American court hearing recordings and interviews - 8/25/23 hearing audio in the Prime Core/Prime Trust #bankruptcy, Delaware case no 23-11161, #crypto

Episode Date: August 26, 2023

For more information about the bankruptcy proceedings, including filings on the bankruptcy court's docket, see https://cases.stretto.com/primetrust

Council, you're live in the courtroom and the hearing is about to begin. Please remember to state your name for the record when you speak and every time you speak. Please stay muted if you're not speaking to the judge so the judge can concentrate on the parties that are presenting at the time. Thank you. Good afternoon, everyone. This is Judge Stickles. We're on the record in the case of Prime Corps Technologies, case number 23-11161. This is a first day hearing.

I'll turn the virtual podium over to proposed counsel to the debtors. Good afternoon, Your Honor. May it please the court, Maris Candestin, of McDermott, Will & Emory, on behalf of Prime Core Technologies, Inc. and its subsidiaries as debtors and debtors in possession. I would like to thank the court for accommodating us this afternoon and would also like to extend thanks to Chambers for working with us and being so responsive and courteous.

And last but not piece, I would like to extend thanks to Mr. Cudia. who, you know, very quickly worked to provide us comments to our first day pleadings and, you know, worked with us to resolve his concerns over the past day. And I'm pleased to report that, except for in, with respect to one motion, we were able to resolve the U.S. trustees' concerns with respect to the first day pleadings. Okay, great. And, Your Honor, I just wanted to let you know that we've uploaded our proposed orders. And before doing that, we made two changes. One was to remove the word exclusive from the jurisdictional paragraphs in the order, and the other change was to add the second day hearing, which Chambers provided us with

September 19th at 10 a.m. Okay, great. Thank you. In the virtual courtroom with me today are my partners Darren Asmian, Greg Steinman, and Joseph Evans. Each of them you've admitted prohack features. Thank you for that. And if it would please the court, before we walk through today's agenda, I would propose turning the virtual podium over to Mr. Asman to provide the court with some high-level background of the debtor's business, the circumstances leading to these cases, and what our plans are in Chapter 11. Okay, great. Thank you. Good afternoon, Mr. Asman. Hi, Your Honor. Good afternoon. This is Darren Asman from McDermott, Will & Emory, proposed counsel to the debtors. It's a pleasure to be before you for the first time.

Welcome. Your Honor, before I begin, I'd like to quickly introduce to you the debtors' other professionals and representatives who are on the line here today on the Zoom. From M3, which is the debtor's financial advisor, we have Rob Winning, Bill Murphy, and Cole Team. From Galaxy, which is the proposed investment banker, we have Michael Ash and Albert Chow. From the company, we have the debtor's interim CEO and First State of Clarencyon. George Law, as well as Matt Porella, the company's general counsel. And finally, Your Honor, we have the three-member special restructuring committee, which is comprised of John Gidre, John Wilcox, and Mike Wise.

As Ms. Candleston said, I want to also thank Your Honor for scheduling this hearing on short notice, and also put your patience while we got our first days on file. Unless Your Honor has any questions, I'd like to move into evidence Mr. Law's declaration, Your Honor, that was filed at docket number 14. We are only seeking admission of that declaration today for the first day motions that are on. And as I mentioned, for Mr. Law is with us on Zoom, as I noted. Okay.

Could Mr. Law please appear on camera? Thank you, Mr. Law. Does anyone object to the admission into evidence of the declaration of Mr. Law at docket number 14 in support of the first day motions? MR. Yeah, Your Honor, Mike Nester. appearing on behalf of Polaris Ventures, just subject to cross-examination potentially.

Okay. Okay. Is there any... Is there any... Is there any... Bear with a second. Right. feedback. Your Honor, it's not the courtroom's audio.

It's Mr. Nestors, I believe. I have an echo problem, Your Honor. It usually helps when I go on mute, so I'm going to go back on mute. Okay. I was going to sound like to myself. Is there anybody else appearing today who would expect to cross-examine Mr. Law regarding the content of his declaration. Okay, I hear none.

The declaration is admitted subject to Mr. Nester's ability to cross-examine him. Thank you. All right, Your Honor, thank you. With that, I'll like to provide a review of the company and summarize some of the contents that we had already included in the first-day declaration. So, Your Honor, the debtors run a software technology company that all, offers essentially an all-on-one financial infrastructure platform in the cryptocurrency space. There's quite a long list of offerings that the debtors provide, so I won't go through them all,

but I do want to quickly touch on a few of them. First and foremost, the debtors offer custody services. I think the simplest way to explain that service is that the debtors provide a platform for customers to transfer their digital assets and fiat currency, including foreign currencies. Second, the debtors offer their customers the ability to transact with the debtors' liquidity providers. So, for example, a customer can convert Bitcoin to U.S. dollars through the prime platform. Third, the debtors have built an enormous network of integrated banks that provide what are described as payment rails. This is essentially, Your Honor, the infrastructure that is needed to move money, like ACH transfers, debit cards, credit cards,

wire transfers. Importantly, the debtors provide the bridge between traditional banking institutions on the one hand and customers in the cryptocurrency industry on the other. And fourth, the company also provides compliance and regulatory services for customers, so services like AML, KYC compliance, licensing guidance, audits, and other similar activities. Your Honor, in order to provide some of these services to customers throughout U.S., the debtor prime trust is a registered money service business with FinCent, and it also holds a Nevada Trust charter as well as various state licenses, such as money transmitter licenses that are required in certain states to conduct the business that they engage in. At their peak, the debtors were one of the most widely used companies in the cryptocurrency industry, with close to $4 billion. in crypto and fiat assets under custody. And over time, the company has facilitated more than $300 billion

of fiat currency movement through its system. Your Honor, moving on to the debtors organizational and capital structure, there are four debtors here. You have Prime Corps, which is the ultimate parent company, Prime Trust, which is a subsidiary of Prime Corps, and holds the Nevada Trust Charter. And finally, you have Prime Digital and Prime IRA. Both of those are subsidiaries of Prime Trust.

trust. There is a fifth entity that you might have seen in the York chart called Prime New York Trust LLC. That entity is not officially formed yet. It has a pending application with the state of New York, but they don't really exist and thus they're not a debtor. Your Honor, the debtors have no funded secure debt. They have raised capital solely through a series A and series B raised, both of which occurred in 2021. And in the aggregate, the company raised around 170. $25 million to those raises. Your Honor, there are a number of reasons why we are here today, but probably the most notable reason is what we describe as the Walleth event in Mr. Law's declaration.

And I'd like to walk through it briefly because although it is a bit complicated from a technical perspective, it is a critical piece of the case. In 2019, the debtors migrated their crypto assets to a platform called Fireblocks. Fireblocks is a very well-known wallet management provider. They manage digital wallets. In making this switch to fireblocks, the debtors intended to retire their older digital wallets, which we refer to as the legacy wallets. Now, these wallets at issue are wallets that the debtor's customers would transfer

crypto to when they were interacting in some way with the company. Around a year and a half after that migration occurred, the debtors' inadvertently provided customers with the digital address for one of the old legacy wallets. And during 2021, certain customers transfer crypto to one wallet in particular that we refer to as the 98F wallet. We call it the 98F law just because that's the last three digits of the digital address. At the end of 2021, which again was the year when some customers transferred assets to the 98F wallet, at the end of that year, at the end of that year, a customer made a very large withdrawal request.

And to order to fulfill that request, the company needed access to the 98F wallet. And it was at that time in December 2021 that the company realized they didn't actually have what was needed to access the 98F wallet. We've included a far more detailed description of the technical problem that we have and why we can't access that wallet.

