American court hearing recordings and interviews - Season 1. Episode 4. January 4, 2023. In re FTX Trading Ltd., et al., chapter 11 bankruptcy case no. 22-11068, audio of hearing held in the FTX/Alameda et al. bankruptcy proceedings pending in Delaware, USA #crypto

Episode Date: March 9, 2023

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Good afternoon. This is Judge Dorsey. We're on the record in FTX Trading Limited case number 22-11068 and FTX Digital Markets Limited case number 22-11217. This was a scheduling conference that I requested. I'll give the same admonishment I've been giving at the beginning of the Zoom hearings in these cases. This is a formal court proceeding. I expect the parties to conduct them. accordingly and anyone on the call to conduct themselves accordingly. Any disruptions will not be tolerated. If there is a disruption, you will be removed and not be allowed back into the Zoom hearing. Unless you are going to be presenting, please keep your camera turned off. And as I mentioned at the beginning, this is a scheduling conference, so unless you, you know, I'm not going to hear any arguments on any motions or hear complaints from anybody. who has something they might want to say in some future hearing will reserve those for a later time.

So with that, I'll go ahead and turn it over to debtors council. I guess the US debtors council, I should say. Let's have a double hearing here. Good afternoon, Your Honor, James Bromley of Sullivan and Cromwell on behalf the debtors. Would you like to take appearances for those who speaking or would you like me to just begin? No, you could go ahead and begin. I've got the list of everybody who's. appearing here so I can and I assume that those who are have their cameras on are

expecting to make comments so go ahead thank you your honor the I'm here with my colleagues Brian Gluckstein whose name is appearing under my face so I'm I'm averaging up today and Alexa Cranesley we have a number of matters with respect to scheduling we'd like to discuss the first I will deal with which has to do with the joint provisional liquidators, and there are a number of matters that are on for consideration. I see that Mr. Zaki is here from Whitenkase. We have been in conversations over the past several days,

notwithstanding the volume of papers that have been filed, we've also been trying to have conversations about moving forward on a constructive basis. And based on communications that we've been having between our offices over the past several hours. I think that we have come to a point where we believe that it's appropriate to inform the court that we would like additional time to try to reach an agreement, and that we would not need to go forward on Friday with respect to the hearing on the motion to compel.

We would be at the court's convenience. We would look for a hearing sometime in the next week, near the end of next week. that would give us time to allow us to meet in person and see if we can come across the finish line with an agreement that will resolve most, if not all, of the issues that exist between the JPLs and the debtors. Okay. Mr. Jackie, go ahead. Sorry, Jason Zagher, you play the case on behalf of the JPLs and the Bahamian debtors. I agree with what Mr. Brumley said. we've been working in parallel paths so while there's been a fair bit of litigating we've also been

negotiating and I think that if we could have obviously your on our schedule is what it is but if you had a date at the end of next week to give us I think we could use that extra time constructively okay um end of next week that puts us to the 13th 12th or 13th um I can do the 13th any time after 11 or later. Whatever time works for the parties. Chair, Your Honor, I would suggest if it works for Mr. Brownlee and his clients that we take the earliest start time you have, so I'd suggest 11? That works for the debtor, Your Honor.

Okay. We'll go ahead and move the January 6th hearing to the 11th, or excuse me, to the 13th at 11. Friday the 13th. Yes. I'm not super serious, so. And Your Honor, that we would move all of the pending matters with respect to the JPLs out to that date. Hopefully we would have an agreement. If we don't, we can then talk about scheduling at that time. When you say all of the matters other than the motion to list day and turnover, what else are we talking about?

Well, there's the petition for recognition. There's a motion to dismiss the case with respect to one of the U.S. debtors. There's a motion for provisional relief, which I believe may be mooted by certain events that occurred, as well as the motion to compel. So the motion to compel is scheduled for hearing on Friday this week, and we would just suggest that everything be moved off until the 13th. If we are unable to reach agreement, we would go forward on a contested basis on the motion to compel on the 13th, but we would also be able to discuss scheduling for all of the other matters that remain open.

Okay, I got you. You're not asking to schedule the other matters for the 13th. No. Okay. All right. No, Your Honor, if I could, I think just to preview, we're hoping to resolve this if we don't, I think the parties may have different views as to how to schedule those matters. And I agree with Mr. Bromley, that's something we could take up with the court next week. I do want to update the court with regard to the provisional relief motion. This concerned a motion that we had filed to take custody of certain bank accounts that were in the name of Chapter 15 debtors.

