FTX
UPDATE 1: FTX Group Files Case Update Presentation Summarizing Asset Recovery Status, Target Plan Timeline
Thu 08/24/2023 15:27 PM
UPDATE 1: 3:28 p.m. ET 8/24/2023: The FTX Group debtors have now filed their presentation from their Wednesday, Aug. 23, omnibus hearing (detailed below). At the hearing, the debtors highlighted that they have approximately $7 billion of assets “marshaled and available for distribution,” including approximately $2.7 billion of cash, significant fraudulent transfer actions and other monetization efforts.
The presentation details the current status of asset recoveries, the target plan timeline, key open items in the draft plan for negotiations with stakeholders and other significant case developments as follows:
Original Story 6:08 p.m. UTC on Aug. 23, 2023
FTX Debtors Tout ‘Significant Progress’ With $7B Available for Distribution, Additional Recovery Efforts Underway; Debtors, UCC Spar on Meditation Timing, Approaches to Asset Recovery
Relevant Document:
Agenda
The FTX Group debtors gave a case update, and the official committee of unsecured creditors and the ad hoc committee of non-U.S. customers of FTX.com aired their views on the path forward in the cases at a hearing today. Judge John Dorsey also brokered a resolution of the Office of the U.S. Trustee’s objection to the debtors’ omnibus settlement procedures motion.
Brian Glueckstein of Sullivan & Cromwell, counsel to the debtors, began the hearing with an overview of the “significant progress” made by the debtors in their “historic cases.” Despite the “unfortunate” rhetoric voiced by the UCC regarding an ostensive lack of input on the recently filed draft plan, he said that debtors were building consensus with “most work taking place outside the purview” of the court.
Glueckstein stated that the debtors have approximately $7 billion of assets “marshaled and available for distribution,” including approximately $2.7 billion of cash. The debtors remain “laser focused” on maximizing value for creditors and will “hold accountable” parties and ensure the recovery of customer funds.
He highlighted a number of significant fraudulent transfer actions against K5 Global (seeking $700 million), Embed Technologies ($300 million), FTX Europe ($376 million) and Latona Biosciences ($72 million) as well as the recently announced settlement with the Genesis Global debtors (providing for a $175 million general unsecured claim in the Genesis cases).
Glueckstein also noted the $45 million monetization of the debtors’ investments with Sequoia Capital, with “many other” assets remaining for recovery.
He added that the debtors had completed the “Herculean” task of filing tax returns, complicated by the dearth of information available at the outset of the cases and the significant claims asserted by the U.S Internal Revenue Service.
Glueckstein said that the debtors were not conceptually opposed to a plan mediation demand from the UCC, and support mediation, if necessary. The mediation, he cautioned, should only take place after issues were “crystalized.” Glueckstein said the parties should engage over the next several weeks to see if negotiations could progress without outside assistance.
Kristopher Hansen of Paul Hastings, counsel to the UCC, discussed the committee’s perspective in the cases and previewed argument on the motion to compel arbitration. Although the motion was not on today’s agenda, with the UCC requesting it be heard on shortened notice before the next omnibus hearing on Sept. 13, Hastings pointed to the approximately $1.5 million daily professional burn rate and said the motion was a “plea to speed things up.”
Hastings pointed out that in the debtors’ updated proposed schedule shared at the hearing, the filing of the disclosure statement was now “a January event” instead of a “this year event,” and said that meditation offered the prospect of accelerating the case time frame.
Judge Dorsey said his “initial thoughts” on the motion to compel meditation would be to see if negotiations “can work.”
Hansen said that the committee had a “fundamental difference in perspective” regarding asset monetization. He characterized the debtors’ view that assets should be liquidated on an accelerated basis as being driven by the fact that the customers never consented to the diversion of their assets. This, Hansen said, was leading to suboptimal outcomes.
In contrast, the UCC’s view was that “we are where we are,” and the misappropriation of customer funds should not be a basis to leave value on the table. Specifically, Hansen said that the UCC was successful in convincing the debtors to “step back” from liquidating a “crown jewel” in its $500 million equity investment in AI startup Antropic, which is potentially valued at $4.6 billion, according to Bloomberg. He said that the UCC was also instrumental in improving the settlement reached with IEX Group.
Reviewing the UCC’s other contributions to the case, Hansen previewed an upcoming motion to hedge the debtors’ digital assets. According to Hansen, the UCC delivered the hedging proposal in April but the debtors would now be filing the motion after a broad selloff in crypto markets. Hansen said the committee also pushed the debtors to invest their cash in short-term Treasurys starting in March. Although the debtors have now renegotiated their banking arrangements and are receiving approximately 4% interest on their cash, Hansen said that this was still 1.5% less than would be available if the funds were invested in short-term Treasurys.
