bankruptcy Court in Eastern Virginia. Enviva markets its wood pellets as a low-carbon alternative to fossil fuels. It began building its manufacturing plants and export network in 2010 with financing from energy-focused private-equity firm Riverstone. The company said last year that it had also been buying additional pellets and aiming to resell them for a profit, but that strategy backfired when pellet prices fell. Enviva was on the hook to pay $296.3 million for 800,000 metric tons of wood pellets that would only be worth $156.9 million on the open market, according to a November securities filing. The company also said at the time that it expected another $140 million in losses over the next two years based on the prices at the time for future deliveries of pellets. It had roughly $1.8 billion of debt as of last September.
In January, the company missed a $24 million interest payment owed to its bondholders. The Wall Street Journal reported last month that Enviva was preparing for bankruptcy and that certain bondholders had offered to provide financing for the chapter 11 proceedings.

The U.S. Consumer Financial Protection Bureau (CFPB) said business and banking groups, including the Chamber of Commerce, engaged in "forum-shopping" when they sued in Fort Worth, Texas, to block a rule aimed at lowering credit card late fees, Reuters reported. The CFPB urged a federal judge there to deny an injunction blocking the rule while the case is in progress. The regulator said that the lawsuit is likely to fail in part because it was filed in the wrong place. The late-fee rule passed last week applies only to around 35 of the largest card issuers, none of which is based in Fort Worth, the regulator said. Only one of the groups that sued, the Fort Worth Chamber of Commerce, is based in the court district, and the member it claims was harmed is a bank in Utah, the regulator said in court papers filed on Tuesday. "Far-flung entities cannot just pay membership fees to an association in their venue of choice to gain access to that venue," the CFPB wrote. The groups sued last week over the rule, which says that credit card issuers with more than 1 million open accounts can only charge $8 for late fees, unless they can prove that higher fees are necessary to cover their costs. The previous rule allowed issuers to charge up to $30, or $41 for subsequent late payments. The CFPB has said the change will save consumers $10 billion annually.

A hedge fund founder at the center of a $1.2 billion legal battle between Indian education-technology company Byju’s and its lenders is staying outside the U.S. despite a court order to return, saying he fears for his safety, WSJ Pro Bankruptcy reported. William Cameron Morton said in an interview that he left the U.S. rather than comply with a court order to divulge the whereabouts of nearly $540 million that Byju’s invested in his Florida-based hedge fund firm, Camshaft Capital. Morton faces the threat of jail time because he hasn’t turned over that information to investors that lent $1.2 billion to Byju’s, once India’s most valuable startup before its financial problems clouded the country’s venture-capital scene. Judge John Dorsey of the U.S. Bankruptcy Court in Wilmington, Del., recently threatened Morton with “all possible sanctions,” including confinement, if he continued ignoring orders. Credit funds including Ares Management and Redwood Capital allege that Morton helped Byju’s move more than a half-billion dollars out of their reach through his hedge fund, which they have called a sham operation. Last month, an agent acting on the lenders’ behalf filed a chapter 11 petition for Byju’s Alpha, a shell entity named as the loan borrower, as part of their efforts to track down the money it invested in Camshaft. Byju’s has said it wasn’t required under its loan agreement to keep its assets in cash and did nothing wrong by investing $540 million with Camshaft.

More small businesses filed for bankruptcy in February as some rushed to take advantage of a favorable provision in the law that is set to expire soon. Last month, as many as 213 small businesses elected to file under subchapter V of the Bankruptcy Code, a 78% increase compared with the same month a year ago, according to bankruptcy data provider Epiq, WSJ Pro Bankruptcy reported. Companies with less than $7.5 million in debt can file under a subchapter under the bankruptcy code that went into effect in 2020 as part of the Small Business Reorganization Act, offering small businesses a faster and cheaper way to restructure debt. Since then, more than 7,200 cases have been filed under the subchapter, according to the U.S. Department of Justice. Unless Congress takes action, the $7.5 million eligibility limit on subchapter V is due to sunset on June 21, when the limit could go back to the to its original amount of just over $2.7 million when it went effective in February 2020. adjusted for inflation. Last December, the ABI's Subchapter V Task Force released its preliminary report to legislators saying that the eligibility limit of $7.5 million should be made permanent. Legislation hasn’t yet been formally introduced. Eyal Berger, a bankruptcy partner at law firm Akerman who spoke about subchapter V at an American Bankruptcy Institute event, said the increase is due in part to uncertainty over what will happen to the $7.5 million debt cap in June. If the cap reverts to a lower number, fewer companies would be eligible for subchapter V. The end of government aid distributed during the pandemic and the impact of higher interest rates are also factors, said ABI President Soneet Kapila. Small businesses have begun facing repayment demands for the “economic injury disaster loans” that they received from the Small Business Administration during the pandemic, said David Cox, managing attorney at Cox Law Group. “Many of my clients weren’t ready for those additional expenses.”

