A federal judge on Tuesday rejected Sam Bankman-Fried's bid to throw out most of the U.S. government's criminal case accusing the FTX cryptocurrency exchange founder of orchestrating a multibillion-dollar fraud, Reuters reported. The decision by U.S. District Judge Lewis Kaplan in Manhattan paves the way for an Oct. 2 trial of Bankman-Fried, a 31-year-old former billionaire. Prosecutors accused Bankman-Fried of stealing billions of dollars in FTX customer funds to plug losses at his Alameda Research hedge fund. They also accused Bankman-Fried of misleading investors and lenders, and contributing illegally to U.S. political campaigns in the names of colleagues. Bankman-Fried has pleaded not guilty and denied stealing funds, while acknowledging that FTX had inadequate risk management.
Liquidators at bankrupt cryptocurrency hedge fund Three Arrows Capital are seeking to recover $1.3 billion from the co-founders, a person familiar with the matter told Reuters on Tuesday, an amount that reflects losses they allegedly racked up before the firm collapsed last year, Reuters reported. The liquidators discussed the allegations against Three Arrows co-founders Su Zhu and Kyle Davies at a Tuesday meeting with the hedge fund's creditors, the person said. Zhu and Davies are accused of causing Three Arrows to take on significant leverage between May and June 2022 after the hedge fund suffered big losses on Luna tokens and other investments, the person said. The firm was already insolvent, liquidators contend, and they are now taking action against Zhu and Davies in a British Virgin Islands court to recover those losses for the creditors, the person added.
A U.S. bankruptcy judge yesterday approved Overstock.com's $21.5 million purchase of Bed Bath & Beyond's brand name, intellectual property and ecommerce platform, Reuters reported. Bankruptcy Judge Vincent Papalia approved the sale at a court hearing in Newark, New Jersey, saying that he was "gratified" to see a bidder emerge that would preserve Bed Bath & Beyond's brand. Overstock emerged as the winning bidder for the company's intellectual property in a deal worth $21.5 million, court filings showed on Thursday. Bed Bath & Beyond stores and inventory are not part of the deal. Once a storied retailer, Bed Bath & Beyond filed for chapter 11 bankruptcy protection in April after struggling for years with dwindling sales and a failed merchandising strategy. Bed Bath & Beyond is hosting a separate auction starting tomorrow for its Buy Buy Baby chain, which sells products for infants and toddlers. The Buy Buy Baby assets have attracted interest from investment firms Go Global Retail and Sixth Street Partners, according to media reports.
Peer Street, a real-estate debt provider aiming to make financing more accessible for wealthy investors and institutions, has filed for bankruptcy due to reduced mortgage demand and scarcer venture-capital funding, WSJ Pro Bankruptcy reported. The El Segundo, Calif.-based online platform, which counts venture-capital firms including Andreessen Horowitz and World Innovation Lab as backers, plans to sell itself as part of a chapter 11 filed on Monday. The company entered bankruptcy with both assets and liabilities of up to $100 million. It plans to keep operating while looking for buyers for its loans and other holdings, according to the filing. Rising interest rates have caused demand for mortgages to drop significantly, reducing Peer Street’s revenue, Chief Restructuring Officer David Dunn said in a sworn declaration filed in the U.S. Bankruptcy Court in Wilmington, Del. Peer Street was founded in 2013 with an aim of giving individual investors access to an asset class that typically has been difficult to tap into, while also providing capital to real-estate lenders and their borrowers. The company gets its loans from private lenders and brokers, and also originates, sells and services loans. Peer Street has originated $5.4 million in mortgages so far this year until its bankruptcy filing, down from $385 million last year and $696 million the year before.
Johnson & Johnson is facing a key test of its plan to use the U.S. bankruptcy system to end more than 60,000 claims that a talc-based baby powder it sold for years causes cancer, Bloomberg News reported. A group of cancer victims is asking a federal judge in New Jersey to throw out, for the second time in less than two years, the insolvency case of LTL Management, a unit that J&J created to settle lawsuits over talc-based baby powder for $8.9 billion. Tuesday marks the start of a trial in which Bankruptcy Judge Michael Kaplan will again decide whether J&J is wrongly using bankruptcy laws to force a settlement. The bankruptcy court strategy has split lawyers suing J&J into two camps: those who back the settlement and are ready to drop their lawsuits, and holdouts who want to take their claims to juries around the country instead. Last year Kaplan sided with J&J against a unified band of the top plaintiff’s law firms in the U.S., but was overruled by a federal appeals court in Philadelphia, which ordered the judge to dismiss LTL Management’s first chapter 11 bankruptcy petition. J&J responded by tweaking its legal strategy and raising its settlement offer to $8.9 billion in order to attract support from cancer victims. LTL returned to bankruptcy in April and Kaplan agreed to hold a hearing to decide if the new case fixed the legal flaws that doomed the first effort.
U.S. electric truck manufacturer Lordstown Motors filed for bankruptcy protection on Tuesday and put itself up for sale after failing to resolve a dispute over a promised investment from Taiwan's Foxconn, Reuters reported. Shares of Lordstown tumbled 35.6% in pre-market trading. The automaker, named after the Ohio town where it is based, filed for chapter 11 protection in Delaware and simultaneously took legal action against Foxconn. In a complaint filed in bankruptcy court, Lordstown accused the electronics company of fraudulent conduct and a series of broken promises in failing to abide by an agreement to invest up to $170 million in the electric-vehicle manufacturer. Foxconn previously invested about $52.7 million in Lordstown as part of the agreement, and currently holds an almost 8.4% stake in the EV maker. Lordstown contends Foxconn is balking at purchasing additional shares of its stock as promised and misled the EV maker about collaborating on vehicle development plans.