But in short, the company does not currently have access to that wallet. to that wallet, which has around $40 million worth of crypto sitting in. The debtors reported these wallet issues to the various state regulators, including the regulator in Nevada, which is known as FID or FID. This then set off a sequence of events that set the company down the path to where we are today, including what amounted to a run on the bank with customers withdrawing crypto and fiat. On June 21, around two months ago, the Nevada FID is issued.

issued a cease and desist order to the company, which effectively prevented the company from continuing its operations. Within a week after that, the company consented to the imposition of a receivership, and around a month ago, John Gidre was installed by the Nevada State Court as the interim receiver. Earlier this month, the receivership order was amended to appoint what is now the Special Restructuring Committee that I mentioned earlier, and the Special Restructuring Committee is vested with all rights to manage all aspects of the debtors during these Chapter 11 cases. Again, that committee is comprised of John Guidry, John Wilcox, and Mike Wise. Mr. Guidry was most recently the President of the Bank of Nevada for around a decade until he retired last year. Mr. Wilcox has around 35 years of experience in banking, and Mr. Wise is a seasoned

restructuring professional who regularly serves in fiduciary roles such as CRO and independent directors. None of these individuals, Your Honor, have any or prior relationship to prime. They are all independent. So, Your Honor, that's where we are at right now. Let me tell you a little bit about where we are going. There are really three primary work streams ahead of us. First is the sale process. The company, as I mentioned earlier, has already hired a banker, Galaxy. There was a pre-petition process run by a different banker. Next week, we hope to file a good procedure's motion, but that process is already well underway. Second, Your Honor, is the 98F wall of recovery?

What would you be intending to sell? What would debtors intend to sell? Sure. The crown jewel of this company is really the Nevada Trust Charter. That charter, among other things, allows the company to operate and money transmitter business

in approximately 30 states without actually having to acquire licenses in those states. Typically, if you want to engage in this type of business around the country, You have to go to each state and obtain what is called a money transmitter license. The value in this business is likely reorganizing around the Nevada Trust Charter with somebody,

because the Nevada Trust Charter alone is very expensive and time-consuming to obtain, but so are the money transmitter licenses. And so primarily that is what being sold is the ability of somebody to step into the shoes and have these licenses. This will obviously require some level of cooperation with the business. various regulatory authorities. But that is what I would put at the top of list of what is somebody is quote unquote buying. But with it comes a lot more.

It's the infrastructure that has been built here, the payment rails that I mentioned earlier, the relationship is that this company has built with everyone in the crypto ecosystem to do all those things that I mentioned earlier. Setting up a company, putting aside the regulatory constraints on setting up a company to do all these things, just putting all these things together operationally,

is an incredibly expensive and time-consuming endeavor, and there really aren't many computers in this space right now. And so that's essentially what we're looking to sell, Your Honor. I hope that's helpful. No, that's helpful. Thank you. So, Your Honor, turn to the second workstream for this case. It's the 98F wallet recovery effort.

That is also well underway to locate either the hardware devices or the seed phrases that are missing. And this includes discovery that we'll be taking of former employees and management who are no longer with the company. Your Honor, we have already sent letters out to a number of individuals requesting their voluntary compliance with 2004.

A number of them have consented, and we're still waiting to hear from others. But my guess is that we will end up filing 2004 motions early next week for those who are not willing to comply. But that process is already well underway. Third, Your Honor, is investigating and pursuing claims, including avoidance actions. Just for context, there was around 900 million

worth of transfers out of the state that occurred during the 90-day preference period. So those are certainly actions that we're going to be investigating, along with other types of claims that you would traditionally investigate in a Chapter 11 case given the circumstances. Your Honor, that's all I have. Unless you have any questions, I'd like to turn to the agenda. Before I turn things over to Mr. Stein and Ms. Candleston to present the first days, I'd like to suggest to the court that we take up the pleading filed by Polaris Ventures a couple of hours ago at docket number 30. It's seemingly an objection to all of our first days.

At least I think it is candidly, I'm not really sure what they are asking. It seems like they maybe are trying to convert today's hearing to an interim interim hearing, as opposed to what is done in every other case, which is an interim hearing followed by a second day hearing. But in any event, if Your Honor agrees with tackling that now, maybe we can, hear that objection and then I can share some additional thoughts in response but I defer to your honor on how you'd like to proceed okay well let me hear from mr. nestor thank you your honor Mike Nestor for the record am I echoing no no no thank you for thank you oh wait you are that's okay but I want to hear me okay okay um thank you your honor so we were

upset Polaris ventures uh oh in excess of $30 million in this case. And my client's concern here is that the debtor right now, as admitted by counsel, is a steward for unsecured creditors. The cashier is for unsecure creditor. What we have here, and what we would have in a normal case

is they would have filed their first days on the day they filed on August 14th. You would have had a hearing left. what happened in with that they filed their pleadings yesterday afternoon. We're here on a Friday afternoon, several days after the, you know, do the math, 11 days after the filing, at a first day hearing. And our concern is that, first of all, that is unusual, but second, the evening is a second day hearing, which I just heard for the first time on September 9th.

So what they're seeking to do here is run this case for more than five weeks without any input or opportunity for predators who are really are entitled to the cash that's in the estate. We'll provide any opportunity to weigh in for five weeks. Mr. Nestor, could you hold him one second? We're having a technical issue. Hold him one second. Your Honor, I confess to you, I think everyone's had a trouble hearing Mr. Nestor. If that's what you're pausing for.

Is that it? You're coming in and out, Mike. You're fading a little bit. Is this better? Yes, I've never had any trouble hearing you until today. Is this better or no? Yes. Thank you.

So, Your Honor, here's where we stand. The case was filed 11 days ago. The first days weren't filed until yesterday. So is it strange to have a first day hearing that after you file the pleadings? No. Is it strange and not normal to have the first day hearing, you know, 11 or 12 days after you filed the case? Yes. So our request is really very simple.

The only disbursements that we believe that should be made from this estate are those that are absolutely necessary to avoid irreparable harm. And we believe, and Mr. Cudia, may be able to. we can weigh in with respect to when a formation meeting would be held. But we believe that he's close to forming a committee. And all we're asking, Your Honor, is to come back. Can you guys hear me or no? Yes. Yeah.

It's just to come back the end of next week. After our committee, instead of coming back three weeks from now or more, is to come back next week. The end of next week, have a committee weigh in on the pleadings to relieve the operations and have a voice in the case sometimes sooner than five plus, weeks into the case. So that's what we're asking for, Judge. And it is an interim interim hearing, but the interim interim hearing is not the fault of unsecured creditors. It's the fact that, and I'm not describing any blame, but it's the fact that the debtor didn't file a cleanings until,

you know, 12 days after the petition date. So we're here. We are where we are. But ordinarily, the second day hearing would be next week. And the unsecured creditors would be able to weigh in, and we'd have an opportunity to be heard. what the debtor is seeking to do is go five plus weeks into the case, spend more than $6 million without any input from on secure creditors. And I don't know why they wouldn't agree to that. And that's our, if that, if the debtor will limit and let your honor know specifically what needs to be spent now and confirm that nothing pre-petition has been spent to date

and will agree to come back a week from now, then our objections resolve. Your Honor. The relief we are speaking today is nothing more than a traditional relief sought in every Chapter 11 case that shows up in your court. Yes, it costs money to run a Chapter 11 case, but that is within the business judgment of the debtors to decide. As I mentioned earlier, there is a special restructuring committee comprised of completely independent professionals that have no incentive other than to maximize value for creditors in this case. In every Chapter 11 case, you can say that the available funds for creditors in the short term goes down as administrative expenses approved. This case is no different. This objection is really an attempt by one creditor to substitute its business judgment for the debtors.

And they haven't introduced any evidence to support their objection. There will be a second day hearing at which the committee can raise issues with final orders. Or if the committee, or frankly, any creditor has a more press. issue in three days in a week, they can come to this court for emergency relief to modify any of the orders that are issued today. Your Honor, more substantively, the amount of pre-petition payments that we are asking approval for today is relatively small. I can walk through it if you'd like, and we can certainly go line by line for every motion. I think it's something like less than two-one. I would like to know that because I think that the budget that's been presented

that suggests, for example, 2.3 million going to debtors professionals in the first five weeks and 120,000 going to a committee in the first five weeks, I'm not sure how that plays with what is actually reasonable and necessary for an interim period. And I also want to hear from Mr. Cootia when he thinks the committee is going to get appointed in this case. So if I can hear from Mr. Cootia first, and then I'll come back to the debtors, and you can walk through what's actually needed, because that would probably help Mr. Nestor as well. Good afternoon, Your Honor, Joseph Qudia for the United States, Trustee.

Good afternoon, Mr. Cootia. Yes, the committee formation has been ongoing. We did solicit the top 50 creditors, and we have already started that. There was a substantial number of bouncebacks of emails, so the response date has slipped past our original date of Wednesday, this past Wednesday. At this point, my best estimate of committee formation is Monday, possibly slip to Tuesday, but I'm going to try everything I can to get it formed on Monday.

