American court hearing recordings and interviews - Season 1. Episode 5. January 11, 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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So before we begin, let me just remind everyone about proper decorum, both in the courtroom and for those who are appearing online through the Zoom call. It's important that we maintain proper courtroom decorum. If you are on the Zoom call, please leave your camera off and your line muted unless you wish to be heard regarding one of the matters that are before the court today. And disruptions won't be tolerated. to anyone disrupting on the Zoom call will be removed immediately and not allowed back in. Before we begin, I also want to address a letter that I received from four U.S. Senators. It's an inappropriate expert of that communication, number one. Number two, I want to make perfectly clear that I will make my decisions on the matters referred to in the letter based only upon admissible evidence,

and the arguments of parties and interests presented in open court. I am going to docket the letter. In fact, I did that this morning. But it will have no impact whatsoever in my decisions in this case, which will only be based upon the facts and law presented by the parties. So with that, we'll proceed. Good morning, Your Honor, and may it please the court. Adam Landis from Landis Rath and Cobb,

counsel to F.TX Trading Limited and its affiliated debt. We're here today, Your Honor, on Second Day Relief. We filed an amended agenda. It's 27 pages long, Your Honor, 30 items on it, but thanks to the very hard work of many people in this room and lots of people out of it. I'm pleased to say that we have a limited number of matters that Your Honor is going to have to hear and decide today. But before we get into the agenda, I'd like to see the podium to Mr. Deerick, who will give the court and parties an interest in the matter. and parties in interest and update as to activities that have been going on since we will ask before you.

Thank you. Thank you, Mr. Landis. Good morning, Your Honor. May it please the Court, I have a short case update for the record. The debtors filed for Chapter 11 60 days ago. The level of activities since has been extraordinary. We've identified over 9 million customer accounts with about 120 billion associated transactions. We are engaged in a complex effort now to recreate

petition date claim values for every customer. We are building financial statements from the ground up using the general ledger and bank transaction records rather than the previous incomplete and unreliable financial statements of the debtors. This will put us in the position to describe the financial results of the debtors accurately for the first time. We have located over $5 billion of cash, liquid, cryptocurrency and liquid investment securities measured at petition date value. This does not describe any value to holdings of dozens of illiquid cryptocurrency tokens,

where our holdings are so large relative to the total supply that our positions cannot be sold without substantially affecting the market for the token. The 5 billion liquid assets also does not include approximately 425 million of crypto petition date values in the custody of the Securities Commission of the Bahamas. That position was valued at about $170 million at the end of 2022. It contains a large amount of FTT and is highly volatile. We have started a strategic review process for our assets. We have established data rooms and solicited interest for the four operating subsidiaries

subject to the bidding procedures motion today. We also are well underway on plans to monetize over 300 other non-strategic investments with a book value of a $4.6 billion. We have established, Your Honor, cooperative relationships with the joint provisional liquidators in our only subsidiaries that are subject to separate proceedings, Australia and the Bahamas. Our recently announced cooperation agreement with the JPL and the Bahamas is an important first step to align incentives and maximize joint recoverers. The principle of that agreement is simple.

It does not matter who collects a dollar for customers as long as the customers get it. We've established a task force with the official committee of creditors and the Bahamas JPL to explore alternatives for the sale or reorganization of the international platform. We have cooperated and spent countless hours providing information to law enforcement. These 60 days have already seen Mr. Bainteman-Free indicted,

arrested, extradited, released on bail, and plead not guilty with a trial date set. We have seen Ms. Ellison and Mr. Wayne plead guilty, make public police statements and cooperate with law enforcement. And we have learned about what happened. We know how Sam Bainman-Fried instructed Gary Wayne to create the Alameda backdoor, a secret way for Alameda to borrow from customers on the exchange without permission.

Mr. Wang created this back door by inserting a single number into millions of lines of code for the exchange, creating a line of credit from customers to Alameda to which customers did not consent. And we know the size of that line of credit. It was $65 billion. We know what Alameda did with the money. It bought planes, houses, through parties, made political donations.

It made personal loans to its founders. It sponsored the FDX arena in Miami, a Formula One team, the League of Legends, Coachella, and many other businesses, events, and personalities. It gambled on cryptocurrency investments, often unsuccessfully. And it made debt and equity investments in diverse businesses. at prices that greatly exceeded market value at the time of the investment. We know that all this has left a shortfall in value to repay customers and creditors. The amount of the shortfall is not yet clear.

It will depend on the size of the claims pool and our recovery efforts, but every week we come closer to completing the work necessary to estimate recoveries for the purposes of a plan of the organization. We also have begun to engage on the central legal issues in the case. These include the nature of customer entitlements, are they property or claims, and how to close out derivatives to calculate petition date claim on us. Finally, we have established great working relationships with the U.S. trustee, our new official committee of creditors, welcome, and regulatory stakeholders around the world.

Many people and many institutions have worked hard to get us here today. Chapter 11 is a fishbowl, and we welcome that. In this case, more than most. And as a result of the effort by so many, we stand before you with only limited open issues on our second day of leave. This is despite the volume and the unique nature of many of the issues everyone is faced together. And those you have questions for me, Your Honor, I propose we move directly to the agenda.

As Mr. Landis mentioned, it is an extremely long agenda, but it is mostly matters that have either been adjourned or reflected in orders that have been either entered or in a group form. For our point, your honor, I'll see also Mr. Hanson is raising a stand. I'll see the podium to him. He will like to make some preliminary law.

Thank you. Good morning, Your Honor. Chris Hanson with Paul Hastings, proposed counsel to the official committee. Just quick introductions. My partners, Eros Glad, and Gabe Sasson are here with me today as are Mr. Lund and Mr. Property with our proposed co-counsel, Young Conaway. The committee has also selected FTI Consulting as its financial advisor and Jeffries as its

investment banker. Your Honor, the committee worked very hard behind the scenes with the debtors and the United States trustee to try to make this hearing as consensual as it could be, and we appreciate the willingness of both parties to approach the motions on for today in a constructive manner. With this being the committee's first formal appearance before the court since its formation, I want to just take a moment to share a little bit of information about the committee and provide the court with the committee's perspective on the cases at this time, if that would be okay.

That's fine. Thank you. Your Honor, first, the committee's comprised of nine members, including three individuals and six entities from eight different jurisdictions spanning from Singapore to California. The committee members have brought exposure across the FTX exchange platforms and sadly share the moniker of victim with the millions of other customers who were defrauded by FTX. The committee members understand the seriousness of the their task to serve as fiduciaries for all creditors in these cases, and to that end,

they will check the debtors at every step of these cases and take independent actions and generate their own initiatives to recover assets and maximize the distribution to creditors as rapidly as they can. To date, the committee members have been active, engaged, and hard at work with the committee professionals in helping to resolve near-term issues, inserting itself in the investigation and asset tracing efforts that are underway by the debtors, and pushing the analysis of larger issues such as whether the exchanges can be restarted and a restructuring path can be pursued as a complement to the asset recovery, monetization, and distribution efforts. And it's important to note that it's not too soon to start that exercise.

The committee also believes strongly in the principles noted at the outset of our reservation of rights on the debtor's motion to approve the bidding procedures. These cases need to be transparent, credibility needs to be restored, and creditors need to know that they can trust the Chapter 11 process. As part of this effort, the committee is preparing a multifaceted approach from communicating with the global creditor community in these cases, which will include dissemination of information

not only through the standard committee website, but through various forms of social media. The committee is aware of the disappointment of customers and creditors with information sharing efforts in some of the other large crypto-related cases, and we're trying to learn from that to do better here. The magnitude and complexity of the global fraud and the lack of the corporate controls and regulations

keeping present significant challenges to the realization of the committee's objectives. But the committee will work tirelessly to make its goals a reality. We appreciate the few minutes, Your Honor, and the committee looks forward to working through these cases with you, the United States trustee, the Department of Justice, the Indian liquidators, and all the other parties in interest. And you'll hear more from us as we go through each motion today. Do you have any questions for me, Your Honor? No, no questions.

Thank you very much. Appreciate you. Thank you. I may institute something that I did during the Malencroft bankruptcy when I have a dozen page agendas with a lot of items that are moved off. I know the local rule says you have to list everything in them. What I did in Malencrout was say if an item has been adjourned or it's been resolved if it's been adjourned specifically.

You don't have to list everything out. Just put in the motion and that's been adjourned to a different date. Thank you, Your Honor. For the record, Adam Landis, I see that you're directing that at me. And we will absolutely take our cues from what we were involved with in Malincrot. And I also would be remiss if I didn't extend some appreciation to chambers for the patients with which everyone has dealt with us. as we've tried to get matters on the agenda.

So thank you for that, and we will take that advice. All right. Thank you, Your Honor. Good morning for the record, Alexa Cranesley from Sullivan and Cromwell, the House Counsel for the Debtors. Your Honor, if acceptable to you, I will cover the matters that are listed on the agenda that have been resolved, so I'll go slightly out of order. I'll start with item number 19 on the agenda. Oh, let me interrupt you first, Ms. Cranzley.

I did see the three additional COCs this morning, and I did enter those right before I came on the bench. Those are entered. Great. So then I think then I only have one agenda item to address with you, which is item number 25 and 26, which is actually the motion of North American League of Legends to compel rejection or the alternative relief from the automatic stay

to terminate the sponsorship agreement. Your Honor, while this is a third-party motion, the debtors had filed a motion to reject contracts on December 30th, docket number 33 which included the sponsorship agreement that's the subject of this we have been working with the counterparties we haven't agreed to stipulation and i understand from council that they will they will be filing a certification of council with the stipulation later today okay i remember that from the last hearing yes um so i think with that i'll hand the podium to mr bluxtean okay thank you good morning your honor morning uh bryne gluckstein solved and cromwell

on behalf of the debtors. Your Honor, the first contested matter on the agenda today is listed at agenda item number 20, which is the debtor's motion for final relief asking the court to authorize consolidated credit matrix and to adapt certain customer and creditor information. Your Honor, we filed a declaration at docket number 411 declaration of Kevin Kofsky in support of the relief requested today.