Sam Bankman-Fried’s crypto conglomerate made “false statements” to banks about accounts commingling customer funds and fired an employee who raised concerns about the practice, the new management of bankrupt FTX alleged in a report Monday, Bloomberg News reported. FTX Group employees lied to banks about using trading firm Alameda Research’s accounts for FTX.com customer transactions after some banks questioned Alameda’s wire activity in 2020 and began rejecting transfers, according to the report. In one instance, a bank representative — noticing references to FTX — asked whether an Alameda account that received customer deposits would be used to settle trades for FTX. An Alameda employee was then directed by a senior FTX executive to lie and say customers “occasionally confuse FTX and Alameda,” but all incoming and outgoing wires are used to settle Alameda trades, the report said. The tangled relationship between FTX and Alameda was at the heart of the empire’s unraveling. Caroline Ellison, the former CEO of Alameda Research, estimated in March 2022 in private notes that FTX.com had a cash deficit alone of over $10 billion, the report said. Read more.
In related news, one creditor of bankrupted cryptocurrency exchange FTX decided not to sit and wait to get their money back. Instead, the unidentified creditor of a FTX bankruptcy claim worth $31,307 converted the claim to a token on the Ethereum blockchain and sold it to a buyer who on June 23 used the token to borrow $7,500 worth of stablecoin USD, according to nonfungible token lending platform Arcade, Bloomberg News reported. A number of high-profile bankruptcies in the digital-asset space, not just the FTX insolvency, has left millions of investors frustrated over how much money they’ll be able to recover. Solutions to temporarily reduce the pressures have been popular in the crypto industry. By putting the claim on the blockchain, the ownership of the claim is represented by an NFT. Activity history on NFT marketplace OpenSea shows that the NFT was originally sold at a value worth about $12,163.33 in a version of Ether token, at the time. The “tokenization” process was facilitated by Found, a platform that allows users to trade tokenized bankruptcy claims. The lender of the loan ultimately decides the value of the NFT as a collateral, Gabe Frank, founder of Arcade told Bloomberg News. The loan is now set to be repaid in five days, according to Arcade, and in the event of a payment default, the lender can take the NFT, therefore, the ownership of the bankruptcy claim. Read more.
FTX Chief Executive John J. Ray III released a report that alleged an unnamed senior lawyer assisted the crypto exchange’s founder, Sam Bankman-Fried, in misusing customer deposits, the Wall Street Journal reported. Based on the actions that the report alleges, the unnamed lawyer in the document appears to be FTX’s former chief regulatory officer, Daniel Friedberg, people familiar with the matter said. Friedberg has been cooperating with the investigation and didn’t know about the misuse of FTX customer funds, said one of the people, who is close to Friedberg. The report alleged that the lawyer and Bankman-Fried lied to banks and auditors, executed false documents, and moved between jurisdictions to avoid detection of wrongdoing. The exchange owed customers $8.7 billion at the time of its collapse, the report said.
Buy Buy Baby, the baby goods retailer owned by Bed Bath & Beyond, has been attracting interest ahead of its bankruptcy-run auction. But suitors are cooling on keeping its stores open, CNBC.com reported. Last week, Bed Bath & Beyond said in court papers there would be a bankruptcy-run auction Wednesday for Buy Buy Baby’s assets. Bed Bath had its own auction this week, with Overstock.com agreeing to buy for the brand’s intellectual property and digital assets. Divvying up the company’s banners into two auctions came as interested buyers continue to weigh offers for Buy Buy Baby, some that included keeping stores open, according to people familiar with the matter, who were not authorized to speak publicly due to the private nature of the negotiations. But as the auction nears, interest in keeping Buy Buy Baby’s stores open has waned. In particular, the expenses behind running the stores – leases, overhead costs, salaries – make it difficult to reach profitability if Buy Buy Baby’s stores were acquired along with its intellectual property, one of the people said. “There’s not a profitable model where you only have 10 stores or 40 stores,” the person said. Buy Buy Baby had approximately 120 stores, according to court papers.
Wintermute Trading Ltd., one of the biggest cryptocurrency market makers, was accused in a proposed class-action lawsuit of helping former Celsius Network Ltd. Chief Executive Officer Alex Mashinsky dupe investors in his now-bankrupt crypto lending firm, Bloomberg News reported. Plaintiffs who sued Mashinsky and other Celsius executives in July 2022 amended their federal lawsuit in New Jersey this week to add London-based Wintermute as a defendant, entangling another major industry player in the fallout from Celsius’s collapse. According to the lawsuit, Wintermute engaged in “wash trading” — which creates the illusion that an asset is trading far more often than it actually is — and other improper activities starting in March 2021 to inflate the value of Celsius’s native CEL token and loan products. Wintermute also played a key role in Mashinsky’s futile effort to prop up CEL in May 2022 after the collapse of the Terra and Luna tokens, the investors alleged. “This wash trading activity corrupted the CEL Token prices, as well as the reported trading volume, all in a strategic pattern to deceive investors,” lawyers for the investors said in the suit. Celsius froze all accounts on June 13, 2022, and filed for bankruptcy the next month amid a $2 trillion market crash that wiped out some of the industry’s biggest names and exposed hundreds of thousands of investors to steep losses.