As Mr. Bromley mentioned, since we filed that motion, the United States government has taken certain actions with regard to those accounts. We are in contact with DOJ and also with the Chapter 11 debtors and other parties and are trying to see if we can find a consensual path forward with regard to that. So I don't think there needs to be anything done with regard to that motion at this time. And we hope to come back to the court with a agreed path forward. But I did want to update you about it may be mooted. It may not depending on certain details, but there have certainly been developments. I just wanted to make sure the court has for that. Great.

Thank you. I appreciate it. All right. Your Honor, Chris Hansen, may I be heard for a second? Go ahead, Mr. Hansen. Yes, Your Honor. So this is Chris Hansen with Paul Hastings, proposed counsel to the official committee of unsecured creditors.

I just wanted to introduce myself and my partner Ken Pascuali, who's on as well, and informed the court that we have been involved in the discussions with the debtors and the JPLs, and we are also hopeful that we can get to a resolution. Okay, great. Thank you, Mr. Hansen. All right. What else do we have? Your Honor, sorry, one other detail, given next week's hearing, set for the 13th, Your Honor had set a deadline for our reply of today. One of the reasons we wanted the extra time is we don't think further pleadings being filed now will be constructive.

So if we could roll that deadline to next week as well, which I see, whatever works for the court, I would suggest the 11th. But if Your Honor would like more time to read it, we could do the text. So any objection, Mr. Bromley? I'm sorry, Your Honor. Just as Mr. Zankea was speaking, a fire alarm started in our courtroom here. So I didn't hear it. I'm sure I'm okay with it, but if you could just repeat the date, I appreciate that. The 11th.

He's looking to move the date to the 11th. That is fine. Yeah, one week. That's fine, Your Honor. Thank you. That's fine with me as well. Thank you, Your Honor. All right.

I know we have to schedule the trustees' motion to appoint an examiner. That's another one that we need to talk about. And before we go to that, I just want to make sure I don't forget this because I've forgotten that the last two times we've talked, because of the size of this case, we are going to have to appoint a fee examiner. So I would ask that the parties meet and confer and come up with someone, including Ms. Sarkeesian in those discussions as well, so we can get a P-examiner on board.

Thank you, Your Honor. Juliet Sarkeesian for the U.S. trustee. Our office would obviously like to schedule the examiner motion as soon as possible. Have there been any discussions amongst the parties on trying to schedule a date for that? No, Your Honor, because I believe Your Honor had stated that on February 11th, there would be a status conference. regarding scheduling that motion so we have not actually discussed dates as of yet okay I forgot I'd said we would talk about on the 11th why we go ahead and now we have the committee council on board why don't you coordinate with them and see

you can come up with an agreeable date to have that motion heard thank you your honor and if not between now and the 11th then we'll talk about it on the 11th Thank you, Your Honor. The U.S. Trustee has a request regarding scheduling. I don't know if you want to hear that now. Are there other scheduling matters to be addressed first? Well, I don't think we have any particular order, so go ahead as long as you're here. Thank you, Your Honor.

Your Honor, for next Wednesday, January, the 11th, by my count, there is at least 21 applications and motions that are scheduled to be heard. This includes bid procedures. The debtor's request for final approval to redact customer names and other information from various filings to which the U.S. trustee has filed an objection, as well as many, many retention applications. Of the 21 items, 16 were filed just a few days prior to the Christmas and had objection deadlines of today just a few days after New Year's, although the date. debtors have agreed to extend our objection deadline to this Friday and I believe the same for the committee. From our office's standpoint to address such a large number of items over the holidays vacations had to be canceled but it was still a large number of items a large number of matters to deal with in a very short

period of time over the holidays. So we have sent a lot of questions and comments to debtors' counsel about these many motions and applications, we have received responses to some of those, but not to others. We are, with respect to the information we have received, and we do certainly appreciate the debtors, you know, providing this information. Some of it was quite extensive, but we are still digesting it, and we may have follow-up questions, and we will be asking for supplemental disclosures to be filed with respect to certain of the professionals and we may also be filing objections regarding some of the

retentions. In light of this situation, the U.S. trustee is asking for a continuance of five of the retention applications and an adjournment of the hearing. Those five are Sullivan and Cromwell, Winemannual, Alex Partners, Alvarez and Marcel, and Pirella, the investment banker. There would be no prejudice to these professionals. since all retention applications seek non-protunk relief, and the U.S. trustee will not be objecting to non-protunk relief. The additional time would also allow us to hopefully resolve a number of open issues and therefore limit what we have to bring before the court.