Mr. Kovsky is here in the courtroom and available. We would like to admit Mr. Kovsky's declaration into evidence in support of this motion at this time. Is there any objection? Step forward. You've finally broken loose from work. Three friends, one tea time, and then the text. Honey, there's water in the basement. Not exactly how you pictured your Saturday.

That's when you call us, Cincinnati Insurance. We always answer the call because real protection means showing up, even when things are in the rough. Cincinnati Insurance, let us make your bad day better. Find an agent at CINFIN.com. If he's testifying as a fact that I don't think he is, but there's no indication that he has first. And if he's testifying as an act,

He has not established his expertise. There's nothing indicating that he has any experience in the cryptocurrency market. He testifies a couple of paragraphs, paragraph 7 and 8 of his understanding, but does not identify the source of his understanding so that the court can determine the credibility of his understanding.

He also testifies repeatedly as to his belief, again in quotes, quotes as to certain conclusions, as in paragraphs 8, 9, 11, and 13. He does not offer any objective support for his subjective belief. U.S. Supreme Court in doubt. Hold on one second. Mr. King, I'm up, or can we, it's kind of, I don't know if the people in the back of the courtroom can hear those microphones that need to be turned up. I can try to talk louder.

Or you can lift them. And talk louder would be helpful to you. All right. As the Supreme Court in Daubert said, to satisfy the requirement of specialized knowledge to qualify as an expert, there must be more than a subjective belief or unsupported speculation. As Mr. Kovsky did not provide support for his belief and understand he does not meet the requirements

for an expert and declarations to therefore be stripping. Mr. Luxkine. Your Honor, I have a similar objection. No, go ahead, Ms. Sarkchian. Thank you, Your Honor. Who's the support you, it's Harkesian on behalf? of the US trustee I thought it might make sense for me that gives my objection now so the debtors council can address everything at the same time so I first of all the US

trustee does agree that some of the testimony and mr. Kovsky's declaration appears to be of the nature of an expert witness and his expertise in this area has not been established in particular in paragraph I have I have questions to ask Mr. Kovsky about the statements in paragraph 7 of his declaration, depending as to whether that's based on personal knowledge. So depending on his answers, I may object to that. But with respect to paragraph 11, he has statements like, it is common knowledge, and then later in paragraph potential buyers of the debtor's assets

will likely ascribe material value to the debtor's customers list. And then I also object in paragraph 12 at the end he cites a valuation expert that is somebody other than himself and quotes out of I guess it's a book. So we object to that as hearsay. And again I do have some questions with respect to some of the information in paragraph 7 to determine if that's based on his personal knowledge. also have cross-examination for the witness as well. Thank you, Your Honor.

Any other objections? Mr. Glockstein? I'll tell you up front, Mr. Glockstein, if I have an objection to the admissibility of a declaration, I usually just allow or require that the witness just testify lie. And maybe we can resolve some of these issues by testimony. Go ahead if you have any. That's fine, Your Honor.

Mr. Kovsky, the debtor's proposed investment banker. He's offering his opinion. in the in the in the decorations with respect to matters that are raised by the motion today we think it is admissible if it's your honor's preference I'd have to call mr. Koski and walk through the issues in his declaration let's do that let's call mr. Kosky to the stand and we'll do it live deal with any objections as they come mr. Koski please take the stand and remain standing for the oath Kevin Michael Kowski C-O-F-S-K-Y I do

Your Honor may approach to witness and give him a copy of this declaration yes could you hand me I can't seem to find that I usually have these things electronically but I have a copy for you as well okay thank you good morning mr. Kovsky good morning Dr. Kovsky can you provide a little bit of background about your experience for the court this morning yes Would you like me to go through education or a little bit about your work experience and qualifications in the area of scope in which you're performing services for debtors? Ms. Kossack, can you please move the microphone closer to you?

Yes, sir. Thank you. I studied finance at the Wharton School of Business as an undergraduate. I was a financial analyst who I was. hand loki for two years from 1992 to 1994. After law school and practicing law for a period of time, I returned to investment banking in 2001. I was with a firm called the Beacon Group,

as well as Evercore Partners, where I was a managing director in the restructuring group. I joined a small firm. small firm that merged into Perel-Weinberg Partners upon its founding in 2006, and I have been with the firm since that time. I've been a partner with the firm since 2015. And can you describe the court just generally the scope of work at which yourself and your colleagues at Porella are proposed to assist the debtors with in these cases? Yes, we are the proposed investment banker for the debtors.

We've been working with the other professionals and with the management team and the board on a wide range of issues, including understanding the assets of the debtors, evaluating potential for reorganization of some of the businesses, as well as potential sales of the businesses, and in general, our mandate, is to explore different potential avenues to maximize the value of the debtor's assets through this process. Your experience, Mr. Tchaikovsky had, prior to this case, have you been involved in situations where the monetization of businesses includes the monetization of things such as customer assets or customer lists? Yes, I have been. Can you elaborate that at all in terms of the types of work you've done in that area? Yes.

Most recently we've been involved in the Celsius bankruptcy case pursuant to which the customer, the value and the potential value of the customers has been at issue, but we've also seen what we are not running in the sale process. evaluating that and we appreciate the extent to which potential acquires of that business have evaluated the value of the customers and their various positions on that platform. Are there other examples that you could recall where the question of customer assets or customer lists have been an issue in transactions that you

team have been involved in in the past? Yes, the identity and value of customers are often considered to be quite valuable in the context of retail businesses, consumer-facing businesses. I'm going to object. Basis? I think he's testifying about what potential buyers look for. does not have personal knowledge about that. Well, he's an investment banker.

He buys and sells companies, right? I think, Your Honor, if he could be more specific about the basis of that knowledge and exactly who he's talking about. I want to set a foundation for his knowledge, Mr. Clarkson. Mr. Koski, can you back up a half-step and explain to the court, do a role in transactions,

that you can recall that have involved customer assets in the past? Yes, I want to try to be specific because this is a unique situation, and I would refer most specifically to in my declaration. I think the other exchanges, the other crypto companies, and the extent to which they clearly have indicated, that they value the identity of customers. And they have all of the other crypto companies that we have evaluated have programs in place

to compensate for the provision of that information. We've also been a party to situation, as I indicated most recently, in the Celsius case where we have seen that bids have explicitly provided incremental value for each customer that is acquired. Have you, Mr. Kovsky, considered as part of your work as proposed investment banker in this case, the jetters customer list that they have available to them here? I'm sorry, can you repeat that question?

In the context of the work that you've done, that you're doing as the debtors proposed investment banker in this case, have you considered the debtor's customer list as part of the strategic review that you've undertaken? Yes, we have. With respect to the ongoing strategic review, have you, as the debtor's investment banker,

the view as to whether there is value in the debtor's customers? Yes, we have, and we do believe that there's value in those assets. And can you explain for the court the basis for that conclusion? Yes. We believe that whether the exchanges are reorganized or whether they are sold in connection with our process, both the exchanges that we're currently marketing as well as the core business that we're currently evaluating, we believe that the value of the business is maintained and maximized by ensuring that competitors are not able to solicit those customers and onboard them onto their platforms in a manner which would result in a reduction in the value of the estate.

So for example, if other businesses that compete with FTCS had the identity and were able to locate these customers, solicit them, put them on their platform while FDX is in bankruptcy and not currently operating in the ordinary course, that would reduce the value of the estate, whether the estate ultimately is able to reorganize its core business, or whether third parties are evaluating the acquisition of those exchanges, they will place, in our view, a greater value on those exchanges if all of the customers are maintained on that platform and have not found another exchange on which to transact. Mr. Kovsky, with respect to when we talk about the customer information,

Do you view it important to maintain during your strategic review process the anonymity of both names in addition to contact information or are contact information alone sufficient? It's a very good question and we looked into that. We reviewed the customer lists. There are a number of customers whose names are unique, and we were able to very quickly locate them. You've finally broken loose from work. Three friends, one tea time, and then the text. Honey, there's water in the basement. Not exactly how you pictured your Saturday.

That's when you call us, Cincinnati Insurance. We always answer the call because real protection means showing up, even when things are in the rough. Cincinnati Insurance, let us make your bad day better. Find an agent at CINFIN.com. Searches, relationship databases, and we came to the conclusion that it would be quite easy to locate, identify, and contact those customers, even starting with only the customer names and that relates to individuals as well as businesses. Sotovsky, if you could look at the declaration that you submitted in this case.

Is it a part of you? Yes, I have. It's filed a docket number 411 entitled Declaration of Kevin Kempke and supported the debtors motion for entry of an order authorizing the debtors to redact and hold certain customer in information. Mr. Kovsky, were you involved in preparing the declaration that was submitted to the court at docket number 411? I was. And do you believe, to the best of your knowledge, that the information presented in your declaration, reflects your views, again, to the best of your knowledge? Yes, I do.

If you go to paragraph 12 of your declaration, you state in the first sentence there. Additionally, it is well established that customer information, such as names and contact information are separately valued and tangible assets of an . You see that? I do. Can you explain for the court the basis for the statements

that you made there in paragraph 12 and beyond that sentence in paragraph 12? Yes. I would answer that in a number of ways first. As indicated further in this particular paragraph, in the context of a business combination, as that's defined by accounting standard codification 805, intangible assets are valued and allocated in a certain manner. and customer-related assets, customer lists, are a component of that. We thought that that was significant.