And it is Monday the 28th. Okay, thank you. So if I could hear for the debtors, can you tell us what is absolutely necessary with respect. And we can either go through each motion or. I mean here's my concern if you have a committee that's for Monday or Tuesday I'm not sure What frankly I only have availability on Wednesday or Thursday so I'm not sure What is going to be able to be accomplished in those two days and I'm not available at all the following week So it would make sense to me that the debtors communicate with the committee once it's formed and

And if the committee wants to come in for an emergency hearing, I would entertain that. Absolutely. And we'd be happy to do that as well. Before we decide how we want to go through the line items, I think that Mr. Nestor is asking for something far more than that. I think he's asking for no disbursements post-petition to be made, even if in the ordinary course of business. But as Your Honor knows, there's no authority needed to continue to make post-pidifent payments

in the ordinary course of business. So I think Mr. Nestor's objection, unless you'd like to correct my understanding, which is fine, is that he doesn't want a dollar flowing out even for ordinary course expenses, like monthly licensing fees to host the wallets that hold crypto that is going to be distributed to customers in this case. So, again, I don't think that even requires support approval. It's ordinary course. So maybe Mr. Nestor can clarify if he's only questioning pre-petition payments, which he's certainly welcome to, and we can, what we will, walk the court through them,

and he'd welcome to probe those, or if he's asking for much more broader relief for the court to prevent the debtors from the ordinary course payables post-petition. Thank you, Your Honor. I obviously never said that. I never said I was, I said I was, what we said was those payments that absolutely had to be made pending formation of a committee and another hearing before this court. And Your Honor pointed out the same issues that I had.

know, it's, you know, first of all, no retention applications have even been filed in this case. So in the budget, you have, you know, professional fees of, for the debtors professionals, one, two, three, four, two to three million dollars over the first six weeks, one point five million through next week. You have ordinary course professionals. No motion's been filed. Nope. We don't even know if there are professionals at this point. And the timeline hasn't even run, obviously, because they haven't been filed, on an objection period,

let alone declarations and whatnot. So we're not, our statement doesn't relate to those things that are necessary to operate the company through. And they'll make the record as to what's necessary. That's their burden, not mine. But there are things, I don't know what's happening with the better professional, but is it being escrowed? If it's just an accrual subject to further order of the court, no problem. If they're taking it out of the estate and putting it into an escrow account or something like that, then I think we have a problem. So that's it, Your Honor.

I never said that it was an issue of no dollars go out of the estate. It's only ensuring that that, which has to be paid, is paid. I think part of this is there's a budget, but I don't know how this budget is prepared. I don't know if this is an approval or these are estimates, but the money is not being escrowed. or if all you're seeking in the interim period is what's set forth in the motions? Your Honor, all we're seeking today is what's set forth in the motions. The budget, this is an odd case. It's not entirely unusual, but for crypto cases, it's actually quite usual.

They don't have funded debt. So typically in every other case where you have some funded debt, you'll often see the budget attached to a cash collateral or dip or the right. We wanted to be transparent to show our creditors, our constituencies, Your Honor, everyone, what the budget is looking like for this case. We're not asking for approval to pay any professional fees today. Of course not. There are retention applications that need to be filed.

There are monthly fee statements that need to be filed. I don't think there's any question that all we're asking for here is, one, to pay certain pre-petition payments, which will walk through, and two, to continue operating in the ordinary courts of business, which includes making certain payments that are in the ordinary courts of business. So I think what I'm hearing from Mr. Nestor is that he'd like for us to walk through line items of pre-positioned payments, and he's not contesting the state's ability to pay anything close to petition that's in the ordinary course, and that we became prepared to do that today, so we're happy to do it.

Okay. I see Mr. Forch has he seen enough. Thank you, Your Honor. David Forch ranks Elmary-Mittrell LLP at the behalf of Caddo Money, one of the top 30 creditors in this case. Your Honor, I'm afraid we haven't yet put a pro hoc. application on file or obtain local counsel. Nonetheless, may have please be heard on these matters for today. Yes, you may.

Thank you very much, Your Honor. Your Honor, I wanted to chime in to provide perhaps a little bit of sports to Mr. Dexter as well as to Mr. Asman. We certainly think that this company should be in bankruptcy if any company could benefit from the automatic stay. It might be this one. However, there are very limited funds available. And as Mr. Nestor noted,

funds, the budget is extremely aggressive. It's not at all clear talking about operations in the ordinary course, what actual operations are going on today. So certainly we support payment of rental fees necessary to maintain equipment and even pre-petition wages to the extent that that would be helpful to the sales effort and we support that the debtor should have the opportunity to attempt to sell its assets as a going to discern. However, to the extent that this ice has already melted, perhaps creditors would be better often in some other type of structure. And that's something that the committee, if and when it's formed, especially early next week, would be best able to chime in on, whether that's an investigation or not.

I know that this investigation seems to have commenced by the debtors more than a year ago. There's nothing. Maybe there's stuff going on behind the scenes. But certainly, there's little reason to assume that the next couple of weeks will be crucial for the committee. The bottom line, I guess, is we've managed to keep the situation as this for 10 days up to this point, to the extent that minimal cash expenditures would suffice to allow the debtor to maintain in this state of limbo. Our committee can be formed the way in, certainly that's something counter with support. Thank you, Your Honor.

Thank you. Okay, Mr. Asman, with that, I think you should proceed through your motions, obviously subject to anyone's right to object as you proceed through. Okay, thank you, Your Honor. I'm going to turn things over to my partner, Greg Steinem. Good afternoon, Your Honor. Good afternoon. Craig Simon and McThomerville and Emory on behalf of the debtors.

Thank you for letting me appear pro-Hoffice. Ms. Candleston and I are going to be handling the first aid motions, but the matters that we're handling aren't in consecutive order in the agenda. If it's all right with your honor, I think it'd be more efficient for me to handle all the motions that I'm handling and then turn the podium over to Ms. Candestine's. so that we don't we're not switching off okay that's fine just make sure you identify what what's your honor thank you uh the first motion i'll address is the joint administration motion which is number one on the agenda this is a procedural motion for

administrative efficiency and we're asking that the cases be administered under prime core technologies inc case number 231-1161 unless your honor has any questions we respectfully request that the motion be granted Does anyone wish to be heard with respect to the joint administration motion? Okay, I hear no one. I've reviewed the motion. The relief sought as ministerial nature and appropriate, so I will enter the order. I had one modification, but I understand the word exclusive has been stricken before jurisdiction and uploaded.

Is that correct? Yes, Your Honor. Okay, I'll enter the order. The next motion, Your Honor, the utilities motion, which is the fourth item on the agenda. Through this motion, sorry, Your Honor, through this motion that the debtors are seeking authority to prohibit utilities from altering or discontinuing services under certain circumstances and establishing procedures for determining adequate assurance of payment for future utility services. The 12-month running average for utilities for the debtors is around $200,000 per month. As adequate insurance, we proposed depositing about half of the monthly spend into a segregated account. And the proposed order establishes procedures whereby utility companies can request additional adequate assurance,

and the debtors can negotiate with them if necessary. We think these procedures will be helpful as we navigate through Chapter 11. There were certain comments we received from the U.S. Tressee's office, which have been incorporated into the orders that we submitted to Your Honor. And unless you have any questions, we request that that motion be granted as well. Let me ask, the orders that are in the binder that was delivered to the court, do they contain the United States trustees' changes? Yes, Your Honor. Yeah, I believe that they do.

I think the ones that were submitted to the court have the removal of exclusive jurisdiction. I think that's the only change. Okay. Does anyone wish to be heard with respect to utilities motion? Good. The afternoon, Your Honor, Razanig is a gentleman. for Bitrix Inc. We don't really have an objection.

