Party City Holdco Inc., a purveyor of party favors, has engaged attorneys to help it evaluate options to address a liquidity crunch while its bondholders have tapped restructuring professionals as well, the Wall Street Journal reported. Party City has been suffering from widening net losses, and its recent Halloween sales came in at the low end of expectations in part because inflationary pressures have hampered customers’ willingness to spend, the company said last month. Party City has engaged law firm Paul Weiss Rifkind Wharton & Garrison LLP as restructuring counsel. Meanwhile, investors with interests in Party City’s bonds have engaged the law firm Davis Polk & Wardwell LLP as well as financial adviser Lazard Ltd. In addition to the macroeconomic headwinds the company has faced, Party City is also contending with constraints in the market for helium, a key gas it uses to blow up balloons. The company has said it is working to diversify its sources of helium to alleviate the supply limitations and price increases in the helium market, which have pressured both its retail and wholesale business segments.
Sears Hometown Stores Inc., an affiliate of the once-formidable retailer that sells home goods through locally owned stores, made its first bankruptcy court appearance on Wednesday as it begins shutting down, Bloomberg News reported. “What is happening here is this company is going out of business,” Mark Minuti, an attorney for Sears Hometown, said during the company’s first bankruptcy hearing. “Make no mistake about it: this is a sad day for our company.” Sears Hometown supplies hardware and appliances like dishwashers and lawnmowers to independently owned Sears-branded stores, which then get a commission for selling the merchandise. The bankruptcy will deprive those store owners of their sole supplier, Minuti said. The company’s sales have fallen and costs have risen in recent years, according to court papers. Then, in October, Sears Hometown ran afoul of a debt covenant embedded in a credit line with PNC Bank NA, and part-owner and major supplier TransformCo began restricting the shipment of new inventory. Sears Hometown filed for chapter 11 bankruptcy on Monday, listing assets of no more than $50 million and liabilities of at least $50 million in its bankruptcy court petition. The unit wasn’t part of Sears Holdings Corp.’s 2018 bankruptcy.
Lawyers for the bankrupt crypto exchange FTX on Wednesday opposed a demand for internal records from an insolvent affiliate based in the Bahamas, saying they "do not trust" the Bahamian government with data that could be used to siphon off assets from the bankrupt company, Reuters reported. Liquidators of FTX's Bahamian business, FTX Digital Markets, had asked U.S. Bankruptcy Judge John Dorsey to give them access to the U.S. unit's Slack, Google and Amazon Web Services accounts and data. At a court hearing in Delaware, lawyers for FTX asked Dorsey to deny the request. They argued that Bahamian regulators had worked with FTX's founder, the recently arrested Samuel Bankman-Fried, to undermine the U.S. bankruptcy case and withdraw assets to the detriment of some creditors. FTX attorney James Bromley told Dorsey that the Bahamian government has previously obtained information from FTX Digital Market's liquidators and used it to siphon digital assets away from FTX. "This is dangerous information," Bromley said. "We do not trust the Bahamian government." The Securities Commission of the Bahamas (SCB) has previously disputed FTX's "misstatements" about the Bahamian government's response to FTX's collapse.
A top executive of FTX’s Bahamas subsidiary warned that country’s securities authority days before the company filed for bankruptcy Nov. 11 of customer fund transfers to Alameda Research, a cryptocurrency trading firm tied to FTX, according to documents made public Wednesday. The warning prompted the regulator to immediately seek a criminal investigation, according to the documents, WSJ Pro Bankruptcy reported. Securities Commission Executive Director Christina Rolle requested that the financial crimes unit of the Royal Bahamas Police Force open an investigation into the subsidiary, FTX Digital Markets Ltd., the same day based on the warning of FTX Digital Chairman Ryan Salame. “Regrettably, the commission was informed today by [Mr. Salame]…that clients’ assets which may have been held with FTX Digital were transferred to Alameda Research,” Ms. Rolle wrote to the police commissioner. “The commission understood Mr. Salame as advising that the transfer of clients’ assets in this manner was contrary to the normal corporate governance and operations of FTX Digital,” Ms. Rolle wrote, and that “such transfers were not allowed and therefore may constitute misappropriation, theft, fraud or some other crime.”