I also indicated in the paragraph having reviewed some academic literature, in particular the book by Jeffrey Cohen, Intangible Assets, Valuation and Economic Benefit, again the value ascribed to customer list particularly the economic value that is indicated particularly by instances where companies choose to keep that information secret to the extent that they can in addition as I indicated in the prior paragraphs it was very relevant, in our view, significant as we evaluated this particular situation and the landscape, the competitive landscape within which this company operates, that all of its competitors

value this information. This is a new and expanding field, and it's not entirely clear to businesses that are seeking to expand their asset base and their customer list. who they should be targeting. And so all of the competitors that we looked at indicated that they provide economic, they ascribe economic value to these customers, and the indication of that was, I won't read through the words on the page, but the finance and Coinbase and Cracken and Q-Coin all provide financial incentives for the referral of customers, and the retention of customers.

We also reviewed the bids that had been submitted in the Voyager case and in the SELCES case and took note of the fact that not only were customer assets and lists being acquired and the value ascribed to the business itself, but that there were actually incremental elements of value which would be allocated to each customer that went onto the acquires. platform. And in the initial case of the prior bit from FTX to Voyager, to the extent that customers maintained their accounts on the platform for a period of time, they would receive incremental value. And so there was specific value ascribed to each customer, the name, the identity,

the assets as they moved on to the platform. of the buyer. Thank you. With respect, Mr. Gossack, if you look at paragraph 13, your declaration, the last paragraph there. Yes. You write in the declaration in the last sentence, I believe an important component of that strategy

is maintaining the confidentiality of customers' identities of personal identifying information. And then you end by saying, disclosing those customer lists would therefore jeopardize the debtor's ability to maximize value. Do you see that there? I do. Do you stand by that test in a lawyer this morning?

I do. Can you elaborate for the court review as to why disclosing the customer list would jeopardize the ability to maximize value? Yes. As I indicated, whether we reorganize, are able to reorganize the businesses or whether there will be an acquisition of the court business and the other exchanges, is we believe that the business itself is comprised of a number of components and a significant component of the business is the customers themselves. The customer assets are obviously important, but what the customers choose to do going forward will be a significant driver of value.

And we think that third parties will place significant value on that in a sale process. So to the extent that those customer lists, the identity, of the customers are able to be maintained without broad disclosure that will give buyers confidence that what they are buying is actually of value and that they alone will be able to maximize the value of putting those customers onto their platform I think the same logic holds for a reorganized entity to the extent that the exchange is able to be rehabilitated and reorganized it will in our view have more value if those customers have not been poached and are by competitors and are

therefore not transacting on another exchange mr. Cajkovsky paragraph six of your declaration submitted to the court you turn there said you write in the first is the debtors with the assistance of PWPF commenced and extensive outreach is part of marketing the debtors' businesses and assets for potential sale? Do you see that? Yes, I do. And that sentence is accurate, correct?

Yes, yes, it's correct. Do you have any sense at this time how long the process of outreach and monetization of assets and your organization is likely paid? We have filed the bidding procedures for the four exchanges, as you know, and have a time frame enumerated in the bidding procedures. We've had significant interest in those assets to date. We would expect that we will be in a position to evaluate those potential. If the court approves the bidding procedures and if we move forward with that process, we would

would be in a position to evaluate those bids relative to a standalone reorganization of those exchanges in a matter of months. I don't want to be too specific because we're at the earlier stages of that process and there's a lot of work that needs to be done. Similarly, the core exchange, as the UCC Council indicated earlier, it's not too soon and we have already initiated a review. of a reorganization of the core exchange, and that process is ongoing.

We, as you know, have not launched a cell process with respect to the core exchange, but we expect to run a simultaneous reorganization as well as sale process for that exchange. It's difficult to say with too much specificity at this point given the work that will need to be done in the collaboration with the UCC on the broader exchange process, the sale as well as the reorganization efforts.

But I would expect that we'll be talking a matter of months before that type of a sale and evaluation of a reorganization will be initiated robustly. Thank you, Mr. Koste. No further directorial. Thank you. Cross. Thank you, Your Honor, for the record. Juliet, Sarkeesian on behalf of the U.S. Trustee.

I just have a question of clarification. Debtors counsel asked the witness, you know, did you participate in drafting the declaration? Is it true and correct to the best of your knowledge, information, belief? I just want to be clear that the affidavit itself is not coming into evidence, and it is only the witness's testimony that is coming into evidence. That's correct. Thank you, Your Honor. Mr. Kovsky, you spoke about

doing a search using just the names of the number of the debtors customers to see if you could find other contact information based on their names, correct? Yes. By contact information, I assume you know, an email address, a street address, something, telephone number, something of that nature. Yes, as well as information on social media platforms, ability to identify the individual. we believe identify the individuals and their interest in crypto. And identify them in a way that you could communicate with them? Yes. How many names did you do that search for?

I directed my team to evaluate that. I believe of the 9 million customers, it was not close to 9 million. more than a dozen, dozens I believe, enough that once we had a sufficiently high probability of hit rate, we believe that was indicative of our ability to identify these customers. Let me try to pinpoint this down. You're saying a dozen, a dozen? What's the correct number? I don't have a specific number.

I believe it was in the high teens. In the high teens? Yes. Okay, so less than 20. I believe that we chose to search for under 20 and our hit rate on those names was very high. In other words, we were able to, based on the names, locate information, and be able to correspond with, we didn't correspond with, but we'd be able to... correspond with, but we believe we would be able to correspond with customers over 50% of the names that we searched on. Okay, so you searched less than 20, and out of those 20 names, about 50%, you would have been able to,

you were able to get some type of contact information or some way to contact those individuals. It was over 50%. I don't know the specific probability, but yes, I think that generally characterizes my comments. And you did not run any of these searches yourself. I actually did run one or two, but in general I asked my team to do that, yes. And the names you picked, did you say that they were unusual names as compared to a Sue Brown? Yeah, it's a good question. Because to the extent that they're generic names, John Smith, Mary Jones, yes, we agree. That would be difficult to identify the specific purpose.

by the specific person. We looked at names that were not of that type. And in general, I was also very interested. I reviewed the customer list myself to assure myself that this was an accurate assessment and to evaluate, to your point, whether I thought that these names in and of themselves were meaningful. And there were, again, I didn't do a search of the nine

million customer names to give and I can't give you a specific probability or percentage, but a significant, the vast majority of the names were not of that type, were not of the John Smith, Mary Jones type. You mean the vast majority of the names that you searched or the vast majority of the 9 million names are not? I can't say the 9 million names. I looked through the database and scrolled through the first several hard. hundred largest. So I went through a customer size order. And the vast majority of the names I saw

were of a unique type that I believed were not of the John Smith, Mary Jones type, where it would not necessarily be useful to do a search for those. Were a good number of those names not, I guess I would say common, say American names, where they names that might be names of people living in other countries or names of, you know, not a Sue Brown, but Sue Brown's a very American name. You know, we have customers right all over the world, right? So a name that might sound a little unusual in the United States might not be that unusual in India or China. Isn't that true?

I think I understand your question. In my experience, there's a wide-examination. variety of names in the United States we didn't place a lot of value in whether the name sounded Western or sounded Asian for example we did a we tried to have it just an unbiased perspective as we did the search are you are you personally familiar or knowledgeable about how common a particular name might be in China or India not sure how to answer that question. What I can tell you is that when we did the searches to the extent that there was a, if there had been a large result set from a particular search such that we didn't believe

that we would actually be able to locate and contact and correspond with a customer, then that would have put that name, regardless of the reason, in the category of names that we did not believe we could actually contact your search, again, regardless of whether it was a common name or for any other reason. They didn't have a social media presence. They protected their identification. I didn't speculate. Thank you.

Now, with respect to non-individual, institutional customers, and I understand that it would probably be pretty easy to locate contact, information for an institutional customer. Right? You agree with that, right? Depending on the institution, it may be easier. Yes, institutions generally have more of a footprint. Although there are some institutional customers

that might not be that easy to find contact information for. You're saying smaller institutional customers? I shouldn't use institutional, non-individuals. Are there some non-individual customers that might be harder to find contact information? information for it with just the name and nothing else? I, can you repeat the question?

I'm not sure exactly what you're asking. I'll move on to a different question. With respect to non-individual customers, I think the best way to put this, companies that are looking for, competitors of the debtors, the competitors your concern might coach customers. With respect to non-individual customers, institutional customers.

Aren't there sources that those competitors could go to to define potential institutional customers that are interested in cryptocurrency or keeping accounts on cryptocurrency exchanges other than looking at a customer list of a particular of the debtors, for example? I'm sure if there are places where businesses that are seeking to acquire customers, I'm sure if there are indicators of interest in crypto, those businesses that are seeking customers have already utilized those external sources. I don't know how that – I guess I understand your question, but I'm trying to be careful about how I answer it only because I don't want to inadvertently share information about the customers.

but there are a number of institutional customers that are unique and the names of those excuse me institutions may not be widely known to the public or to the the competitors in this industry And so I don't know, I don't believe that simply that the existence of other information sources materially changes my testimony here. I think the critical element here is that these institutions and individuals have indicated by their activity on the exchange that they, participate in this particular activity and that they would be valuable to a competitor or someone interested in acquiring this business in the future

precisely because they have participated in this activity. Now, Mr. Kovsky, is it your understanding that prior to the bankruptcy filing that all of the accounts of the debtor's customers were frozen? Yes, I believe that's correct. And they've been frozen. since that time, correct? To the best of my knowledge, yes.

Are you aware that there are allegations of billions of dollars of customer funds and customer accounts were effectively rated to make loans to Alameda? You aware of those allegations? What's the relevance to his testimony, Ms. Sarkichin? I believe that this witness's testimony is that these customer names should not be disclosed because of the witness. they could be subject to coaching.