And in this case, Your Honor may be aware. The debtors have sought to have a four-month extension of the time the time to file their schedules and statements and Rule 2015.3A reports. They have also yet to file any monthly operating reports. The first one is already passed due, and they've indicated they're seeking to file those at the end of March. And we certainly understand that the debtors have a lot of pressure on them with respect to these very important disclosure documents, but at the same time, they want to move quickly on a large number of retentions in motion. and starting bid procedures.

So in light of all of that, we would ask to have that additional time with respect to the five particular retention applications, I mentioned, and we certainly appreciate the court's consideration of our request. Thank you, Your Honor. Anyone object to pushing those off? Your Honor, from the debtors.

I'd like to see the voting to my colleague, Alexa Cranesley. I think the debtors do have an objection to moving it off. Thank you. Good afternoon, Your Honor. for the record, Alexa Cranzley from Sullivan and Cromwell proposed counsel for the debtors. Your Honor, we echo Ms. Sarkesian's comments. We have been working very closely with her

and responding written and orally to questions and comments as she has received. With respect to Sullivan and Cromwell, we have now gone through two rounds of comments, and we submit that with another week remaining between now and next week's hearing, that the debtors are ready to proceed, and we are willing to work with Ms. Sarkesian on any additional questions that she has and on a supplemental declaration to include additional disclosures as necessary. This is likewise true for the other professionals that were named. We have been responsive to the various questions and comments on the proposed forms of order. We are amenable to working with Ms. Sarkesian on extending objection deadlines and working

with her with respect to those. But given the size of this case and the importance of the work that has been done by the professionals, the debtors' respect that we continue and proceed with these retention applications, applications next Wednesday. Well, Ms. Sarkijian, are there any of the five you're requesting that you are anticipating you might object to the retention? Well, Your Honor, we do have one sort of overarching objection which relates to certain professionals that are being retained to conduct investigations of the kind that we believe would be appropriate

and can only be performed, frankly, by an examiner. And so we would have that objection. With respect to other more, I would say, granular details, again, we're still digesting. We haven't gotten back responses to all of our requests. I don't believe we've gotten anything on Porella. We have gotten responses on the others, but we have to digest the information.

And so I can't say at this. point in time whether we would have other objections. Again, we are trying to walk through this material, but it's a lot. And in addition to the spot, there's a lot of other things, you know, we think we can work out. And I, with respect to extending the objection deadline, it's certainly appreciated a further extension. I think the difficulty comes with the hearings on Wednesday. The agenda is due on Monday. Any reply that the debtors would have would actually be due on Sunday, I believe, at 4 p.m. So there's not a lot of wiggle room for further extensions unless the debtors are, you know, willing to not file a reply, or if the court is willing to have

items being filed after the agenda. All right. Well, I'm sympathetic to the fact that while debtors have a lot of resources and a lot of lawyers to produce these motions, the U.S. trustee's office has more limited resources available to it and given that there are 21 motions on for the 11th and by the way another hearing a contested oral argument on a motion to dismiss at 2 o'clock that day so my time is going to be implicated as well so i'm going to grant the motion to move those five retention application hearings to it looks like I have a time blocked out at 10 a.m. on the 20th for a motion filed by BlockFi, a stay motion. We can hear those retention applications at that time that gives Ms. Sarkeesian a little more than another extra week to be able to

address those five retention applications. Thank you, Your Honor. That's greatly appreciated I think that that will absolutely be enough time for us I guess the only thing I would ask is should we set the objection deadline now or is that something you would like us to work out with debtors council why do you try and work it out and see if you can come to an agreement on that I'm sure we can debtors council has been very cooperative I certainly do not want to imply in any way otherwise and we do appreciate the additional time I think we will be able to use that to really limit the issues that we will be before the court thank you

honor thank you anything else for the miss archesian on the from your office on scheduling no no your honor that's it okay thank you all right do we have any other scheduling issues then did we take care of everything your honor sorry Adam Landis here from Landis drafting Cobb Delaware Council to the debtors proposed over counsel for the debtors. I'm jumping in because I have gotten a message from a Department of Justice attorney Seth Shapiro who's on and has his hand raised and is trying to make a statement or to address the court and he can't he can't jump in so I just wanted to do that. I do see it now as it could mean as to him in the court. Yeah go ahead Mr. Shapiro you can turn your

camera on as well. Thank you. I'm trying to turn the camera on but for some reason it says that the host has disabled it. Yeah? Well, I did turn you off because we had a bunch of people, had the cameras on at the beginning of the hearing, but we'll see if we can get you turned back on. But if not, go ahead in the meantime. I can hear you, this is the most important part.