Finally, Hansen pushed back on the debtors’ concerns that certain committee members are self-interested or conflicted with respect to the FTX 2.0 marketing process due to their status as crypto traders and market makers. During the hearing, Hansen and Glueckstein discussed the parameters of an additional nondisclosure agreement that would allow for the disclosure of indications of interest in the marketing process to the committee members.
Erin Broderick of Eversheds Sutherland, counsel to the FTX.com customer ad hoc group, appeared. Broderick reviewed the group’s position, previously aired in its statement on the draft plan, that the filing was “generally the right starting point” for a global resolution. Broderick staked out her group’s unique position to advocate for FTX.com customers, asserting that the UCC was precluded from singularly advocating for customers due to its role as a fiduciary for all general unsecured creditors.
As a result, Broderick said the group was positioned to advocate for customers on the “key issue” of whether assets “belong to the estates” or should be “deemed in trust” for distribution only to FTX.com customers.
Underscoring the significance of the group, Broderick said the group holds “nearly $900 million in claims.” The group was previously larger with over $2 billion in claims before the court’s redaction ruling, which she said caused many members to resign “due to fear of disclosure.” The group speaks for both small and large customers, she said, with the membership including only a “handful” of secondary market purchasers.
The debtors’ settlement procedures motion was the sole substantive item on today’s agenda. Juliet Sarkessian argued in support of the UST’s objection to the motion, centering on a lack of adequate notice and disclosures. In the motion, the debtors initially sought authorization to approve claim settlements of up to $7 million by providing notice only to the UCC, the customer ad hoc group and the UST.
According to Sarkessian, parties in interest were unable to evaluate the proposed settlement solely on the basis of the value the debtors would receive. She argued it was critical to also have the debtors’ estimate of the claim value in order to obtain the “ratio” necessary to evaluate the reasonableness of the proposed settlements.
Sarkessian argued that the settlement cap should be keyed to the debtors’ valuation of the claim, rather than the settlement amounts, and pressed for the exclusion of all employees and consultants, whether or not insiders, irrespective of amounts.
Judge Dorsey facilitated a resolution, in what he quipped was a “mediation session.” Under the court’s guidance, the debtors and the UST agreed on a two-stage process with claims valued by the debtors at less than $3 million to be potentially approved without a hearing upon notice to the UCC, the ad hoc group and UST as proposed, and claims valued at up to $15 million to be potentially approved without a hearing after a limited ECF notice process.
The presentation details the current status of asset recoveries, the target plan timeline, key open items in the draft plan for negotiations with stakeholders and other significant case developments as follows:
Original Story 6:08 p.m. UTC on Aug. 23, 2023
FTX Debtors Tout ‘Significant Progress’ With $7B Available for Distribution, Additional Recovery Efforts Underway; Debtors, UCC Spar on Meditation Timing, Approaches to Asset Recovery
Relevant Document:
Agenda
The FTX Group debtors gave a case update, and the official committee of unsecured creditors and the ad hoc committee of non-U.S. customers of FTX.com aired their views on the path forward in the cases at a hearing today. Judge John Dorsey also brokered a resolution of the Office of the U.S. Trustee’s objection to the debtors’ omnibus settlement procedures motion.
Brian Glueckstein of Sullivan & Cromwell, counsel to the debtors, began the hearing with an overview of the “significant progress” made by the debtors in their “historic cases.” Despite the “unfortunate” rhetoric voiced by the UCC regarding an ostensive lack of input on the recently filed draft plan, he said that debtors were building consensus with “most work taking place outside the purview” of the court.
Glueckstein stated that the debtors have approximately $7 billion of assets “marshaled and available for distribution,” including approximately $2.7 billion of cash. The debtors remain “laser focused” on maximizing value for creditors and will “hold accountable” parties and ensure the recovery of customer funds.
He highlighted a number of significant fraudulent transfer actions against K5 Global (seeking $700 million), Embed Technologies ($300 million), FTX Europe ($376 million) and Latona Biosciences ($72 million) as well as the recently announced settlement with the Genesis Global debtors (providing for a $175 million general unsecured claim in the Genesis cases).
Glueckstein also noted the $45 million monetization of the debtors’ investments with Sequoia Capital, with “many other” assets remaining for recovery.
He added that the debtors had completed the “Herculean” task of filing tax returns, complicated by the dearth of information available at the outset of the cases and the significant claims asserted by the U.S Internal Revenue Service.