My point is that I want to, as this witness would develop, what the situation was coming into the bankruptcy with respect to these customers, and whether these customers might be

interested in moving their funds out of the debtor's accounts for reasons that have absolutely nothing to do with potentially being contacted by some other competitor. I mean, this is not a regular case where a business is having some financial trouble, they file for bankruptcy, they might be able to reorganize,

they could be able to keep the customers or if they sell the business, the customers may want to go with it. I would suspect that these customers may be rather upset about the current situation and therefore, I don't think poaching is the real problem here. If the concern is that these customers are going to leave the platform, I think they may be leaving the platform for reasons that don't have to do with coaching.

So that was what I was trying to develop with the witness, but I guess I can say that for oral argument that we want to do it that way. Yeah, I think it is outside the scope of his direct testimony. Thank you, Your Honor, I think that finishes my cross-examination. Thank you. On this particular motion, I will have cross on one of the other motions. I understand. Thank you. Thank you, Your Honor. Good morning, Mr. Cofsky. Good morning. Just a couple of preliminary questions, if I made before getting to have your stuff.

In your affidavit, you say you're a partner, Porella Weinberg, partner, is LFRIE, correct? Correct. And that is the debtor's proposed investment bank. I don't know if the court has been going to work for that. We're having a hard time hearing you, Mr. Finger. You can have to speak up on I'm sorry, Your Honor, ages has done this number of my voice. Porella is the proposed investment banker for the debtors, correct? Correct.

When were you asked to make this declaration to the best of your recollection? I don't recall if it was before the New Year or somewhere thereabouts over the holidays, I believe. So sometime in December, is that fair? Yes. I believe that's correct. At paragraph four of your application, you identify a number of matters you've worked on. You see that?

I do. Which of those involves a cryptocurrency? None of those involve a cryptocurrency. Page, at paragraph seven of your declaration, you say that the second sentence, a hallmark feature of cryptocurrency is a holder's ability to remain anonymous to the public. that? Yes, I do. You know whether, are you familiar with Bitcoin? I am. You know whether

Bitcoin can be traced to the holder? I wouldn't put it in quite those terms. When you say trace to the holder, I know that Bitcoin can be traced on the blockchain and it can be traced to the wallet. And so to the extent that one is able to identify, the owner of the wallet, one can trace to a particular user, but tracing to the wallet is not necessarily the same as tracing, identifying the owner of the wallet. So if you agree, are you familiar with circumstances where authorities have recovered Bitcoin or other type of cryptocurrency?

I'm generally... I'm tracing it to the holder. I'm generally aware of that, yes. I turn to the statement you make in paragraph nine. I do not believe that it would be difficult to look up, and in the case of debtors competitors, coach the debtor's customers if their names which may public. Now, the U.S. Trustee has asked you some questions on that,

and I'll try not to duplicate it. First, practically, the names you get, do they include the middle initial? In some cases, yes. Would you agree that it might be harder to trace someone, find someone absent the middle and the middle? I think you say harder than what? Harder than what? I'm sorry, I call it.

Two names. Joe Smith, that's it. And one says Joe Smith, and the other one says Joe Arsman. Would the R be an identifier that could make it easier to locate, right, crack down the only? If your question is, if you don't mind, I'll try to be helpful here. The greater the level of the identifying information as a logical matter, I would agree, the easier it would be to identify that particular user. In this case, we didn't look at the customer list and simply speculate about whether we

would be able to locate and potentially correspond with users. actually did the searches to determine whether that would be the case. So I don't disagree with the logic of incremental information being more useful than less information, but we didn't rely upon the logic alone. Thank you. Now, in response to questions from the U.S. trustee, you discussed the methodology your team used and the results they recovered, correct? Generally, yes, although I didn't go into too much detail about the methodology.

Have you made any documentation developed during that process to either of the U.S. trustee or me? You're asking, have we provided any documentation with respect to those searches and the results of those searches? Well, perhaps I'm being presented, so let me step back on it. In the course of that procedure, were there written notes or reports or results that were presented to you? I did not review any written reports. I don't know if they exist. I had conversations with my team. So you are reporting to us statements made by your team, correct? That's correct. You know whether there was any documentation, be it email,

be it written finding regarding the process and the result, and or the results. I don't know. As I said, I specifically recall that I spoke with the team and directed them to undertake these searches, and then we followed up with a physical conversation physical conversation regarding the results but i i don't know if there was any

correspondence among the team members but i don't recall having reviewed a report on this question so you as best as you can roll did your team report back to you orally yes that's correct so there's no way

there's no way anyone your trustee or the court can validate what your team do. Is that correct? Independently. I think it would be, it shouldn't be particularly difficult to independently validate. I think it would be, I don't think you need to have this customer list in order to undertake your own assessment of whether given, given, you need to have this customer list in order to undertake of whether given a particular set of individuals contact information or names, you would be

able to locate those individuals online and be able to find enough information to be able to contact them. But I think you agree in response to question for you as trustee that the degree of difficulty depends on the degree of commonality of the name, correct? I don't think that's exactly what I said. No, I paraphrasing that I agree. Yeah, I want to be clear that to the extent that there are names of the John Smith, Mary Jones type,

it would be very difficult to identify, it would be more difficult to ensure that identification of that particular individual would be the individual on the customer list, just given the common nature of the name. And so when we reviewed the customer lists, I personally reviewed the customer list to determine and evaluate the extent to which the predominance

were of that type or not, and my conclusion was that they were substantially not of that type. But yes, I would agree that to the extent that there's a very common name, it would be more difficult to locate, that particular individual. You know sure I understand.

Did you review... How did you select them? I reviewed the customer list to ensure to assure myself in the first instance that I wanted to understand

the relative size concentration. I wanted to understand the extent to which the names of the institutions or the individuals were unique or general in nature. I then asked my team, who's more technologically savvy than I am, to see if they would be able to locate these individuals or institutions by using generally available search technologies. And the response was relatively quick that there was a high hit rate in being able to locate these individuals. And to be clear, the information that we were able to locate was of a type that gave us a relatively high degree of confidence that these were the right individuals.

We didn't correspond with them, and so we can't say with absolute certainty. but their social media footprint indicated that they had a significant interest in crypto and we evaluated their postings on various social media platforms, et cetera, which gave us a high level of confidence that the individual who we were searching for was actually an individual that we had located. Please, I'm going to go ahead and just a little bit.

You said you reviewed the client, but correct? The customer list, that's correct, yes. How many customers are on that list? I'll make it really. At the opening day, counsel for the debtors use the number 9 million. Does that seem about right? I have seen the number 9 million.

I did not search through 9 million. How many did you serve? Hundreds. So I had an Excel spreadsheet with that information. and it had the identifying information and the entitlement amount. And I scrolled down, I can't say specifically, but several hundred, because I was interested to know exactly, again, as I indicated. I don't want to take up too much time repeating myself.

But I wanted to make sure that, again, these would be unique. names and identifiers were not. And what methodologies you used to determine that the 100 or 200 that you looked at were in terms of commonalities and names were representative of the list as a whole? This is all asking answer. I think we did go through this already, Mr. Fenger, there. We did, but I don't think there was a testimony that maybe I'm wrong, but I don't think there a specific question regarding how the determination was made as to whether this sampling

is a representative sample. I'll give you some leeway, go ahead, but let's not retread ground we've already been through. I didn't have a sophisticated methodology. I used my judgment that after having gone through page after page after page, it's relatively the same type of information. that that would be consistent. I knew I wasn't going to search through millions. And so after I scrolled through, I believe that I also asked my team to do a

a sampling. I didn't want to just focus on the largest 20 customers, for example. But to be clear, I just exercised my judgment and I didn't have a specific. have a specific rubric or algorithm. And did you have any guidelines in determining how common or uncommon are given them other than your own? Yeah, again, I did not have anything

other than my own judgment and my team's judgment to base that decision out. Thank you. I have no other question, thank you. Anyone else, Mr. Cross? Redirect. So, Kopsi, just very briefly, Council just pointed you to paragraph four of your declaration. That reflects certain experience.

Do you see that? Yes. Outside of what's listed there in paragraph four, can you just state for the court, I believe you addressed this in your overview at the beginning, but can you state for the court experience you have specifically an area of cryptocurrency-related companies? Yes, I have been involved. in a number of other crypto-related situations, including several capital raises for Bitcoin miners

and other crypto companies, not specifically focused on Bitcoin, but other cryptocurrencies, and other business models as well, including IPO advisory and liability management, liability management, both representing the company as well as representing creditor groups. Thank you. No further questions around. Thank you.

Thank you, sir. You may step down. Thank you. Any further evidence, Mr. Quakke? No, Your Honor. We're prepared to move to argument. Okay. Let me ask if the other objecting parties have any evidence they wish to introduce. No, Your Honor.

Thank you. Thank you, Your Honor. Again, Brian Glockstein for the debtor. for the debtors. Your Honor, with respect to this motion, most but not all, as we've just heard, of the relief requested in the motion

to protect the debtor's customer list and their creditors and to streamline disclosures is uncontested this morning. The purpose of the debtor's request to redact sensitive personal information of customers and other stakeholders

is to protect the value in the debtor's customer list as an asset and to protect sensitive personal identifying information of creditors. There is no objection to redacting the addresses of individual customers and other individual creditors. That information, subject to the court's approval today, would remain redacted. The U.S. trustee and the media objectors do object to the debtors redacted the debtors redacting customer and creditor names. And with respect to the U.S.

trustee's objection, the addresses of non-individuels. The objectors cite the general principles of the right public access to records and bankruptcy disclosure requirements. It does not articulate any specific harm being suffered that requires disclosure today of the names and institutional addresses on an immediate basis. Nor do the objectives recognize, in our view, the court's role in modifying those requirements for clause shown. Your Honor, the debtors have been working hard to strike the correct balance on this difficult issue,

particularly in the still early stages of these Chapter 11 cases, to ensure the protection of their assets and customer information, but understanding the need for disclosure and transparency. Your Honor, these Chapter 11 cases, as we've been hearing from when we first stood in front of you, are unprecedented, and the debtors recognize that they have generated significant public interest. These cases also present unprecedented challenges.