Senate Banking Committee Chair Sherrod Brown (D-Ohio) said that U.S. lawmakers don’t need to reinvent the wheel as they consider legislation after the collapse of Samuel Bankman-Fried’s FTX crypto empire, Bloomberg News reported. The panel’s hearing on Wednesday is the second this week by Congress to scrutinize the fallout of FTX’s bankruptcy. The company imploded in November, sending shock waves across the industry and fanning criticism of weak oversight. Bankman-Fried was arrested in the Bahamas on Monday after the U.S. government filed criminal charges amid multiple probes into his possible misconduct. “If we are going to learn from FTX’s meltdown, we must look closely at the risks from conflicts at crypto platforms that combine multiple functions,” Brown said. “It means thinking about the kinds of disclosure that consumers and investors really need to understand how a token or crypto platform works.” Brown said in remarks before the hearing that lawmakers can look at existing banking and securities laws for time-tested approaches as a way of overseeing crypto businesses. Separately, Sens. Elizabeth Warren (D-Mass.) and Roger Marshall (R-Kansas) said Wednesday they are introducing a bill to address the national-security risks posed by cryptocurrencies and other digital assets. The proposed legislation would close loopholes in anti-money-laundering rules and help counter terrorism financing, they said in a statement.
Until its collapse, FTX had been one of the world’s largest cryptocurrency exchanges — and one of the most aggressive at marketing digital currencies to the masses. The company had partnerships with NBA teams, patches on Major League Baseball umpire uniforms and the naming rights to the Miami Heat arena. It ran splashy TV ads during NBA and NFL games, including last year’s Super Bowl, in which celebrities portrayed FTX as an exciting but safe place to invest money, the Washington Post reported. On Tuesday, the U.S. government brought both criminal charges and civil actions against Samuel Bankman-Fried, the 30-year-old founder of FTX, accusing him of orchestrating one of the biggest financial frauds in U.S. history. But the odds of restitution for FTX customers are slim. “We’re not going to be able to recover all the losses here,” FTX’s new chief executive John J. Ray III told the House Financial Services Committee on Tuesday. So plaintiffs are trying a different approach. Working with Coral Gables, Fla., lawyer Adam Moskowitz, their lawsuit seeks to shift the focus from FTX executives to what Moskowitz sees as a larger circle of complicity that includes some of the world’s most celebrated actors and athletes. Moskowitz argues that FTX’s interest-bearing accounts were a security, which would require NFL quarterback Tom Brady and other promoters to reveal the details of their payments from FTX. The complaint claims “they have never disclosed the nature, scope, and amount of compensation they personally received in exchange for the promotion.” Instead, they appeared in ads featuring such moments as an enthusiastic Brady dialing up everyone in his contact list to pitch crypto trading on FTX, asking again and again: “You in?”
American International Group Inc said on Wednesday its subsidiary, AIG Financial Products (FP), had filed for chapter 11 protection, Reuters reported. The filing concludes a process that has been ongoing since the 2008 financial crisis, the insurer said, adding it will not have a material impact on its balance sheet or that of recently listed life and retirement insurer Corebridge Financial Inc. Connecticut-based FP has no material operations or businesses and no employees. AIG, FP's largest remaining creditor, had been accused of misleading investors about its exposure to subprime mortgages and credit default swaps during the financial crisis of 2008, culminating in $182.3 billion of federal bailouts.
York County and Rock Hill (N.C.) will have to wait a bit longer in efforts to recover public money given to the failed Carolina Panthers’ $500 million practice facility and headquarters after a federal judge on Dec. 14 delayed the confirmation of bankruptcy proceedings, the Rock Hill Post and Courier reported. GT Real Estate, the development company controlled by the NFL team’s owner David Tepper, had sought the judge’s approval of its plan to pay off debts incurred during construction at the site along Interstate 77, closing out bankruptcy proceedings first filed in June. Tepper’s company also sought approval of separate settlement agreements recently struck with the county and city over the combined $41 million in public funds contributed to the project, intended to cover the cost of roads and other infrastructure. But Bankruptcy Judge Karen Owens raised concerns on the proposal from Tepper’s lawyers on waivers that would bar subcontractors from seeking further repayment from the general contractor and Tepper entities. The judge will not approve the bankruptcy proceedings until Tepper’s companies can present a restructuring plan that is satisfactory, she said in court. Owens and Tepper’s lawyers are scheduled to meet Dec. 15 to discuss a suitable outcome. It is unknown when a final decision from the judge is expected. In the plan Tepper’s lawyers presented to Judge Owens yesterday about $150,000 in funds to subcontractors would go unpaid. The lawyers argued in court that this number was fair because $60 million was being paid to subcontractors in the process of their restructuring. The billionaire hedge fund manager pulled out of the landmark project, which was expected also to include retail, a hotel, offices and medical facilities in addition to the practice facility and team headquarters, more than halfway through construction, having spent $170 million.