I have a reservation of rights to make. It applies to all the motions that I think since payments going to be made with this one, it works just as well to say it now. So just by way of a very brief background, Vitrix Inc. operated a U.S. cryptocurrency exchange. It's currently a veteran possession

in the case pending for this district. So Bitrix Inc. holds to counts at prime. I've spoken with the debtors council and we understand that the funds and customer accounts are not going to be used to make any interim payments. Without understanding, we don't have any objections to the first day motions, but we just want to reserve our rights in case this issue comes up again in these cases. Okay. Mr. Asper. Your Honor, real brief, yeah, Your Honor, real briefly, Darren Azman, again, proposed counsel of the debtors. We have proposed language that we've circulated. This is not

issue that only counsel has raised other creditors councils have also council has also raised the same issue we've circulated some language to some folks I don't know that I I don't know if I don't know if I've gotten it out to Quinn Emanuel yet but essentially on the cash management order we're going to include a provision that let me just pull it up so I can read it into the record and folks can and we're not at the cash management order yet but I agree it does apply to all for them really just a moment so now what's standing anything to the contrary in this order, in this order, in the cash management order,

the debtors shall not use funds from customer accounts. Customer accounts is a defined term to honor any pre-petition obligations or pay for any post-petition obligations absent further order of the court. And then there's a second sentence for reservation of rights, all parties, rights are reserved regarding whether and to what extent any funds or other property are held by a debtor in trust or constitute property of the debtors of states. So I don't know if folks want to let me know now if that language works to them or if they've comments. It's Asmings-Eclan.

It's Quinn Manuel for Bittrick-Sink. I can speak with Mr. Asman after the mid-hearing. That sounds generally fine, but the Evel isn't the details, obviously, with the definition, custom account, that sort of thing. But in broad terms, that seems okay. Any one else? Ms. McLaughlin-Smith. Good afternoon, Your Honor. I apologize for my camera set up, but this is the first time at this desk, so I apologize for not looking directly into the camera.

Marcy McLaughlin-Smith of Trotman-Pepper-Hamilton Sanders, on behalf of Anchor Coin LLC. We did discuss prior to the hearing, we received the language that debtors counsel just rubbed into the record. We did have some additional comments as to that. I don't know if you would like me to talk about them now or wait for the cash management. I'm happy to do either. Can we wait to the cash management? Of course, Your Honor. Is there anybody who wants to be heard further with respect to utilities subject to any language in the cash management alert?

Okay, I have a question with respect to utilities. The Western Alliance Bank that's going to hold the deposit, is that a UDA bank? Yes, Your Honor. Okay. Does anyone want to be heard? heard on this motion I want to make sure I'm not missing people because some people are raising their hands I don't see any hands that I don't hear anyone I have

reviewed the motion of the proposed order I'm satisfied based on the record presented the relief is appropriate the proposed procedures are reasonable and consistent with procedures routinely granted in this district I'm also satisfied debtors have shown immediately irreparable harm would result if the relief isn't granted so I'm gonna enter the interim order with modifications I see that the second day hearing has been included. This is more of a comment. In paragraph six, it addresses the reduction of a utility deposit for discontinuance of a utility

service, but I would also like the final order to reflect that any additional utilities added to list that there will also be an increase in the deposit. In paragraph 11, the first line, I would ask you to strike the word and directed. I'll authorize it, but I'm not going to direct third parties who aren't before me on the issue. And with those modifications, I'll enter the order. Thank you, Your Honor. We'll make those modifications and submit a revised order to the court. Thank you.

The next motion is the insurance motion, which is the sixth matter on the agenda. The debtors are seeking authority to keep their insurance policies in coverage, as well as their surety bond program in place in the ordinary course. The debtors currently have non-insurance policies and no insurance premium financing. The list of insurance policies, policy numbers, terms, and premiums is attached to the motion as exhibit C. We're seeking authority on an interim basis to pay any pre-petition obligations under those policies up to $18,000 on an interim basis, just to provide a little bit more detail about that, in the conversations earlier in the hearing, that's with respect to the debtor's property and casualty insurance premium. The debtors also have 23 surety bonds. The debtors are required to maintain these bonds in the ordinary course of business pursuant to various

state regulations. The list of surety bonds, the relevant state, the bond amount, and the bond premium is attached to the motion as Exhibit D. We do not believe that at this time there are any pre-petition amounts due on the surety bonds in the interim period. unless Your Honor has any questions, we'd ask that that motion be granted. Insurance motion. Thank you, Your Honor. I'm not sure I didn't have the opportunity to clarify this issue with the debtors before the hearing.

We were working on a few other matters. But, Your Honor, the exhibit seat to the insurance motion identifies multiple policies that appear to be expiring on September 4th, and this with about $1.5 million in premiums associated with that. This goes to the point made earlier about the status of these cases and the need for the committee to weigh in on the proper path for these cases. Some of these items certainly should continue to others, perhaps not, depending on what path the case goes, and whether this is going to be an operating chapter 11. To the extent, I understand that the request was for $18,000 in interim relief. Kata has no objection to that, to the extent that the request is somehow by implication, with an expenditure of $1.15 million to renew these policies,

no doubt at higher premiums now that we're in bankruptcy. I suppose that COTO is objecting to that at this point. Your Honor, I'm happy to address that issue. Please, thank you. And I apologize that this was not articulated in the motion, but those policies are expiring, but they've been effectively replaced by the exact same type of policy and policy limits,

which are the receivership, the policies that are noted receivership, D&O, which were paid pre-petition and do not expire until July of 2024. So for purposes of disclosure, because we still have policies in place that don't expire for a week, we included them on this exhibit, but the fact that those policies expire will not have any detriment to the debtors of the estate because they've effectively been renewed through a new policy. And there's no funds owing with respect to the receiver ship D&O policy. Is that correct? That's correct, Your Honor.

Mr. Forge, does that respond to your inquiry? Certainly. Thank you very much for the clarification. Thank you. Does anyone else wish to be heard regarding the insurance motion of the proposed formal order? I've reviewed the motion. I'm satisfied based on the record that the relief is necessary.

required by our rules and procedures and is customary. So I will enter the interim order. Thank you, Your Honor. Just one second, because some of the orders that I had in front of me are a little different than what was filed. So paragraph three of this order refers to this final order in the next to the last line of the paragraph. Do you see where I'm referring to?

Did you say paragraph three? Yes. The next last line, it says, and do it payable, and this final order shall not be deemed to allow. I think that should be interim. Yes, I see. To the extent that that hasn't already been fixed

on the one that we uploaded, we'll fix it and upload another order. Yeah, because I didn't see this particular one uploaded. And then the other question I have is, paragraph four deals with straddle taxes. Is that necessary in this interim order? Oh, I'm sorry. I skipped ahead.

I think that's in a taxis motion, right? Yeah, I'm sorry. I skipped ahead. Sorry. All right, so when I don't see that it's uploaded, though, the order. And it may be. We'll make sure to upload it as soon as the, as soon as the hearing it's over. Okay, great.

Thank you. The next motion is the cash management motion, which is the, eighth matter on the agenda. As Mr. Asman noted in his presentation, the debtor ceased operations in June. Since then, the cash management system has been simplified. All the debtors' accounts are held by debtor Prime Trust LLC. The main operating account at BMO Bank is being used to pay expenses and payroll. It's our understanding that most, if not all, of the intercompany transfers that currently occur in the ordinary courts are the payment of payroll expenses by Prime Trust LLC for the benefit of debtor prime digital. Prime digital employees, the debtor's employees that live outside of

Nevada, prime trust employed the employees that live inside of Nevada. Through this motion, the debtors are seeking authority to continue utilizing their centralized cash management system. We're also seeking approval to pay certain pre-petition obligations related to the cash management system. We ask for an interim cap of $8,000 to provide a little bit more detail the actual amount of bank fees that we believe are outstanding is around $3,600. We added an extra cushion in case there were anything that was, if there was anything that was discovered that we did not find in our review. We're also asking the court to authorize the continued payment of bank fees in the ordinary course,

the use of the company's business forms, and to continue to honor the intercompany transactions that I just know. And to the extent that we're not in compliance with Bankercy Code Section 345, we request the 30-day extension to come into compliance. We've received a number of informal and formal comments to this motion. We initially received some comments from the U.S. trustee's office. All of those have been incorporated in the orders that were submitted to, Your Honor. The other comments that we received, Mr. Aspen noted earlier, when we've proposed language to most of the parties that have raised that, issue. We're happy to take that up now or we can continue to work with the parties

after the hearing to finalize language to include in the order. Well, let me ask, does anyone wish to be heard regarding the motion of proposed order? Your Honor, me and DeAndrea, on behalf of Bemel Harris Bank. Your Honor, I am not licensed in Delaware and have not had the opportunity to retain local counsel and get my ProHawk on file. However, if that could be heard briefly. Certainly. Your Honor, we had a limited opportunity to review the proposed order in the motion. We would reserve all of our rights. We do object to the interim cap, Your Honor.