But the relief requested, including the redaction of customer names, has precedent in this court, in your honor's well-reasoned opinion in credit, where redaction of both names and identifying information of a cryptocurrency platform's customers was permitted. The court's reasoning applies here, but we submit the facts and the evidence before the court here are overwhelming against immediate disclosure, given the debtor's customer lists have more than 9 million names and addresses on. The U.S. trustee invites the court to rip up precedent in this district and instead to simply adopt the conclusions reached in the Celsius case by Judge Glenn in New York. We submit, Your Honor, that decision is an outline and certainly should not be wholesale adopted here.

But it doesn't need to be. In order to strike an appropriate balance as to the disclosure, while providing the debtors and other parties more time to evaluate options and ensure all restructuring options for the debtors, the debtors and their assets remain available. We are limiting our request today, as reflected in our reply papers, with the support of the creditors committee. the redaction of names of the debtors, customers and addresses of institutional customers, for an additional six months, subject to the right to request further extensions of the

redaction authority. These redactions are appropriate and necessary to protect the debtors' commercial information pursuant to Section 107B of the Bankers account. Section 107B, as the court is aware of course, permits the court to protect for cause the debtor's confidential information. Mr. Kovsky's testimony before the court makes clear that the debtor's customer lists in his opinion as the debtor's proposed investment banker charged with maximizing the value of assets in such a process, including both names and contact information, are a key asset and a source of value, potential source and value at a minimum for the debtors. Mr. Kovsky's testimony this morning explained the companies that operate crypto asset management

platforms work to identify new customers, attract and enroll them, and establish them as customers. Mr. Kovsky concluded that the debtors would be harmed by the disclosure of customer names, even with the redaction of addresses. When we heard on cross-examination questions about exactly how hard it would be, is it easier or harder with the middle initial to identify these customers and contact them. And we would submit, Your Honor, that level the question before the court today is not whether every one of the debtor's customers could be or even would be, immediately contacted by competitors.

Mr. Kovsky's testimony and the position of the debtors is that we believe there is significant evidence that that is likely to happen, at least with respect to significant customers, with respect to customers that are not known, as Mr. Kowski testified this morning, in his view, are not widely known to be customers in the cryptocurrency and digital assets face. We would submit, Your Honor, that the conclusion of the debtors the conclusion of the debtor's proposed investment banker is highly probative of the

limited question that's before the court. The court's conclusion in CRED overruled a similar objection from the U.S. trustee on similar ground. The court concluded there that the debtor's customer list had some, quote, intrinsic value. We believe here, that is clear. Where we're talking about more than 9 million customers compared to the 6,500 or so that were issued a friend.

Importantly, as I noted, while the case to keep customer names and confidential is in our view compelling, the debtors are seeking this relief today only for a limited period of six months with the right to reserve to seek extensions. Your Honor, I also want to briefly address the U.S. trustee's arguments that granting this relief for any period of additional time, which somehow hinder the administration of these cases. We believe that's not true at all. All of the necessary information, Your Honor, is being served, will continue to be served, and provided to parties in interest as required. The debtors have worked when other parties have needed to serve documents to take on that responsibility

and to serve documents on the debtors' credit of this where that is necessary. As in the interim order, the proposed final order that we've submitted includes the court's language that was developed in Fred making clear that all parties in interest retained the right to see copies of any redacted documents from the debtors or, if necessary, from the court. Your Honor, importantly, we believe that this balance is appropriate for today. If the redactions are granted on this basis to preserve the debtor's asset to allow the strategic review process that's discussed, that's an issue, I'm sorry, before the court in connection with the bidding procedures today, the discussions that are underway that Mr. Deeter referred to in his opening remarks, to allow all of that work to continue and to mature, to hopefully a plan or self-process that benefits all stakeholders. We're asking for the limited relief to maintain that customer listing confidence for a period of six months. If redactions are granted today on that basis, the debtors are not asking the court,

and we submit the court does it need to reach the issue at this time, of the propriety of redacting customer names more permanently on the basis of Section 107C1. We reserve the rights on that issue, of course, to come back to the court, but we don't believe that that issue needs to be adjudicated. We understand that that question presents some difficult issues for not only the court, but for the debtors and other parties of interest. Lastly, Your Honor, the debtors do request that the court authorized the redaction of individual non-customer creditor and equity holder names to comply with the GDPR.

It's briefed in our papers. That relief has historically, for more than what? we see that relatively routinely granted by courts in this district the u.s. trustee did not objected at relief on with respect to the interim order but has objected to it now on a final basis and we believe that the u.s trustee is taking that position which seems to be a significant departure based on the court's recent in celsius we submit your honor that that position is somewhat short-sighted Citizens of the covered countries have a heightened expectation of privacy as a result of local law.

And as detailed non-reply papers, we do not believe there's a basis for the court to conclude that the GDPR does not apply to the debtors. And regardless, there's really no need to subject the debtors to potential fines for violations which would only harm all stakeholders. So with that additional relatively modest piece, we are limiting the relief today to the question around maintaining the redactions with respect to the debtor's customer list in its entirety, including names and addresses of institutional customers for a period of six months for entry to the order with all parties' rights reserved. Thank you. Let me ask you a couple of questions. Does it matter that the customers here are not? not the exclusive customers of the debtors? I don't think so, Your Honor, because from our perspective, of course there are customers

that probably, and I assume, with 9 million people, if these are people who are active with profit, have investments on different platforms. And to the extent that those customers are accessible to other sources, of course they can be contacted. The question, though, before the course, and that Mr. Costing was testified about this point, is whether or not we should put on the docket of this court effectively nine million names

that allow the debtor's competitors and potential acquirers of the debtors' assets and businesses, giving them the roadmap to say, oh, these are the folks, here are the significant customers, they seek claim entitlement amounts, let me try to contact those people. And so it's not a question of exclusivity. It's a question of exclusivity with respect to the list that the debtors have compiled over time with, you know, spending its own resources to put this together, whether that asset should be preserved.

And we submit that it is. That should. And why six months? What's the significance of asking for six months? There isn't a significance, Your Honor, other than I would say a couple of things. First, we want to try to be reasonable here and take this incrementally. We're not, you know, based on this, we're not asking for a permanent authority to redact on the basis of preservation of the assets, again, with rights on 107C reserve.

We looked at how long we think it will take to move forward with a process to make at least the determination as to whether the customer lists are part of a sale process, are integral to a reorganization plan. Are we going to be standing here in six months and be able to, can I say definitively, that in six months all of these issues will be worked through? I can't.

But we think it's a reasonable period of time where our thinking will be substantially advanced from where it is today. Is there a magic to six versus eight or five? No, but we thought it was a reasonable period of time. The other piece, Your Honor, there are some complications. We know.

We discussed them at the first day hearing with Your Honor around claims and bar, you know, once we set a bar date and how the claim to reconciliation process is affected by these redactions. Those are issues we're still working through. We don't believe, for a number of reasons, including because of the sofas and schedules extension that's before your honor today, that we're going to be in a position to set an early bar date in this case. But at some point, and so the six-month period factors into that, too.

We don't think we're going to be up against having to address some of the issues that we discussed back in November around what happens after we file a bar date and all those claims we made. Well, the bid procedure motion that you have on, that's for purposes of seeking to sell. I think Mr. Kovsky actually testified that the entities that are sought to be sold pursuant to those procedures are exchanges, correct? They are. So, and that, what's the, remind me the proposed timeline for the sale of those assets, or at least the bid, the bidding is supposedly done by the end of the tremendous month, right? I believe it's, I believe the process and the big procedure is contemplated before you're listed in the district of the schedule. It's a, Your Honor, Andy Deerick-Solvin-Kromel.

It's a staggered schedule for the different businesses, but it will take a couple months at least to get, to get done. Okay. And by then we'll know, we'll have some understanding, at least from that process, as to whether or not the creditor lists are going to be important to potential purchasers. We will have some indication, Your Honor. As Mr. Kowski testified this morning, though, the main, what I would call the main exchanges, right, so FTS.com, FTX, U.S., the main exchanges are not subject to the current process. We will be informed by the localized exchange in Japan, for example,

to the relevance there. But I think Mr. Cosby testified this morning that the process for the main exchanges will take longer. That process is not yet formally underway as far as bidding procedures. There are lots of discussions that are going. So, but I do think it is a good observation. We are going to start to be able to be informed

by the different data points, the work that the professionals are doing, the strategic review that's underway, and the self-process of these other exchanges, to have an understanding as to the different to the customer. So for all those reasons, Your Honor, we developed six months as your proposal

because we thought it was a very reasonable next step. Thank you, Your Honor, may I give you, just sort of speak out of order, but Mr. Dieter again, may I give you the actual proposed dates? Now, these are kind of the earliest possible sale during dates for the various businesses, but they range from February 27th to March 27th. The other point that may be factually relevant

for your consideration is we did in the cooperation agreement with the JPL and the Bahamas commit to them that we would work during a six-month period on our project to consider a potential reorganization of the international platform and this customer information and data would of course be important in connection with that work with them thank you anything else any further no I have said any other questions for your honor I'll see you important mr. Hanson morning honor Chris Hanson with Paul Hastings proposed counsel for the

Committee once again, Your Honor. So, Your Honor, the official committee joins in the debtors arguments. We finally joined with that effect on the docket as well. But let's add a couple of points for the Court with respect to this issue. Regarding the six months, we collaborated on that. We talked about how you create value associated with the assets that the debtors are thinking about selling or reorganizing. And as you heard from the Sikovsky's testimony, there is inherent value within the customer

lists associated with these businesses. And as the Court is obviously well aware, connection with non-crypto businesses. Sometimes parties will pay for the customer list alone. Sometimes the customer list goes with those assets. And the purchase and sale of customer information is a vital component to any type of retail-oriented entity and business.

