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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.
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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.

Federal prosecutors yesterday said that two associates of FTX founder Sam Bankman-Fried had pleaded guilty for their roles in fraud that contributed to the cryptocurrency exchange’s collapse and were cooperating in the ongoing investigation, the Wall Street Journal reported. Damian Williams, the U.S. attorney for the Southern District of New York, said in a video posted on Twitter that Caroline Ellison, the former chief executive of Alameda Research, and Gary Wang, FTX’s former chief technology officer, had both pleaded guilty to criminal violations. The announcement came shortly after Mr. Bankman-Fried had been transferred to U.S. custody in the Bahamas, where he was arrested last week. Read more.

In related news, Sam Bankman-Fried told a Bahamian court yesterday that he has agreed to be extradited to the U.S. to face criminal charges related to the collapse of cryptocurrency exchange FTX, the Associated Press reported. The former FTX CEO appeared at a Magistrate’s Court and is expected to head to Odyssey Aviation to return to the United States, according to Bahamian news organization Our News. Bahamian authorities arrested Bankman-Fried last week at the request of the U.S. government. U.S. prosecutors allege he played a central role in the rapid collapse of FTX and hid its problems from the public and investors. The Securities and Exchange Commission said Bankman-Fried illegally used investors’ money to buy real estate on behalf of himself and his family. The 30-year-old could potentially spend the rest of his life in jail. Bankman-Fried was denied bail on Friday after a Bahamian judge ruled that he posed a flight risk. The founder and former CEO of FTX, once worth tens of billions of dollars on paper, is being held in the Bahamas’ Fox Hill prison, which has been has been cited by human rights activists as having poor sanitation and as being infested with rats and insects. Read more.

FTX founder Sam Bankman-Fried inched closer to being transferred into U.S. custody to face criminal charges related to the cryptocurrency exchange’s collapse, after a chaotic court hearing in the Bahamas yesterday in which his local lawyer appeared at odds with his U.S. legal team, the Wall Street Journal reported. Bankman-Fried has agreed to be extradited and plans were being fleshed out by his legal team after the day’s court proceedings. Bankman-Fried’s lawyers hope to have a new hearing on the matter as early as today.

Cases can move forward against Alex Jones regarding the nearly $1.5 billion he’s ordered to pay families of Sandy Hook victims over his conspiracy theories about the 2012 school massacre, a federal bankruptcy judge ruled Monday, but the families can’t yet pursue collection efforts against the Infowars host, the Associated Press reported. Bankruptcy Judge Christopher Lopez approved an order that attorneys for Jones, his media company and the Sandy Hook families had all agreed to. The order lifts a stay that automatically halted the cases when Jones filed for bankruptcy. Free Speech Systems, Jones’ media company, is also seeking bankruptcy protection. Judge Lopez approved the order, which prevents the families from pursuing collection efforts, during an hour and a half long hearing that Jones attended remotely. Jones filed for chapter 11 personal bankruptcy protection earlier this month in Texas, citing $1 billion to $10 billion in liabilities and $1 million to $10 million in assets. For years, Jones described the 2012 Sandy Hook massacre as a hoax. A Connecticut jury in October awarded victims’ families $965 million in compensatory damages, and a judge later tacked on another $473 million in punitive damages. Earlier in the year, a Texas jury awarded the parents of a child killed in the shooting $49 million in damages. Read more.

Conspiracy theorist Alex Jones on Monday asked a judge to allow him to take a $1.3 million annual salary from the bankrupt parent company of his Infowars' website, Reuters reported. Jones and his company, Free Speech Systems LLC, both went bankrupt in recent months as they owe families of the 2012 Sandy Hook mass shooting a total of $1.5 billion in damages for falsely claiming the massacre was a hoax. Jones has said he cannot pay those judgments, which came after back-to-back defamation trials in Texas and Connecticut. Jones drew a $1.3 million salary from Free Speech Systems before its bankruptcy, and his attorney asked Bankruptcy Judge Christopher Lopez to restore his salary to that level at a hearing yesterday. Jones has been paid a reduced biweekly salary of $20,000 since his company filed for bankruptcy on July 29, just over a third of what he had been paid before, according to his court filing. Read more.