Yes, Your Honor, and thank you for hearing me. I'm appearing on behalf of the criminal prosecutors for the United States, both in the Southern District of the York and the criminal division, and we wanted the court to know and connection with the in the FTX digital case, in connection with the JPL's motion for provisional relief that certain assets have been seized. We didn't want the court to just read that in the papers

that were filed by Silvergate for Moonstone. So if your honor has any questions about the accounts or cryptocurrency that's been seized, please certainly let us know. We're trying to work things out with the parties, but if we can't, those matters will be heard at a later date. There is another sketch matter as well in connection with the FTCS trading matter that's on the court's docket for January 20th.

That stay motion relates to an adversary proceeding filed in the Blockeye bankruptcy proceeding in New Jersey related to Robin Hood's shares, which the federal government has also seized or is in the process of seizing, and we wanted your honor to know about that as well. We either believe that these assets are not property of the bankruptcy state or that they fall within the exceptions under sections 362, B1, and or B4 of the Bankruptcy Code. So we can address those issues at a later date, but we did want the court to know about those seizures. Okay.

What, which, I saw there, I did see one pleading where one of the banks indicated that the funds had been seized. How many banks are there and which ones are they? And have they all been seized at this point, the ones that were subject to the motion? The ones that were subject to the motion that had money in them, Your Honor, we believe those accounts have all been seized and all the money related to those accounts either has been seized or is in the process of seizure. Of course, that's not the end of the story. There, of course, would be a criminal and or civil asset forfeiture proceeding at some point down the line in the Southern District of New York to which entities could file claims.

So we're in the process of speaking with the parties about that, about where those matters should be, We're trying to work out an agreement, but if we can't, ultimately, there will be a criminal and or civil asset forfeiture proceeding in the Southern District of legal. Okay. Thank you. I appreciate that, Mr. Graham. Okay. All right. Any other Mr. Davidoff?

Thank you, Your Honor. Good afternoon, Brian Davidoff from a law from Greenberg, Gloucester in Los Angeles. Your Honor, I do see on the agenda for hearing today is a escape. is a scheduling on the motion that my client had filed, North America League of Legends Championship Series, which is operated by Riot Games. That hearing is currently scheduled on the 11th. I certainly note that Your Honor has a number

of matters scheduled for that day. Your Honor, that motion requests relief from stay or alternatively to compel the debtors to reject the agreement. The debtor separately had filed a motion to reject contracts which they have scheduled for February 8th. I've had communications with Ms. Cranesley in an effort to get a stipulation whereby our motion would be granted,

since both parties are looking for the same result, that is for rejection of the agreement, we would also, agree with the debtors which they have requested in their motion that the rejection is effective December the 30th, which is when they filed their motion. Ms. Cransey has indicated that they wanted to wait until after the objection deadline to their motion, which I believe is January the 13th. The objection deadline to our motion is scheduled for today. And so what I was hoping that we could discuss with Your Honor is simply a stipulation with the debtors whereby they

stipulate to the relief in our motion and we resolve this matter entirely both for January 11 and February 8. Ms. Kaisley? Thank you, Your Honor. We had understood from your chambers that Mr. Davidoff's client's motion is not being scheduled to be heard in January 11th. We agree that their objection deadline is in fact today. Our position, as Mr. Davidoff had articulated, is our – the objection deadline with respect to our motion is next Friday, January the 13th. So we would work with Mr. Davidoff in the meantime on a mutual stipulation to resolve the issues,

but we believe we should wait until the passage of the objection deadline for our motion before we put that stipulation on file in case there are any issues or objections raised by any parties in interest. Well, I think that's right. I mean, the motion was set on a regular notice. There was no request for a shorter notice on that motion. And while it's probably unlikely that anyone else is going to object, I do need to leave it open to see if somebody does.

I mean, we're only talking about a few days here, Mr. Davidoff. If you wait till the 13th, then there's no objection. It sounds like the debtors are willing to enter into a stipulation that could be filed. Well, the 16th is a holiday. This court will be closed, but it could be entered on a 17th if there's no objection. Your Honor, I appreciate that, and I do recognize it's merely a matter of a few days. I did want to mention to the court that every day in January is an important day for my client because right now, FTX still fills the slot on their schedule,

and they are preparing for their new championship series. the one comment I would have, Your Honor, is that by following this procedure, it's as though the debtor's motion, which was subsequently filed to our motion, is in effect mooting out our motion, and I'm not sure why that is, since our motion was filed before the debtor's motion, and, again, the objection deadline on that motion is today. Well, that's actually a good point, Ms. Cranesley, if... There's no objection to their motion, which is due today. Is there any reason you can't enter to the stipulation and have it entered either tomorrow or Friday?