And obviously, from an exchange perspective, there were an awful lot of retail investors here. And so there is inherent value within those lists. I think that's uncontrovert. And I think everyone here agrees with that. So in balancing that, we looked at it and said, we've got two major tasks. here. One is to assess the value associated with these assets from a sale perspective, and

two is to assess the value associated with these assets from a potential reboot, as how we've been referring to on our side. The reboot is complicated. There are global regulatory issues associated with rebooting the exchanges. Everywhere that the exchanges operate, there are regulatory requirements that have to be met, including the United States and globally. So it takes time to think through how that works. And obviously, it can't just simply be restarting the its current and its existing or prior form because there were issues associated with it, which in some ways we're here dealing with. And so it's a complicated exercise among many professionals on all sides to be able to figure out

exactly what the steps are that are necessary to be able to think about the reboot. But that reboot may unlock incredible value for creditors and customers in connection with these cases because it may open the ability to have something that is a going concern that could be sold or could be distributed from an equalization standpoint in connection with a more fundamental plan of the organization. And then obviously with respect to the sales, you have the four assets that the debtor is seeking to sell at the moment. We have more to say about that later when we come to the bidding procedures,

but with respect to Embed, Ledger X, FTX Europe, and FTX Japan, as Your Honor noted, two of them are, so Ledger X and MEDs are non-debtors, and those are currently operating. So the customers of those entities and the information associated, with those entities to the extent that they overlap with the information that debt are seeking to protect here. Like those are ongoing businesses which are interacting every day.

There could be damaged done to the value of those businesses by disclosure of those customers. Similarly with respect to FTX Europe and FTX Japan from the committee's perspective, we're just rolling up our sleep. We're trying to understand what it is that's being sold here and what the value is. And tracking back to Mr. Coxie's testimony on the point I made a moment ago, there's inherent value on the customer list. And so when we look at it and say if that information was disclosed today without the opportunity to do more diligence to determine the inherent value in them, that could do damage. And it could seriously reduce the amount of distributable assets to creditors in connection with the cases.

That would be a bad thing. And from our perspective, Your Honor, in a situation where there has been a global fraud and no one yet knows what the recoveries in these cases are going to be, we need to make sure that we preserve the assets as best as we possibly can. We understand the competing interests that the media and the United States trustee have noted with respect to transparency, but we just don't believe that there is a true interest in the media or in the broader universe of parties, potential parties' interest in cases, of understanding who the customers were. You have to think about, like, what is the purpose behind that versus the very clear and articulated purpose of trying to preserve value. So when we come back to it, we look at that six-month window, and we ourselves on the committee side with our professionals,

said, it's going to take a significant period of time to really understand the reboot and really understand the asset sales. And to your Honor's point, the earliest dates, which we think are too early, come up on February 27th and March 27th with respect to the assets that are currently being sold. We'll get a better look at the real interest of parties associated with customer lists within that window, but we probably won't even have the best look because we think those are coming on too quickly. So again, Your Honor, and I would echo Mr. Gluckstein's point.

perspective 107C. On 107C, we do believe that, and at a further hearing, we can get into it with the court, the extent that the court wants us to, that there are real risks to customers in connection with the disclosure of identities. There are news stories and information that demonstrates that there have been kidnappings, there have been thefts, there have been other types of violent acts committed against people within the crypto community, and that's a very real risk and a very real concern. With respect to the information that we're talking about today and the reason to protect it under 107B, it's absolutely crystal clear that this is commercial information of the debtors and that it has value and that that's a very clear case to be made that you're

on to protect that information for the temporal period that we've asked under 107B. We reserve rights on 107C and if the report would like further briefing on that and testimony on that, we can do that, but we think you have enough of a record to cover it from a 107B perspective today. So Your Honor, if you have questions to me, I'd have to answer them. No, no questions, thank you. Can we turn up the microphones on the stand? It's at high as it'll go. Everybody's got to keep your voices up a lot.

I mean, I can barely hear some of it, and I'm sure the people in the back probably can't hear it very well. Okay. Anyone else wanted to speak in support before we go to the objectors? Excuse me, Your Honor. Good morning, and may please support Matthew Harvey from Morris Nichols-Archton Tunnel. tunnel on behalf of an ad hoc committee of non-U.S. customers of FtX.com. And we filed a joinder in this motion of the debtors, Your Honor, and we support the debtors and their efforts to seal this. I think from the customers' perspective, they have the 107C issue,

which is not going forward today, in terms of their own interest in protecting their own information, but also the debtors and the committee of Identify, I think, rightly, the customer list and the potential value in either a sale or restarted the platform as an avenue for recovery for members of our ad hoc group and similarly situated creditors in this case. We do think it's important, particularly for the preliminary matter that debtors have requested for six months to protect this information to allow the process to play out and allow the debtors to determine the best back goal of this customer list. Thank you.

Thank you, Your Honor. Your Honor, would it be possible to have a five-minute break before we continued? Certainly. Well, let's make it, let's make it 10 minutes, so everybody has, well, we got a lot of people here. Let's make it 15 minutes. Everybody has time to use the facility. So we'll recess for 15 minutes. Thank you, Your Honor.

Your Honor, Mr. Finger asked if he could go first, and please your support. When I are at the outset of my comments, I moved to strike the debtors' reply because it introduces new material that we should have included in its open brief and erased for the first time. For example, paragraph 17, debtors invoked Japanese law. Two, was the Act on Protection of Personal Information and the Financial Instruments and Exchange Act. It is the first time they should be waived. However, because they have raised them on it, to protect my client, you'd answer them. The first one, the APPI, Section 173,

allows the use of such information when doing so is necessary to cooperate with a, quote, national government's organ because of a foreign company. Now, there could be a debate back and forth as to what that means. Usually when courts deal with foreign nation's law, expert testimony is required. But the point here is that...

Not always. Not always. Not required. I can look it up in Martindale Hubble and that's seven years. I never mean to speak in absolutes. But there has been nothing brought to this court showing that this article section does not apply. and as for the Financial Instruments and Exchange Act, that law applies to securities trading.

Most crypto is not deemed a security, and so it's outside the FIEA's jurisdiction. Some tokens are, but debtors have not established that their crypto holds within the jurisdiction of the FIEA. Similarly, for the same reasons... Well, this isn't just their crypto, right? Oh, I understand, yes, Your Honor. But the crypto involved, I'll make the crypto involved in this matter.

I mean, the debtors in this case have more than just their own crypto on the exchange. They weren't exchanged for all types of crypto. Right. But the point being that if it is not, if the crypto involved be their own or their customers, is not within that limited, limited categories, then it is outside the jurisdiction of the FBI. is a way to happen. For the similar reasons, Your Honor,

we'll must strike the testimony of Mr. Kosti. His testimony, or his first his affidavit, was provided three days ago, with no real opportunity to test it. Not even in this court, but had no opportunity to depose with Tzikovsky or his staff who worked on this thing. His testimony was very general.

They looked through social media. They picked certain names. We had no opportunity to test that. They were obligated to provide this information in their opening motion. But now let's make turn to the justifications given for seal. Just to close the loop on this, Mr. Bring, I'll deny both of those motions. Thank you, Mary. Let's see the justifications for sealing.

One of they claim the risk of identity theft and cyber scams. Think about all of the creditors lists that have been publicly identified in bankruptcies over decades. Well, let's just even limit it to when PACER came along. With all that, there is absolutely no evidence presented to this court that there are any identity theft or scams occurred as a result of those creditor lists being made public. And it's no counter to say this case is different because it involves critical. currency? Well, I think they're not pursuing the 107C basis for sealing the customer list at this one. Not as customer list, but this is also a list of credit. Well, I guess that there's a question. Are they creditors or are the customers or are they both?

It could be both. I don't know. At this point, in the case, I don't know. The fact that that's not a step, well, I'll draw that. I withdraw that. But the fact is, identity fees don't care. What's the nature of the business is? They just want names to you. Again, Your Honor, I heard some testimony about commonality of the names.

And in fact, Your Honor, I did an experiment last night through a website called Truthfinder.com, I put in your honor's name and came back with 58 people who share your name. 57, so there's one year old one of the 58. Now, in Canter, that list did create differentiation because it included middle names and middle initials. And we have no objection to redaction of middle names

and initials, but there's nothing before the court that tells the court how many of the names that have been on the list do not have multiple people with those names. and it's I think a stretch to say well we're able to go through five or six people and vote with the same name and then we come up with them even even just Koski testified that it becomes harder if the common meaning or even and to extrapolate from that it's hard when there are numerous people sharing the same meaning

but that is shooting in the dark and That is not enough of the threat. And of course, using identity theft as a justification for sealing leads to the conclusion that all creditors or customers in every bankruptcy can be sealed to protect the creditors. This trial will be creating a per se rule. Deaders have not provided any polling or random sampling of their customers to assess their fears of disclosure

for cyberbullying or cyber scamming. and identity theft. None of the debtors' customers is here claiming concerns. I think you had one ad hoc group who came forward and was supportive of the debtors. Well, the ad hoc group, I understand that we're claiming their concern is not under cyber scanning, but as the rights under foreign law. Turning to the poaching and reducing the commercial value of the list, again, Again, this goes back to how common the names are. And there's been no effort to try to segregate.