The Judicial Conference of the United States yesterday strengthened the policy governing random case assignment, limiting the ability of litigants to effectively choose judges in certain cases by where they file a lawsuit, according to a U.S. Courts press release. The policy addresses all civil actions that seek to bar or mandate state or federal actions, “whether by declaratory judgment and/or any form of injunctive relief.” In such cases, judges would be assigned through a district-wide random selection process. “Since 1995, the Judicial Conference has strongly supported the random assignment of cases and the notion that all district judges remain generalists,” said Judge Robert J. Conrad, Jr., secretary of the Conference. “The random case-assignment policy deters judge-shopping and the assignment of cases based on the perceived merits or abilities of a particular judge. It promotes the impartiality of proceedings and bolsters public confidence in the federal Judiciary.” In most of the nation’s 94 federal district courts, local case assignment plans facilitate the random selection of judges. Some plans assign cases to a judge in the division of the court where the case is filed. In divisions where only a single judge sits, these rules have made it possible for a litigant to pre-select that judge by filing in that division. The amended policy applies to cases involving state or federal laws, rules, regulations, policies, or executive branch orders. District courts may continue to assign cases to a single-judge division when they do not seek to bar or mandate state or federal actions, whether by declaratory judgment and/or any form of injunctive relief.

U.S. banking regulators confronted an unusually large penalty when they seized Silicon Valley Bank last year: $285 million in fees to prematurely wind down emergency financing from the Federal Home Loan Bank system, Bloomberg News reported. That was the price tag to retire billions in financing that the firm obtained in a last-ditch attempt to survive a run on deposits, according to an internal Federal Deposit Insurance Corp. document obtained by Bloomberg. The fee, which hasn’t been previously reported, was the largest of its kind for any bank failure since before the 2008 financial crisis, the document shows. The ability of FHLBs to generate fees on emergency lending, even when borrowers fail, is sure to stoke the debate in Washington over how to reform the Depression-era system designed to help finance mortgage lending. In November, the Federal Housing Finance Agency, which oversees home-loan banks, said it planned to study prepayment fees and potentially change rules. The regulator aims to ensure such institutions have an incentive “to improve their due diligence” before ramping up financing — known as advances — to struggling members. To be sure, FHLBs incur costs when retiring the debt, and the fees they’re allowed to charge are approved by their regulator. The idea is to let the institutions recoup those expenses so that they remain financially indifferent to prepayments. Such fees “are disclosed to all interested parties, are generally equal to the cost of unwinding the hedged transaction, and are in keeping with safe and sound banking practices,” said Ryan Donovan, chief executive officer of the Council of Federal Home Loan Banks, a trade group. As SVB teetered on the edge of collapse last year, the FHLB of San Francisco quickly ramped up its lending to the struggling bank, eventually providing it with $30 billion. When it collapsed, that money was repaid early, along with fees.

A bankruptcy judge in Pennsylvania dismissed Boston Market owner Jay Pandya’s second bankruptcy filing Friday, according to court documents, Retail Dive reported. The dismissal includes a six-month ban on filing another Chapter 11 petition. Pandya filed for chapter 11 bankruptcy in February. His first bankruptcy case was dismissed in January after Pandya failed to fulfill the court’s request to provide additional information within a two-week period. It appears unlikely Boston Market will have the finances to stay afloat or grow. Earlier this year, Boston Market was ordered to pay U.S. Foods about $12 million over unpaid bills. The company has also faced several wage and hour violations, and has been sued over 150 times, largely over unpaid bills, Restaurant Business reports. In January, Boston Market laid out what appeared to be a turnaround plan to bring the chain’s food into non-traditional locations and to start rotating various international dishes every six weeks. At the time, the chain said that it was offering no buy-in fees for franchisees and was targeting locations like existing restaurants, delis and gas stations. As of February, Restaurant Dive found that no stores it contacted had heard of or had begun offering the two Indian-inspired dishes mentioned in the original press release.

A Texas bankruptcy judge denied the Justice Department’s motion seeking to dismiss or transfer the Sorrento Therapeutics chapter 11 case, ruling a bank account and mailbox the company’s lawyers established justified its bankruptcy petition in Houston days later, WSJ Pro Bankruptcy reported. Judge Christopher Lopez of the U.S. Bankruptcy Court in Houston on Monday said the motion filed by the U.S. trustee for the Southern District of Texas last month and a similar motion filed by a shareholder weren’t timely, as the case had already been pending for more than a year. Sorrento’s bankrupt subsidiary Scintilla Pharmaceuticals’ representation about the mailbox being its principal place of business had been public ever since it filed the petition last February, the judge said. The judge also said that if the case was transferred to a different state, it would take a long time for another judge to get up to speed on it, and he didn’t think that was in the best interest of the administration of justice. The U.S. trustee, which serves as a bankruptcy watchdog on behalf of the Justice Department, submitted a motion before Monday’s court hearing, arguing that Sorrento was a “case of forum shopping and venue manipulation taken to a new and unprecedented extreme.”

Canadian Overseas Petroleum Ltd. has filed bankruptcy in its home country and the U.S. and said that it intends to restructure, Bloomberg News reported. The Calgary-based oil and gas production company said its existing lenders have offered to provide as much as US$11 million in financing to fund its proposed restructuring. COPL said it has requested the immediate suspension on trading of its shares on both the London Stock Exchange and the Canadian Securities Exchange. COPL has sought a form of chapter 11 protection in Canada and filed for bankruptcy in Delaware to protect its U.S. assets, according to court documents. The company’s oil- and gas-production work is centered on Wyoming. The company said that its day-to-day operations will continue as normal and it intends to continue paying its suppliers but it “believes there is little prospect for a return to shareholders or bond holders.” The bankruptcy filing comes after COPL announced in January that it had appointed restructuring adviser Peter Kravitz as its interim chief executive officer. Kravitz is a founding principal of advisory firm Province LLC and worked on numerous corporate restructurings, according to the company. COPL announced the departure of its chief financial officer last month.