There's certainly no cap on our client's liability in the event of a dishonored check that occurs, or other disordered item. So with that in mind, we do object to the concept of the cap. The $8,000 is the objection, or the $3,600? The $8,000. Okay. Your Honor, we're happy to raise the cap to satisfy whatever concerns the bank has. Just based on our review of our records, the only pre-pidition obligations that we were able to find is the $3,600 in bank fees. I think given that this is a first day and the debtor has made an assessment, I'm going to allow the cap where it stands.

And if there's an issue, you can come in on an emergency basis and we'll address it. Is there anyone else who wants to be heard? Your Honor, Mike Nester, again. I just want to be clear, we spoke earlier. Am I echoing? I apologize for asking that repeatedly. Okay. We, rather than say this one we're okay to have on the 19th and this one we're not,

I think what we'll do, and obviously there's not a committee formed yet, but I think it's suffice to say, I think Your Honor said all rights of the committee your reserve with respect to any of these pleadings to seek your honors attention on Wednesday or Thursday of next week. So rather than appear on each motion and raise that point, I think we'll just, we'll deal with the general reservation of right and hopefully we won't have to see you next week, but at least we'll have the opportunity. Thank you. Okay. Are there any other comments with respect to the cash management motion? I got one further item. Just with respect to the debtor's request to treat

intercompany transfers as admin claims. I think that's premature at this point in time, Your Honor. So I don't know that the debtors meant the burden that those intercompany transfers should proceed as admin claims at this juncture. Your Honor, those are, as noted, the intercompany transfers are primarily related to payroll, which would fall squarely within Section 507 as an administrative claim that benefits the estate. I'm looking for the provision. Bear with me a second. Point me to the paragraph in the order. Your Honor.

Sorry, Your Honor. Marcia Blachlin Smith of Trump and Pepper on behalf of Anchor Point again. It is paragraph 10 and 11. We also had an objection to the intercompany transfer authorization on an interim basis. I didn't know if you wanted me to jump in here or wait. No, I'm going to address it all at once. So if you have an issue, please raise it now. Okay.

So, Your Honor, we also would request on an interim basis. intercompany transfers not be authorized to be paid, whether that's a pre-petition or a post-petition amount. In this case, obviously, we've discussed a lot about the cash issues, and there's a customer shortfall of $82 million, and the committee has yet to be appointed. And specifically with the intercompany transaction or transfers, I don't believe there was a disclosure in the motion of the total amount anticipated to be incurred on in this interim period or an amount of the pre-petition intercompany transfers that have been incurred for any interim cap amount. And so those would be our objections as well to the payment of intercompany transfers on an

interim basis. Your Honor, I'm happy to propose a resolution. Certainly. We propose just to limit the authorization to intercompany transfers that relate to payroll. Payroll is obviously very necessary in this case and the ordinary course, Prime Trust, LLC pays for employees that are actually employed by debtor prime digital. Without the authority to pay those, we're not going to be able to pay our employees. But I'm happy to limit intercompany transactions to just that relief in order to resolve any concerns of the parties.

So anybody want to be heard? On an interim basis. Your Honor, Marcy McLaughlin-Smith, again for the record. We didn't have an objection to the interim wage motion, so if this relief is tying into that with respect to payroll, I don't believe we have a further objection. Okay. I'm going to overrule the objections and allow it on a limited basis and on an interim basis, limited to payroll. With respect to the form of order, does anybody else have any further comments before I make some comments on the order? Good afternoon again, Your Honor.

Asma is a Kellyan, Quinn Manuel for Bittrick Singh. The only comment I had was the one we spoke about earlier. I can speak with Mr. Steinman and Mr. Asman afterwards to on the specifics of the language. Okay. Understood. And, Your Honor, so I'll probably do Mars McGlaughlin-Smith from Trauma, Heber again. Anchor Court also had some language to that proposed language on trust payments and customer accounts language. So if the debtor's counsel is willing to work with us after the hearing,

We would appreciate that as well. That was one of our issues. Your Honor, we'll make sure to include everyone that's raised that issue as we work through the language. Okay. A couple of questions. First of all, are all the debtors banks UDA banks? Your Honor, the three of them are not. We're working through that and tried to work through that with the United States trustee.

With two of the three are banks that we're not. that we no longer used. The relation has been terminated. There's just the account is still open. So I think one of them has zero dollars in it, and the other one has $9,000. So we're working on fixing that issue. The third one is Lexicon Bank,

which has around a million dollars in it. And we're working to either bring Lexicon up to have them execute a UDA, or we'll figure out a solution to move those funds into a UDA-approved bank. Okay, thank you. The other question I have is with respect to intercompany transactions, are there any non-debtor affiliates that have access to debtor accounts who can sweep accounts? Sorry, Your Honor. Can you read the question?

Are there any non-debtor entities, affiliates that have access to debtor accounts who can sweep the accounts? No, Your Honor, there are no non-debtor affiliates. Okay. Other than the New York entity, which is not actually a performed entity. Right. That's not operating. Okay, I just wanted to make sure. In paragraph 17, it requires service of an order as soon as possible in the banks.

Does the United States trustee have a time limit they want that completed by? Your Honor, Joseph Qude here for the United States trustee. Now that is, since the Silicon Valley Bank incident, that is the language that we've been asking to be inserted is as soon as possible okay all right with respect to paragraph 20 in the form of order that paragraph I'm curious how it differs from paragraph 13 your honor if I can have one second I think I'm looking at the wrong order I want to make sure I'm not looking at the wrong order it's just the provision regarding the banks being authorized to honor

appears to me they're somewhat duplicative you said these were this is paragraph 13 and 20 yes well let me just put it this way I don't need to put you on the spot right here and now I know you have discussions to have with other people when you're having those discussions consider whether you need both of these paragraphs and with that we'll do your honor I will enter the order your honor yes before before I was judge informed that my understanding of our intercompany transfers is was not 100% correct we also would need that authority to to pay some of the other payments that we're seeking in the other motions, like taxes and insurance.

So we'd ask that that relief be expected to authorize intercompany transfers on an interim basis only in connection with the motions that we're seeking today. Subject to committee coming back and reviewing it. Thank you, Your Honor. It's a quick question before we proceed further. Do you need a forecash management order today? Yes, Your Honor. Okay, so let me, I know.

you have some discussions and negotiations do with other parties that form of order needs to be at our chambers by 530 today understood your honor okay all right your honor could we maybe take a brief recess then I'm a little concerned if we run too late here and we don't get a consensus and then we have to come back to your honor to our adjudicate the dispute that we have if not all of the objecting parties agree does it make sense that's fine because unfortunately, I just, you know, at some point I lose staff the docket orders and what have you. So I'm happy to take a quick recess.

If we could take 15 minutes now and we can work with the parties, if that's okay with your honor? That's fine. We'll reconvene at 445. Okay. If you could send, I'm sorry, if you could send the language around everybody, I know you plan to do that, but just if you include us, that'd be great. Thank you. Yeah, we'll make sure to include everyone. Thanks, ma'am.

Okay, thank you. Thank you, Your Honor. Thank you, Your Honor. Okay. on the record in prime core technology? Hi, Your Honor. I'm Darren Asman for the record for McDermott, proposed counsel for the getters.

So I believe we have four objecting parties. Mr. Forch has accepted the proposed language, which I'll go through in just a moment, Your Honor. Okay. Mr. I will not get this pronunciation correct. I'm sorry Mr. Isaac Kellian from Quinn Emanuel. They are okay with the language as well. We have not heard back from Mr. Nestor, but I'm hopeful that he can maybe give us his comments while we're on the line here.

And then the fourth, I'm sorry, Ms. Smith. Ms. Smith does not agree to the language. Ms. Smith has some additional language she wants to add, which is not workable for the debtors. Why don't I read again to your honor? It's the same language I read before, but let me bring it into your memory fresh. Okay. And then we can tell you what her issues are, and then hopefully Mr. Nestor can let us know if he's okay or not. It can be one second here on and pulling it up.

Okay. Your Honor, just to be a punch, we are okay. My client's okay with this. We're not letting, try not to let the perfect get in the way of the good. Thank you, Mr. Nestor. Okay. Thank you. Thank you, Mr. Nestor.