Quanergy Systems Inc. plans to cut 72 jobs in Sunnyvale, Calif., as part of the bankruptcy reorganization it filed for on Tuesday, the Silicon Valley Business Journal reported. The struggling lidar business posted a WARN notice with the state Employment Development Department (EDD) on Monday about the move. The EDD notification was made a day before Quanergy filed for bankruptcy and announced its CEO will step down from his role at the end of the month. The company last month said in a filing with the Securities and Exchange Commission that it planned an 11% reduction in its workforce, cutting 15 workers to get staffing down to 126 employees globally. But in this week's bankruptcy filing, it said it had only 87 employees. In this week's WARN notice, Quanergy said it plans to begin its layoffs in Sunnyvale by Feb. 7 and complete them within 60 days after that date. Among those that are listed to lose their jobs are co-founder and Chief Development Officer Tianyue Yu, Chief Financial Officer Patrick Archambault, Chief Marketing Officer Enzo Signore and Senior Vice President of Operations Kevin Amiri. The Sunnyvale company intends to continue operating while it pursues a sale of its business under chapter 11 protection. The decision to file for bankruptcy comes after it slashed operating costs and settled a patent dispute with rival Velodyne Lidar Inc., Quanergy said in a press release on Tuesday.
U.S. prosecutors on Tuesday accused Sam Bankman-Fried, the founder and former CEO of crypto currency exchange FTX, of fraud and violating campaign finance laws by misappropriating his customers' funds, saying the investigation is ongoing and "moving very quickly," Reuters reported. U.S. Attorney Damian Williams in New York said Bankman-Fried made illegal campaign contributions to Democrats and Republicans with "stolen customer money," saying it was part of one of the "biggest financial frauds in American history." "While this is our first public announcement, it will not be our last," he said, adding Bankman-Fried "made tens of millions of dollars in campaign contributions." Williams declined to say whether prosecutors would bring any charges against other FTX executives, emphasizing that the investigation was ongoing. He also declined to say whether any FTX insiders were cooperating with the investigation. Bankman-Fried made a court appearance on Tuesday in the Bahamas, where he was arrested on Monday and where FTX is based. A lawyer for Bankman-Fried requested that his client be released on $250,000 bail. Bahamian prosecutors have asked that Bankman-Fried be denied bail if he fights extradition. Read more.
In related news, Bahamas government officials worked closely with Sam Bankman-Fried and tried to help him regain access to key computer systems of bankrupt FTX Trading, lawyers for FTX said in a court filing before the failed crypto magnate was arrested on Monday, Bloomberg News reported. Before Bankman-Fried was blocked from FTX systems, the Bahamas asked him to mint new digital coins worth hundreds of millions of dollars and then transfer those tokens to the control of island officials, according to the legal team in control of FTX. The accusations escalate a battle between an American team of restructuring executives trying to collect FTX assets to repay creditors, and officials in the Bahamas. Liquidators in the island nation have asked a U.S. judge for access to FTX data controlled by their American counterparts. “It is a request for live, dynamic access that would be provided immediately to the government of the Bahamas and to Messrs. Samuel Bankman-Fried and Gary Wang, who are located in the Bahamas and working closely with Bahamian officials,” American lawyers wrote in a court filing yesterday. Wang is an FTX co-founder. In attempting to paint a portrait of coziness between Bankman-Fried and Bahamas authorities, the company’s U.S. lawyers called out a Nov. 9 email — just days before the bankruptcy — in which Bankman-Fried said he would be “more than happy” to open up withdrawals for all Bahamanian customers, allowing them to be made whole. “It’s your call whether you want us to do this — but we are more than happy to and would consider it the very least of our duty to the country, and could open it up immediately if you reply saying you want us to,” Bankman-Fried wrote, according to court papers. Read more.
Also, a growing group of non-U.S. customers of FTX.com, which currently counts up to around $1.6 billion in lost funds, has lawyered up and is looking to create an official customer committee in order to protect their rights of ownership over their assets on the exchange, CoinDesk.com reported. The non-U.S. FTX customers, led by Eversheds Sutherland attorneys Sarah Paul and Erin Broderick, had already formed the first FTX ad hoc group. “The rights of the non-U.S. customers and why they’re differently situated is really important,” said Paul, a former federal prosecutor in the U.S. Attorney’s Office for the Southern District of New York. “First, there is an irreconcilable conflict between the interests of the non-U.S. customers and the creditors of the other silos. The starkest example of that is the transfer of the $10 billion to Alameda from FTX.com. The terms of service situate the assets differently, as customer funds, as opposed to property of the estate.” Read more.