It's the baby in the bath wall. William Smith, Maria Garcia, James Johnson, Daniel Brown, Thomas Miller. Again, the Google search said that these are examples of common names, the most common name combination in the United States. So the potential for approaching, I think, respectfully submit is not enough.

It's a high evidentiary standard they have to be. And in fact, you provided cases to your office, which says that, a statement that something could happen in the absence of evidence showing it is likely to happen or will happen does not satisfy the First Amendment evidentiary standard. As for the GDPR, I would draw the court's attention to a case.

In re Avandia marketing sales practices and product liability. The Eastern District Pennsylvania case had it in 2020, 484 F subsection 249. The court ruled that applying principles of co-ed denial of public access based upon a foreign law would be contrary or prejudicial to the interests of the United States. But even apart from that, Section 49.1, on the DPA says there's an exception to the requirements of that law for quote the

establishment exercise or defense of legal claims and defendants have not I've not even mentioned this but certainly have not established that the exception is in general the debtors argue at paragraph three of their reply that the objectives did not articulate any bona fide reason for at this time. However, this confuses the burden. The judicial documents are presumptively public, and the public is entitled to see them as soon as their file, and they become part of the judicial record.

The purpose of public access is to ensure public confidence in our courts and their rules, and the burden is on the debtor to explain why sealing is appropriate and not vice-worker. We also believe it's inappropriate to ask for a six-month stay or delay. or delay, with no assurances, certainly no insurances, that that will be the end of it. But even in the event there are assurances, I quote from the Supreme Court case Elrod v. Burns, quote, the loss of First Amendment freedoms, even for minimal periods of time, unquestionably constitutes irreparable injury. public access is derived from the synonym, as does Section 1 is 7. At Paris, in paragraph 16 of their reply,

debtors reiterate that if the customers are identified, the value of the business, quote, could be materially harmed, the ministered in dispute, close quote. As I mentioned earlier, we cited cases on brief which they did not respond to in their reply, our brief and half is written, stating that, speculating as to what could happen as opposed to showing them with evidence what will happen is insufficient to meet their evidence. Sherry Burton. The cases out of California, we cited in our brief, but also the Celsius case out of New York State is the same thing.

As to the In-Rae Craig case, I was not involved, Your Honor would. And I know not a lot presumed to imagine your Honor's considerations in those cases. But an objective reading of Your Honor's opinion seems to think the court was not necessarily focusing on evidentiary requirements, or with an argument that there was no evidence of court's feeling. And since then, the Celsius cases come out, and while there's another court and is not binding on Your Honor, your honor is free to consider it as persuasive presence in reassessing the credit case. At paragraph 28 of their reply, the debtor cite to a number of cases where this court has allowed this, redacting the name pursuant to GDPR.

However, the defendants failed to point out that, in the exception of the last one of those cases listed, those motions were granted and unopposed, or there was no opposition. And unopposed rules, orders based on unopposed motions have no precedential value. And the last one was opposed by the trustee and there was no legal analysis there. So it lacked persuasive force. So in sum, there is no competent evidence that any of the eagles is served by the evidence, identity theft, evaluation of the customer with by poaching, violations of international law, law present a genuine or substantial risk. All the debtors have presented to the court are

speculation unsupported by competent evidence. However, to the extent that redaction is required, it must be limited, as limited as possible, to meet the goals. Redacting the addresses allows this and I throw in redacting middle names and initials. This is sufficient, and if the court is going to retract, that should be the legal. Unless I have any questions, I yield the problem. Thank you, Mr. Mayor. Thank you, Your Honor. Again, for the record, Juliet Sarkeesian on behalf of the U.S. Trustee.

Your Honor, the bankruptcy process operates, like the rest of the court system, on the bedrock principle of American jurisprudence, that the public has a right to access of judicial records, and only under very limited circumstances may a federal court restrict or deny that access. Here, the debtors are seeking a very wholesale redaction of a lot of information on any papers to be filed. That is what they say, any papers to be filed in this court

or made otherwise made publicly available in the Chapter 11 cases. And they're looking to redact names, addresses, email addresses of all customers, whether they be individuals or entities. The names, address, and email addresses of all non-customer individual creditors or equity holders if they are citizens of the UK or member nations of the EU. And maybe now Japan, I'm not quite clear about that. And then also the addresses and email addresses of all other credit or equity holders who are individuals regardless of their citizenship.

And of course, the U.S. trustee has said we do not object to the redaction of address residential or any addresses with respect to individuals, whether they be citizens of the EU or the United States or anywhere else. Now, the debtors' counsel started out stating that bankruptcy is a fishbowl. We've heard this many times. And in fact, that the debtors welcome that. And the committee said the cases need to be transparent. We agree with that.

However, that is not what has happened in this case. In the interim order entered on this motion, the debtors, excuse me, the court allowed the debtors to file a creditor matrix under seal with a redacted version then to be filed. It's been two months. There is no creditor matrix on file, not under seal, not redacted, nothing. I double check last night. I sent an inquiry of debtors' counsel to make sure I had not done.

missed it. It's my understanding and they can correct me if I'm wrong. That is still not on file. So we don't know who any of the creditors are in this case, be they customers or anybody else. We don't know who the top 50 creditors are because that was all redacted. We don't have any monthly operating reports. The first ones were due to December the 21st. I don't know when we're going to see any actual monthly operating reports. The debtors have proposed to file some type of aggregated report of some kind that's not a monthly operating report and then later at some point in time we don't know when we'll start filing proper monthly operating reports we don't have schedules we don't have statement of financial affairs we don't have rule 2015.3 reports yes we've

now come to an agreement about when those are going to be filed but the majority of them will not be filed until March the 15th and the debtors have reserved the right to ask for further extensions So we have very little information here. This is the opposite of a fishbowl. And redacting customer and other creditor information to the extent that the debtors are seeking is only going to add to that lack of transparency. And here what we're talking about is we're

talking about redactions of very essential documents that are part of the bankruptcy case. The creditor matrix, the schedules, the statement of financial affairs, professional disclosures, they have been redacted as well to the extent that there was a reference to a customer name or an individual creditor. Those were redacted. So these are all really critical documents that are part of the bankruptcy process. And there needs to be, the case law says that we've cited, there needs to be a showing

of extraordinary circumstances and compelling need for these things. types of redactions, for any type of redactions, but especially on such fundamental documents that are part of the core of the bankruptcy case. And here the debtor has really nothing more than some vague statements, and I'll get into in a minute Mr. Kovsky's testimony, but very, very limited testimony or evidence about something that requires a showing of extraordinary circumstances, and we do not believe that They have met their burden and it is the debtor's burden here to establish that the information can be sealed under either 107 or 107C.

Monica, bear with me for a moment, please. So 107B1 talks about confidential commercial information. Now the debtors and the committee keep referring to a customer list. It's not a customer list. It's a list of creditors. It's the creditor matrix. It's the list of creditors in the schedules in a professional disclosure. It's a reference to somebody who is a creditor.

They may also be a customer. But we're not talking about a separate document that is a customer list. I suppose what the debtors would say was, well, we have so many customers who were creditors if you looked at the creditor matrix whenever it may be filed that one could assume that that most of those people are most of the people on there are customers and not other kinds of creditors and not no but there's not going to be any distinction there's not going to be like a separate section that these are customer creditors and these are other creditors it's a creditor matrix same thing with the

schedules there's no distinction I mean there's a distinction of majority to general answer claim but there's not a distinction between creditors customers and creditors who were some other kind of creditor with respect to even assuming that the debtors would be correct in making that argument that, well, people will just, competitors would just assume that everybody on that list is a customer. Your Honor made the point that many of these customers may not be exclusive customers. They may already be dealing with competitors. With respect to, I think the point is very important in terms of coaching.

Again, all we are talking about for individuals are their names and no other information. Yes, for institutional or non-individual predators, the U.S. trustee believes that it is appropriate to include their addresses as well as their names. But for the individuals, it would just be their names. Mr. Kovsky testimony that, well, just a name alone, just a customer name alone, would give you an ability to find information to contact them. That was based on not even any work he personally did. He had his staff look at less than 20 names.

Out of the 9 million names, less than 20, there was no methodology that was explained as to how they picked the names, although he indicated, I believe he indicated they looked for names that were not extremely common. Although, again, I would make the point that there are names that might be uncommon in the US, that look uncommon to us because we're not familiar with them, that might be very common in other parts of the world.

I'm always surprised I see names and I think, oh, that's an unusual name. And I look for, oh, no, that's actually very common in Japan or China, whatever the country might be. So we don't have any methodology. There was less than 20. That's nothing. And added the less than 20, he said, well, more than 50%

we could get information on. So it wasn't even out of the 20 or less than 20, we were able to get information on all of them. That's a very, very slender thread based on hearsay evidence. But even if it wasn't, a very slender thread to say, all right, because less than 20, 50% of those you were able to find some contact information. Whether that's the same person or not, who knows,

but potentially could be the same customer. It's a very, very slender thread to say, Therefore, you may redact all customer names from every single document that's going to be filed in the case. Now, let's talk a moment about this six-month restriction. Six months is a really long time in the bankruptcy. World is your honor is aware, a lot happens. In this case, during these six months,

we are hopefully going to have schedules and statements filed. This information is relevant to that. sales will be taking place. Hopefully, creditor matrix will be found at some point. A lot happens in six months. And then, of course, at six months, they're going to come back and they may still ask for another extension.

But even if it's only six months, that information is important information to be out there. And again, we're going to be getting schedules and statements that have so much redacted, they're probably going to be next to worthless. For anybody who doesn't see the unreduct. And Your Honor, I would also like to make the point that I was trying very ineffectively to make with Mr. Kovsky.