We appreciate that. So the language is as follows, notwithstanding anything to the contrary in this order, the debtors shall not use funds from customer accounts to honor any pre-petition obligations or pay for any post-petition obligations absent further order of the court. And before I tell you the second sentence, again, customer accounts is a defined term, and it references to the same defined term in the motion. The second sentence is, all parties' rights are reserved regarding whether and to what extent any funds or other property are held by a debtor in trust or constitute property of the debtor's estates.

Thank you. And maybe the last sentence I should just give you some context for very briefly. I think the idea there is that the estate may ultimately come to the conclusion that some of the assets in the customer deposit accounts are property of the estate. This is an issue that's front and center in every single crypto case that has been filed. I'm sure Your Honor is familiar with that generally. And likewise, I'm sure that the customers want to preserve the right to argue that other funds are not property of the state. And so it's designed to allow party the time they need to figure out, figure those issues out. Your Honor, Marcy McLaughlin-Smith, again, on behalf of Anchor Coin LLC.

For some additional context that I think will be helpful as to our position, AnchorCoyne is party to a trust agreement date of July 12, 2018, with the debtor-profit. the trust. This is not one of the master services agreements that's referenced in the first day declaration that the debtors are party to with certain customers. It's expressly called a trust agreement. In pursuant to that agreement, Prime Trust serves merely as a trustee with respect to certain depositant trust accounts. And those funds are deposited at the direction of Anchor Coin by its customers who are crypto token holders. So there's a circular relationship there between deposit of the funds with Prime Trust as the trust. and then Anchor Corps recognizes that in issues, tokens back out to the holders who, it is the

holders who have the property and trust with prime trust. And that agreement expressly provides that the prime trust is not entitled to any funds in that trust account at any time, nor shall any of those amounts deposited in the trust become property of prime trust, or subject to any death, liens, or other encumbrances of prime trust, and they're exclusively held for the benefit of holders. Based on Anchor Coins' records, there should be approximately $20 million in funds deposited with a trust account held by but not owned by the debtor. And so it's Anchor's point, Inker Coins' position that any language added to the order should express to provide that the funds that were to be held in trust by the debtors are not to be used or transferred unless in accordance with applicable law or an applicable contract. And this aligns with Supreme Court precedent that if a debtor does not own an equity interest in property,

he holds in trust for another, it is not estate property, and that's Bezier versus IRS 496 U.S. 5.3. And so our proposal is to add to the end of the first sentence that Debtors Council ran into the record, quote, nor shall any debtor use or transfer property, parentheses, including funds and parentheses held by it in trust other than in compliance with any applicable law or contract. And we think that that is sufficiently protective language for both the debtors and anchor coin because only the debtors know what accounts the funds to be held and trust by it were deposited into.

We have no idea whether the customer accounts contain the funds that were deposited by our customers in trust or if those funds were deposited into other accounts. Customer deposits is simply, I think, defined as the 17 customer accounts in the cash management order. And so in conclusion, Your Honor, we think it's well-settled law that property held and trust by a debtor for another is not property of the estate. And we had less than 24 hours notice of this hearing, Your Honor. And we don't think that we should be prejudiced going forward if there are funds that were deposited and to be held in trust by the debtors in an account that is not a customer account.

This is very difficult without having the language in front of me. Can somebody share screen and put your respective language on screen? Yes, Your Honor. Thank you. Is it up on the screen? It is. Oh, thank you. And, Your Honor, I have a marked-up version as well.

Marked up with your edit to his language? That's correct. Can you show me that, please? And, Your Honor, whenever you're ready, I had some responses, but I think it might be easier for you to see the language first. Thank you. Are you able to see just the Word document, Your Honor? I can.

Let me hear from the debtor. Yeah, Your Honor, the issue we have with this language is that there is inherent uncertainty in it. If they believe that there are any amounts, right, the language we're proposing makes clear that we're not going to use any funds absent court order that is sitting in the client deposit, the customer deposit accounts. If any creditor believes that amounts held in another account is held in trust, they have the burden of demonstrating all. We are, again, agreeing to not use funds held in the customer accounts for right now. That may have changed later, but no one has put forth any evidence that any funds in the next year, non-customer deposit accounts are not property of the estate. And I think the really important issue here to focus on, Your Honor, the agreement is one

thing. The agreement may say, and this is played out in FTCX and other crypto cases, the agreement may say that fine funds, customer funds are to be segregated and held in trust. But the real test in the Third Circuit and every other circuit, frankly, is whether the person that is asserting a trust exists can identify and trace the trust. trust funds if they've been commingled. And certainly there's no evidence of that today. And so to insert this language just creates ambiguity.

It's almost circular in that it says the debtors can't use trust funds, but there's no articulation about where this creditor believes trust funds offer other than in the customer deposit account. Ms. Smith? Your Honor, it's my understanding from my client that they have been trying to get information on where their trust funds are located in the way. which account through the receivership action and that they haven't been provided that information from the debtors. And so I'm certain that, you know, this will be the top of our list to try

to get that information. But I don't think that it should be a prejudice to us that the debtors requested this relief. The debtors know the language of this express trust agreement and that we should be prejudiced in this interim period because of information that we have not yet been able to attain despite our best efforts. Well, it's first a relief. I'm going to allow the debtor's language to maintain status quo and all rights are reserved for parties to present evidence at a later date thank you your honor we're going to some upload that revised order shortly and then I guess in the meantime if it makes sense we can continue on yes please and and your honor one other thing with respect to

submission of the revised order please submit a clean in a black line under certification of counsel Thank you. Of course, Your Honor. I look to turn things over to Ms. Candiston now to finish the rest of the matters in the agenda. Thank you, Mr. Steinman. Your Honor, again, for the record, Maris Candleston of Nick Germant-Will and Emery on behalf of the debtors. If it would please the Court, I would suggest proceeding with the matters that are uncontested in the first instance

and leave the one contested matter, as I understand it, with respect to the U.S. trustee towards the end. Okay. Which matters contest with the U.S. trustee? There are a few things that the U.S. trustees contesting with respect to our motion, the creditor matrix motion we're calling it. All right. So I will – sorry, Your Honor. No, that's okay.

You may proceed with the unconfessed that matters. Thank you. Item number three on the agenda is the debtor's application for the appointment of Strato as the debtor's court appointed claims a noticing agent, which was filed at document number 50. prior to engaging strato, the debtor solicited proposals from two other claims agents, consistent with the claims agent protocol, and the debtor selected strato based on its experience, competitive rates, and qualifications.

As the debtors have over 200 creditors, the appointment of a claims of noticing agent is required by the local rules. The U.S. trustee had no comments to this proposed form of order, and unless Your Honor has any questions, we'd ask that you enter the order approving this application. Does anyone want to be heard on the motion to retain Strato? Okay, I see no one. I've reviewed the application, the declaration, the proposed order. The relief is customary and required under the local rules.

In addition, the debtors have complied with the claims agent protocol, having considered at least two other court-approved claims agent. So I will enter the order granting the application subject to a clarification and modification. First, I may have missed it, but I didn't see a representation or a disclosure that strato is not a party to any agreement to provide claims data in exchange for compensation. Was that in there, or if someone from strato is on the line, if they can make a representation in that regard? Your Honor, I'm not sure someone from strato is on the line, and I'm happy to confer with them after the hearing, and even maybe include something in a proposed order to that effect? Yeah, or supplemental declaration.

That would be fine. The other question I have, and I don't know if perhaps this was changed with the U.S. trustee, but paragraphs 12, 13, 16, and 17 all relate to indemnification. And I was wondering if the trustee's office had any comment with respect to their, paragraphs and I'm trying to pull up the order that was uploaded there with me one second mr. Cootie do you see what I'm referring to yeah your honor I'm trying to pull that up myself at this point I mean there's a pair of 12 refers to indemnification on an engagement as modified by the order and then paragraph

13 indicates are entitled to indemnification And then paragraph 16 says notwithstanding anything in the engagement letter. And then paragraph 17 again refers to indemnification. As standard procedure, Your Honor, we normally, if there is an indemnification procedure in the, you know, in the engagement agreement, we normally modify it to conform with United Artist standards. Right. Like I said, I'm trying to find that order right now myself. You're looking for that.