Your Honor, if that's the court's position, we're happy to proceed with that. Okay, let's do it that way then. Appreciate it. Thank you, Your Honor. You're welcome. Okay, anything else? Do we have any other? Your Honor.

Go ahead. I'll see the podium back to Mr. Bromley. Okay, Mr. Bromley. Thank you, Your Honor. I just wanted to come back to Mr. Shapiro's comments for a moment, and I certainly thank him for making those comments. But given that the intense press coverage of everything that goes on here, we just want to make sure that there's clarity as to what has happened. The seizures that have taken place were ordered by the court in connection with the criminal actions in the Southern District of New York with respect to Mr. Bankman-Fried. Ms. Ellison and Mr. Wang.

And just so that's clear. That's where those seizures have come from. Number two, the two things that are being seized. One has to do with the Robin Hoodstock. As the court is aware, there had been prior to the seizure order ongoing litigation, both before Your Honor and before the Block FI Chapter 11 case in the District of New Jersey Bankruptcy Court. And so the question is to the ownership of those Robin Hood shares was an open question before the seizure took place. There's also a receiver proceeding that has commenced in Antigua and Barbuda in connection with the Robin Hood Shares.

So those shares were already at issue. We are obviously reserving our rights with respect to the debtors and expect that the other parties are as well, but just wanted to make sure that it was clear that the Robin Hooders that were being seized were being seized from accounts that are not currently under the control of the debtors. And finally, Your Honor, with respect to the bank accounts, those are the bank accounts that were the subject of the joint provisional liquidators motion, bank accounts that were purportedly in the name of FTX digital markets, the company that is in provisional liquidation in the Bahamas. And so none of the assets that are being seized are assets that are currently under the control, direct control of any of the FTX debtors that are before your honor. We certainly believe we have rights with respect to those assets, which can be dealt with later,

and we are in alignment at the present time with the U.S. government and the law enforcement officials in taking these steps. Thank you. I appreciate the clarification. I'm sure members of the press appreciate it. as well. Makes it a little clear. Let me ask what, I haven't looked at the motion that's scheduled for the 20th, the stay motion. Is that, we anticipate this is going to be an evidentiary hearing? Well, Your Honor, I think at the moment the question remains as to what will go forward or needs to go forward in light of the seizure. And I know that Judge Kaplan, and there are two Judge Kaplan's the positive use. There's a judge Kaplan.

the Southern District of New Yorkers dealing with the criminal action and Judge Kaplan in the bankruptcy court in New Jersey. So I will just refer to SDNY in New Jersey rather than Judge Kaplan with no disrespect. There is a pending action in front of the New Jersey court as well as the motion before your honor on the 20th. At this point, it may be that the seizure that has taken place or is in the process of being taken place will move one or both of those, but we are still in conversations as to whether or not that is going to be the case.

I don't want to make sure I'm going to block out all day on the 20th just in case it turns into a longer hearing than anybody's anticipating. I think that's a good – the appropriate thing to do, Your Honor. If it does go forward, we would need to present evidence and need the court for the entire day. As soon as we know anything different, we will let you know. Okay, action. Thank you. Okay.

Anything else that needs to be scheduled? So you're on here. Sorry. Go ahead. Briefly. Jason Zakea. So just a follow up on Mr. Bromley's comments and Mr. Shapiro's comments with regard to the government's action with respect to the digital markets, bank accounts. That's the same action I referenced when I made my reference.

remarks earlier and as I believe Mr. Shapiro mentioned we are working with the government trying to find a consensual path forward obviously this goes without saying but to the extent that those efforts fail we would reserve our rights would require to those funds I understood thank you all right anything else going nothing more from me that question I know okay well thank you all very much oh go ahead mr. just just figuring out say I just wanted to mention for the record that Campbell has been very very courteous in giving the United States time. The debtors' counsel has given us until January 12th

to respond to their stay motion. And the provisional liquidators have also extended our deadline to a date to be decided. So I just wanted to make sure that's clear on the record. And for the court's benefit, we will file a notice of seizure so that the court is aware and has something in the docket that shows what's actually been seized by the US government so that if we don't end up resolving it,

you know, it'll be clear for purposes of litigation what is actually in the government's possession. Thank you. Thank you, Mr. Shapiro. All right. Well, thank you all very much. I appreciate it. This I think was productive. I'm glad we had this call.

I'm glad to hear that the parties are still working towards a resolution of the issues. And hopefully we'll be able to do this in a cooperative way and avoid having to have a hearing later on. So with that, we are adjourned. Thank you all very much. Thank you, Your Honor. Thank you.