Glueckstein said that the debtors were not conceptually opposed to a plan mediation demand from the UCC, and support mediation, if necessary. The mediation, he cautioned, should only take place after issues were “crystalized.” Glueckstein said the parties should engage over the next several weeks to see if negotiations could progress without outside assistance.
Kristopher Hansen of Paul Hastings, counsel to the UCC, discussed the committee’s perspective in the cases and previewed argument on the motion to compel arbitration. Although the motion was not on today’s agenda, with the UCC requesting it be heard on shortened notice before the next omnibus hearing on Sept. 13, Hastings pointed to the approximately $1.5 million daily professional burn rate and said the motion was a “plea to speed things up.”
Hastings pointed out that in the debtors’ updated proposed schedule shared at the hearing, the filing of the disclosure statement was now “a January event” instead of a “this year event,” and said that meditation offered the prospect of accelerating the case time frame.
Judge Dorsey said his “initial thoughts” on the motion to compel meditation would be to see if negotiations “can work.”
Hansen said that the committee had a “fundamental difference in perspective” regarding asset monetization. He characterized the debtors’ view that assets should be liquidated on an accelerated basis as being driven by the fact that the customers never consented to the diversion of their assets. This, Hansen said, was leading to suboptimal outcomes.
In contrast, the UCC’s view was that “we are where we are,” and the misappropriation of customer funds should not be a basis to leave value on the table. Specifically, Hansen said that the UCC was successful in convincing the debtors to “step back” from liquidating a “crown jewel” in its $500 million equity investment in AI startup Antropic, which is potentially valued at $4.6 billion, according to Bloomberg. He said that the UCC was also instrumental in improving the settlement reached with IEX Group.
Reviewing the UCC’s other contributions to the case, Hansen previewed an upcoming motion to hedge the debtors’ digital assets. According to Hansen, the UCC delivered the hedging proposal in April but the debtors would now be filing the motion after a broad selloff in crypto markets. Hansen said the committee also pushed the debtors to invest their cash in short-term Treasurys starting in March. Although the debtors have now renegotiated their banking arrangements and are receiving approximately 4% interest on their cash, Hansen said that this was still 1.5% less than would be available if the funds were invested in short-term Treasurys.
Finally, Hansen pushed back on the debtors’ concerns that certain committee members are self-interested or conflicted with respect to the FTX 2.0 marketing process due to their status as crypto traders and market makers. During the hearing, Hansen and Glueckstein discussed the parameters of an additional nondisclosure agreement that would allow for the disclosure of indications of interest in the marketing process to the committee members.
Erin Broderick of Eversheds Sutherland, counsel to the FTX.com customer ad hoc group, appeared. Broderick reviewed the group’s position, previously aired in its statement on the draft plan, that the filing was “generally the right starting point” for a global resolution. Broderick staked out her group’s unique position to advocate for FTX.com customers, asserting that the UCC was precluded from singularly advocating for customers due to its role as a fiduciary for all general unsecured creditors.
As a result, Broderick said the group was positioned to advocate for customers on the “key issue” of whether assets “belong to the estates” or should be “deemed in trust” for distribution only to FTX.com customers.
Underscoring the significance of the group, Broderick said the group holds “nearly $900 million in claims.” The group was previously larger with over $2 billion in claims before the court’s redaction ruling, which she said caused many members to resign “due to fear of disclosure.” The group speaks for both small and large customers, she said, with the membership including only a “handful” of secondary market purchasers.
The debtors’ settlement procedures motion was the sole substantive item on today’s agenda. Juliet Sarkessian argued in support of the UST’s objection to the motion, centering on a lack of adequate notice and disclosures. In the motion, the debtors initially sought authorization to approve claim settlements of up to $7 million by providing notice only to the UCC, the customer ad hoc group and the UST.
According to Sarkessian, parties in interest were unable to evaluate the proposed settlement solely on the basis of the value the debtors would receive. She argued it was critical to also have the debtors’ estimate of the claim value in order to obtain the “ratio” necessary to evaluate the reasonableness of the proposed settlements.
Sarkessian argued that the settlement cap should be keyed to the debtors’ valuation of the claim, rather than the settlement amounts, and pressed for the exclusion of all employees and consultants, whether or not insiders, irrespective of amounts.
Judge Dorsey facilitated a resolution, in what he quipped was a “mediation session.” Under the court’s guidance, the debtors and the UST agreed on a two-stage process with claims valued by the debtors at less than $3 million to be potentially approved without a hearing upon notice to the UCC, the ad hoc group and UST as proposed, and claims valued at up to $15 million to be potentially approved without a hearing after a limited ECF notice process.
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