The other question I had is the relevance of paragraph 14 in connection with the retention of claims agent. Your Honor, I think this is likely just boilerplate for orders, and I'm happy to remove it. Yeah, I think it should be removed in the context of this retention. With the expected indemnification, the reason I bring it up is because it doesn't seem consistent with what's generally required by the United States Trustees Office, or at least it should be modified so that it's in one or two paragraphs. It creates a little bit of ambiguity being in four different paragraphs. We're happy subject to Mr. Qudea agreeing to synthesize those paragraphs. Thank you. I think that would be appropriate. Do you need that order today?

I don't believe so. I think Monday would be fine. Okay. I just want to make sure you have ample time to look at it. So if you could just put that, that would be great. Yes, sir. And I'm happy to work with Ms. Candleston on the order. Okay, thank you. Okay, Ms. Candleston. Thank you. Your Honor. Item number five on the agenda is the debtor's motion to pay certain pre-petition taxes and fees, which was filed at docket number five. In the ordinary course of the debtor's business, the debtors incur various types of taxes, including franchise, property, commerce, and income taxes, and they also pay various regulatory and licensing fees.

And for the reasons set forth in our motion, the debtors are seeking authority to pay taxes and fees that accrued prior to the petition date and an aggregate amount not to exceed $75,000 on the interim basis. Your Honor, the U.S. trustee didn't have any comments to this proposed form of interim order. And so we do ask, Your Honor, to enter the order subject to any questions and concerns you have. I only had two questions with respect to taxes, and one was, and maybe I'm just reading this sentence wrong, but in paragraph three, it references the final order in the second and the last sentence that says this final order.

Yes, Your Honor. We'll fix that. And then the only other question I had is, Peref4 that deals with straddled taxes, is that necessary in an interim order, or is that something that can wait to the final order? Your Honor, we'd be happy to push that to the final order. I mean, given the comments that have been raised today,

let's put that off to a final order. With that, I have no other comments, and I'll enter the order. Thank you, Your Honor. The next item that I'm handling is item number seven on the agenda. It's the debtor's motion to pay employee wages and other benefits, which appears at docket number 19. Debtors' employees are really the lifeblood of this business and are critical to the success of these cases.

Debtors currently have about 70 employees in independent contractors. And as Mr. La testified to in his declaration, following entry of the cease and desist order by the Nevada Division of Financial Institutions on June 21st, The debtors reduced the size of their workforce, including through executing furloughs. And as a result, many of the debtors' current employees have been forced to take on additional workloads and responsibilities. The amounts that the debtors are seeking authority to pay are set forth in the chart, appearing on pages 14 and 15 of a motion, as well as in paragraph three of the proposed interim order. As provided, the debtors are seeking authority to pay compensation and related expenses

in an amount not to exceed $156,000 in the aggregate on the interim basis. And the debtors are also seeking to make payments on account of employee benefits and an amount not to exceed $167,600 in the interim. Your Honor, the U.S. trustee didn't have any comments with respect to this order. I did want to make note of one thing, though. We erroneously listed employees as notice parties in this motion, and I wanted to make it clear on the record that we are not in terms. to serve this motion or any of the orders approving it on employees.

We made the U.S. trustee aware of this prior to the hearing as well. So with that, Your Honor, unless you have any questions, we ask that you enter an order approving the motion on the interim basis. Does anyone want to be heard with respect to the employee motion? Okay, I see no hands, and I hear no one. I've reviewed the motion based on the facts and circumstance described in the motion as supported by the first state declaration. I'm prepared to approve the motion, the facts and circumstance of the case,

establish the importance of the employees to the debtor's business. Also, Rule 603B, standard is met. I find that immediate and irreparable harm would result if the interim order isn't entered. So I will enter the order, and I believe that all of the comments I have have already been addressed. So thank you. And thank you for putting your honor. I appreciate the charts in the form of order. I will make a note of that going forward.

And Your Honor, the remaining item on the agenda is item number two, which is the debtor's motion, sinking entry of an order authorizing the debtors to a few things. File a consolidated creditors as well as a consolidated list of their top 50 unsurred creditors, redact the personally identifiable information of the debtor's current and former employees and customers from public filings in this case, and to serve parties solely through electronic means, and specifically the debtors seek to serve customers by email in instances where the debtors have a valid email address on file, and the customer has neither designated a physical mailing address,

and nor have they requested to be served with hard copies of notices in this case. And then the debtors also seek to serve non-customers via email in instances where the debtors have a valid email address, no physical address on file and where the customer has neither designated a mailing dress nor requested to be served with hard copies of pleadings in this case. As I mentioned earlier, the U.S. trustee has two objections to the relief requested in the motion. My understanding is first the U.S. trustee objects to the debtors request to seal the names of their customers and employees.

It's our understanding that the U.S. trustee has no objection to our request to seal the physical and email addresses of these, of these, of these, of these, parties. And second, the U.S. trustee has an objection to our request to serve parties by an email. And, Your Honor, at this point, I would like to proffer the testimony of Jor Law, who is still in the virtual courtroom, in connection with the debtor's request to seal, as well as to serve parties via email. Okay, let me ask, does anybody object to use of a proper? Your Honor, Joseph Cudia for the state's trustee, and don't object to the use of a proffer provided its subject cross-examination should I need.

Certainly. You may proper subject to cross-examination. Thank you, Your Honor. If called to the stand, Mr. Law would testify as follows. With respect to the debtor's request to seal the names of its employees, he would testify that he has been informed that while the company was operating, there were instances of employees being threatened physically and were electronically by crypto-enthusiots, and that these threats triggered security changes at the debtor's corporate headquarters.

Mr. Law would further testify that he has been informed that one such example of this was when a crypto enthusiast posted a message hoping that the company's employees would, quote, go to jail or go die, end quote. He would also testify that his understanding is that targeted attacks such as this are not uncommon among crypto enthusiasts. Mr. Law would testify that he has been informed that members of the debtor support team have used pseudonyms in the past when responding to support tickets due to individuals attempting to contact them on personal communication channels. He would further testify that he would not expect the circumstances to improve by virtue of the bankruptcy filing. Mr. Law would also testify that creating a centralized public list identifying the debtor's

current and former employees would unnecessarily put employees at risk for receiving additional physical threats and or cyber attacks. Mr. Law would also testify, that the debtors initiated some reduction in force and furloughs following the issuance of the cease and desist order by the Nevada Financial Institutions Division in June of this year. He would testify that the debtor's current workforce is compensating for the loss of these employees by taking on additional responsibilities and workloads. He would also testify that the crypto industry is experiencing a period of consolidation and that employees with statistics skills or knowledge are at a premium.

Mr. Law would testify that the debtor's current and furloughly, employees have irreplaceable institutional knowledge and specialized skills that are critical to the success of the debtors restructuring efforts. He would also testify that creating a centralized public list of these employees would open them up to poaching by competitors and other companies during his critical stage. With respect to the debtors' request to deal the names of customers, he would testify that some of the debtors' corporate and institutional clients act as integrators and that they contract with the debtors for services that ultimately benefit the customers of these integrators. In other words, the end users of these services are customers

of the integrators. He would further testify that given the nature of the debtor's custodial business and commercial agreements, the debtors often enter into contracts directly with these end users. Mr. Law would further testify that in many instances, the debtor's commercial agreements maintain that customer data and confidential information constitute property of the integrators, not Prime Trust and that the agreements provide that the integrators retain all legal rights with respect to any customer data, including confidential information of the end users. He would also testify that the debtors are required to maintain the confidentiality of such customer data and that the debtors agreements provide that the debtors are required by law

to disclose this information. They must provide notice to the integrators prior to making any such disclosure and work with them to obtain entry of an order protecting the information. He would further testify that the public disclosure of customer data and confidential information could trigger a post-pedition violation of these agreements. Mr. Law was testified that the disclosure of these names, the names of these indirect and direct customers was severely jeopardized their lucrative relationships with their corporate and institutional clients. He would testify that since the filing of the Chapter 11 cases, he has been informed that the debtors have received inbound requests from integrator customers requesting that the debtors'

not publish their names in the public domain. Mr. Law would further testify that the debtor's customer lists are highly proprietary and the public disclosures of the identities of their direct and indirect customers would give their competitors an unfair advantage and cause irreparable harm to the debtors restructuring efforts. With respect to the debtor's request to serve the debtors direct and indirects, with respect to serve parties via electronic mail, Mr. Law would testify that he has been informed that the debtors communicate with their customers via email and that there are very few instances, if any, where the debtors have communicated with customers through more traditional mail channels

and that their agreements provide that customers will receive statements via email and that they will not receive hard copies. Mr. Love would testify that the debtor's commercial agreements generally contain the following language. I'm going to quote, each party hereby agrees that all current and future notices, confirmations, and other communications regarding the agreement specifically and future communications in general between the parties may be made by email, sent to the email address of record, without necessity of confirmation of receipt, delivery or reading, and such a form of electronic communication is sufficient for all matters

regarding the relationship between the parties. He would further testify that the agreements further contain language to the effect of, again I'm going to quote here, No physical paper documents will be sent to customer, and if customer desires physical documents, then it agrees to be satisfied by directly and personally printing at customer's own expense, either the electronically sent communications or the electronically available communications by logging on to the customer's account, and then maintaining such physical records in any manner or form that the customer desires. Mr. Law would testify that it is his understanding that the debtors have email addresses for their customers on file,

and that service by email is not only the means by which customers expect to be served, but is the quickest, most reliable, effective means of reaching the highest number of customers with important notices in these Chapter 11 cases. He would also testify that it is his understanding that there are approximately 50,000 non-customer creditors listed on the matrix in this case, and that there are approximately 5.4 million customers listed on the creditors matrix. He would further testify that the costs associated with serving customers with notices via regular mail, and when necessary through expedited means such as using Federal Express, would be exorbitant and given the customer's expectations with respect to receiving communications from the company,

such service would be a waste of the company's very limited resources. Sir Law would testify that he has been informed that the cost to serve the notice of commencement in this case would approximate, we'd come to approximately $10.2 million. He would further testify that he has been informed that the cost to serve these parties via email is

drastically less than the service by regular mail. And that would conclude Mr. Love testimony with respect to this motion. Thank you. Mr. Cudia? Cross-examination? Yes, Your Honor. I have just a couple questions for the witness.

You may proceed. Mr. Law, please turn on your microphone. Please raise your right hand. Do you affirm that you will tell the truth, the whole truth, and nothing but the truth to the best of your knowledge and ability? Yes. Please state your name and spell your last name for the record. Your law, last name, Law, L-A-W. Thank you.

Your Honor, I don't mean, Kim, Terrible. I just wanted to briefly introduce my partner, Joe Evans, who's here on Zoom. He's going to be defending the cross. I didn't want you to be confused as to who he was or why he was objecting if there's any objections. Okay. Thank you. Good afternoon, Your Honor. Good afternoon. Mr. Cudia.

Good afternoon, Mr. Law. Good afternoon. My first question is there's a substantial amount of the creditors in this case that are not directly in privity with. the debtors here. Is that correct? I'm not sure that that is correct. We have agreements with integrators, and the integrators have end users, and in many cases we have direct contracts with those end users. Okay, but you would agree that there are creditors that are not directly contact the debtors on a regular basis.

Mr. Lull, just for the record, can you confirm you're in the room by yourself and you're not looking at anything when you're answered Mr. Cudius questions? Yes. Okay. I assume you're looking at the ceiling, but go ahead. I was being left-minded looking back. Sorry. I am not sure how to answer that. we, you know, if a customer has a relationship with us, they usually have an agreement with us.

Okay, and maybe I can rephrase it. I believe you stated earlier that the debtors do contract with other entities who have their own end users. Is that correct? That's correct. And the heart of my question is, do those other end, do you know if those other end users have also consented the service by mail? I'm made by email. If we have a direct engagement with them, then in general, yes. But you don't supply, you don't make customers of your end users aware of the policies that you have for customers, correct?

It is my understanding that most end users of integrators are aware of this and enter into a direct relationship with us. All right. Thank you. Those were my questions, Your Honor. Okay, thank you. Your Honor, with that, based on the proffer testimony of Mr. Law, and for the reasons set forth in our motion, the debtors respectfully request that the court overruled the objections of the U.S. trustee and approved the relief requested in the motion as fully set forth therein.

I'd like to hear our argument from Mr. Cudia. Thank you, Your Honor. Joseph Cudia for the United States, Trustee. As far as the email issue, As I'm sure you're aware, Rule 2002 requires notice to be sent by mail. Rule 9036 does allow for email notices to be sent by email, but parties have to consent in writing to such service. And it's not the absence of assistance on mail that is the standard there.

As far as the redaction of the names, the U.S. trustee generally objects to the objection to the redaction of names, not email addresses or addresses, basically on a general right of access to court records. And I don't believe that the debtors can demonstrate undue risk of identity theft or unlawful injury, merely due to exposure of the names without other identifying information. Now, as far as the proffer that was given, I was made aware of that just a few hours ago that the proffer was going to be made and the contents of same. To the extent, Your Honor is inclined to grant these, I ask that there will only be on an interim basis so that the U.S. trustee may be heard on full notice and fulsome briefing.

Okay. It's all I have, Your Honor. Mr. Cudia, I recall, and I might be wrong about this, but the other crypto cases have permitted service by email. Is that your understanding as well? That is my understanding, Your Honor. Okay. I'm going to overrule the trustee's objection,

but I'm only going to allow this on an interim basis to allow a fulsome hearing on this or notice. So I would ask that the order be an interim order and that this be scheduled for a fulsome hearing of the second day. Yes, Your Honor. Thank you. We will make those changes and upload the order. Okay. With that, Your Honor, I believe that concludes our agenda for today.

I had one other comment. I'm sorry. But paragraph 9 of the matrix order, the first sentence didn't make sense to me. I think there's a word missing. I think it should be notwithstanding the above, the debtor shall file publicly without redacting. I'm not. The debtor shall file, yes, the any. It should be file any public filings, which is a defined term in the motion.

Oh, take out the law. Yes. Which, you know, we'll clean out. That would make sense. Okay, that's terrific. Thank you. And if you'll just put in a hearing date and objection deadline and make it interim, we'll have a final hearing. Clear.

Thank you very much. And Mr. Cootia, thank you very much for working with the debtors on their first days on short notice. And particularly, I appreciate your concerns with respect to the notice issue. and I want to give you a more fulsome opportunity to address that issue. Thank you, Your Honor. Is there anything further for today? Your Honor, it's Mike Nester again. Yes.

Sorry. Maris, you're going to say something? That's okay. No, I was going to shut you down, but you go ahead. Oh, nice shot. I just getting back to the budget, and we appreciate Your Honor's guidance on coming back to you next week. Hopefully we don't go there, but we'll see what happens. With respect to the professional fee line items that don't exist at this time because no retentions have been filed at orders, et cetera, et cetera. I assume those are just accruals that nothing's being done. The money is still staying with the debtor.

So if I'm incorrect, let me know. But I assume that's the case since, you know, no one's really been retained at this point. And if that is true, then we're done for the day. Your Honor, it's Darren Asman from McDermott, proposed counsel for the debtors. the accruals are being funded, unless Ms. Candice and Stimann, corrects me, I believe the accruals are being funded into an escrow, but they're not certainly not being paid to any professionals absent, retention applications, fee applications, of course, that are required. Is it, I'm sorry, is it a segregated account at the debtor?

Is it a separate escrow account with a separate bank with an escrow agreement? I'm just trying to understand if the funds are out of the estate or in the estate and what the basis would be to take them out of the estate, if they are up at the estate. Your Honor, the debtors are in the process of finalizing agreements to set up that account. So at its time, I mean, we don't have, we're not sure what type of form it will take. But I guess, well, we all appreciate there will be no payment of professionals absent a retention and B, some type of payment mechanism,

whether it be interim compensation or fee order, right? But the question I think Mr. Nestor is asking is, is this an account that is being set up and held by the debtor that's simply segregating fees? Or are these fees being transferred out of the estate? Or otherwise, no. No. Go ahead.

I'm sorry, Your Honor. It is a new segregated account to be held by the debtors. That's fine, Your Honor. If it's just a segregated account over which the debtor has control, completely fine. Thank you very much. Okay. You said it better than I did. Is there anything else pending for today or anything else we need to address?

No, Your Honor. I think we're all done here. We did just upload the revised cash batch in order, I believe. and so we appreciate your honor sticking around to that certainly I don't mind being here I really very much appreciate the court staff for sticking around so I hope you all have a great weekend we stand adjourned and if you should need the court you know where to reach us thank you all