This is not a situation where you're coming in where the customers of the debtor, you know, are likely to be happy with the situation. Oh, maybe that's true in all bankruptcy cases, but you have a very extraordinary situation here. You have a situation where the customer accounts were frozen, prior to the bankruptcy filing and have been frozen since then. These customers, 9 million customers, cannot get access to cash, coin, whatever might be in those accounts.

No access. At the same time, they learned that there are allegations of a massive fraud that customer accounts were rated and the funds were transferred to Alameda, the amount of $10 billion of customer funds. So it's probably really really, reasonable to think that these individuals, these customers, with all of this happening, if they're going to other platforms, well, they can't have access to the funds yet, but when

the time comes when they have access to their accounts, they may be looking for competitors now, or they may be looking to transfer this to traditional banks. So, you know, it's not a situation where you have a customer base that might be relatively happy, the debtor falls for bankruptcy, and now you're worried, you know, that's not a situation would be happy but now you have competitors coming and poaching them i would say you know i think it's reasonable to assume that the that these customers many of them are very unhappy with the current situation and are probably you know very well may on their own be looking to transfer whenever they can or maybe right i would say right for the poaching if any any competitor came along

so i think the situation is is different than other types of cases Then I want to talk a minute about the 107c argument. So if I understand correctly, the debtors are now saying that they want to hold off that argument until another time. Their motion made an argument under 107c. They cited that statute. We responded. Our objection was filed on December the 12th.

They've had a virtually month. They've had plenty of time. the committee addressed it. I don't understand this. If they had any evidence to put on that point, today was the day to put on the evidence. And there was no evidence that a name alone could subject an individual to any type of harm,

be it, I don't know, as the ad hoc committees council, somebody talked about kidnapping with a name. We don't even know what country these people live in. There's no evidence of that. There's no evidence of identity theft based on a name and nothing else. There's no evidence presented that a customer's accounts could be hacked with just a name. No evidence on that. Or that the person's safety could be compromised.

And the AHO committee, of course, cited to your Honor's ruling in CRED, also cited to Judge Owens ruling in Clover, they attached the transcript. Clover had to do with residential addresses, not names alone. I think there were 10 members of the European Union in there, and there wasn't much discussion of that. But apart from those 10, they were talking about residential addresses. Again, we are not objecting to that.

And frankly, Your Honor, if you get to the point where you are redacting individual creditors' names, not the addresses, but their names as well with the idea that otherwise there could be identity theft, the amount of sealed filings in this court would be enormous. I mean, every single, including Chapter 7 and Chapter 13 cases, debtor's name, they have individual creditors, all those names filed by individual creditors,

is all this going to be filed under seal? It's not workable, and there's nothing, under the under 107c that would support redacting names based on the idea that otherwise it could be identity theft but again there's been no evidence and if there was this was the day to put on the evidence on that point so to we've cited on the issue of the of the of the burden of proof we cited the third circuit case sending corp that the debtors have the burden of proof on on 107 as well as 107c and under 107b again the debtors must establish and demonstrate an extraordinary circumstance and compelling need to obtain

protection that's from food management which I believe is actually from the Southern District also mentioned that you know in mr. Mosley's declaration which came with that was filed in support of the initial motion he used the term He said public dissemination of customer risk could give the debtors competitors unfair advantage. He didn't even say would, he said could. So that's a very low level of argument to meet an extraordinary circumstances test. So let's speak a little bit about foreign law. First of all, as we stated in our objection, we're in the United States federal court.

United States federal law controls over foreign law. We cited a Supreme Court case on that point, not in this exact connection, but with regard to a French blocking statute. But beyond that, as Mr. Finger made the point, and we made the point in our objection, that this does fall within the exception of the GDP, because this is a legal proceeding.

And there's a legal claim's exception for that. Now, the debtors in their initial motion, the debtor's discussion of the GDPR was in one paragraph, paragraph 20. It references the GDPR. It doesn't even provide a citation as to where to find it. It doesn't quote from it. It says the GDPR may apply to the debtors, may. And it doesn't even say what it is that the GDPR protects

other than it says home addresses of individuals, which again, not an issue. We're not objecting to that. We obviously spent a lot of our objection going into the details of the GDPR. And I want to look at in the reply, the debt debtors did make two arguments with respect to the GDPR that I would like to address. So the first one, in paragraph 25 of their reply, the debtors argue that while the U.S.

trustee notes that processing of personal data is lawful if it is, quote, necessary for compliance with a legal obligation to which the controller is subject, close quote, the U.S. trustee ignores in any such legal obligation, quote, should have a basis in union or member state law, close quote, not in US law, and they cite Article 40, excuse me, recital 45 of the GDPR. Recital 45 of the GDPR says that for the debtors to process information, meaning to collect information,

code it, transform it to a usable format, the processing has to be legal under the laws of the EU or its individual member states. The recital does not say anything about compliance with laws outside of the EU. And recital 45 is not relevant to what we're talking about. It's a different issue. It's not talking about an exception for when this information can be disclosed. It's talking about the way in which the information is processed.

It must be processed under the law of the applicable EU state. The second argument that the debtors make in paragraph 26 of their reply says that the U.S. trustee is conflating transferring of information with processing of information. So I believe the argument is that the exception in Article 45 that allows the disclosure in connection with legal proceedings applies only to the transfer of person. data not the processing of personal data and that the that what that the disclosure would be processing not transfer there's no authority cited for this position so we you know I can't say that I can cite any authority for the

contrary position but they cite no authority to say that there's some distinction here and that that are the exception in article 49 only applies to processing and not actually disclosing in connection with a legal proceeding. With respect to Japanese law, I mean, that was not raised, it was not mentioned in their motion. We saw it for the first time Sunday at 4 p.m. I had not been able to reach an expert in Japanese law since Sunday. There was not any official translation of these Japanese statutes that were provided. They do not be. debtors does not quote the operative provisions. There's obviously no expert witness that is testified about Japanese law.

They just put in their reply, this law, these two statutes apply, and these statutes do not have any exception for legal proceedings. So I really, again, I'm not in the position to say anything about Japanese law other than the fact that this was something that should have been brought off in the initial motion and that would have given us more time to respond to that. Your Honor, another point that I want to bring up that we mentioned in our objection that is significant is that if Your Honor determines that, to whatever degree Your Honor would grant the motion to file information under seal,

I'm sorry, to whatever degree your Honor would allow the debtors to redact information from their court filings, the unredacted versions of those documents, must be filed under seal with the court. Now the debtors in the reply said, well, of course we'll do that. But the proposed order only states that the creditor matrix must be filed under seal. That was a compromise when we were discussing it at the interim stage. The order I would request to the degree that anything is allowed to be redacted, that the order provide that the unredacted version must be filed with the order.

must be filed with the court. And I would also ask. That's the requirement of local rules. Yes, it is, Your Honor. But I don't want anybody to say, well, the order doesn't say it has to be done. The order only talks about redaction. It doesn't talk about sealing.

And therefore, the order somehow trumps the rules. So I just want that to be clear that those filings will be made. And it would also be nice to know when the Crider Matrix is going to be filed both in aid, if it is to be sealed in the sealed version and in a redacted version as well. Your Honor could just give me a moment to make sure that I've covered everything. Your Honor, unless Your Honor has any questions for me, my argument is concluded. Thank you.

Your Honor, for the record, Brian Gleckstein, for the debtors, just a couple of points very briefly. Just to take the last point first. The debtors, of course, will file. any documents in this case that need to be filed under seal under seal according to the local rules and I'll make that representation that Mr. Arcasion has asked for that's not an issue with the creditor matrix with respect to the creditor matrix your honor the credit we're completing a couple of issues as has been well documented and we had disclosed to the court there is significant issues with us filing the entirety of the customer list from a timing perspective, access to data and information.

The court may recall we required additional time and we had to come up with a creative process to get our top 50 lists done in order to view information that we couldn't fully access in terms of informational databases. Those lists are on file in redacted form. The unredacted forms have been filed we see on the top 50 lists.

the Sarkasian, the U.S. Presti's office, of course, has them. With respect to timing of the full creditor matrix, that issue you ought to, you know, we're trying to get kind of clarity on the timing. It's the volume of the nine million plus names and contact information accessing the system is taking time. We are working as far as we can to get that on file, and we will file that if we're authorized to redact. the information we've asked for today for the six-month period.

That, of course, will be filed full nine plus million names under seal as soon as we're in a position to do so, which we hope is very soon. What we will do and what we can undertake to do, Your Honor, is file what we have now and what we've been using for service, file that and then update it as we get the full nine million plus names into the information. So we're happy to do that. So let me ask you this too. You're not proposing that you would redact from filings.

One of the other things Ms. Sarkesea, right, and you want to redact not just the creditor matrix or the customer list, but also any reference to a customer or a creditor in any other filing in the court. And I'm assuming you are not proposing to do that if that particular customer has already self-identified. We have not, Your Honor. That's another issue that Ms. Sarkaysian, right?

right this idea that there are customers who want to go to competitors or want to move their their account which of course we understand and they're not in position certainly to take their account at FTX at this point because of the chapter 11 process but they're certainly free to go to a competitor self-identify themselves to a competitor and open an account somewhere else if they haven't already and of course we did address this issue some at the first day period any creditor or customer is free to come forward and participate in this case identify themselves publicly identify themselves in the document of this court the documents

and we have of course no issue with that and wouldn't seek to restrict that from the perspective of the documents that mr. Arcades reflect we're commenting on this morning the credit images top 50 lists the sofa is the schedules but these are all documents that we are required to apply Those are documents that debtors are required to compile and provide and would result in us affirmatively with without the consent as part of the bankruptcy process and we understand our obligations the bankruptcy process to identify the names of those customers. Ms. Sarcazian referenced the idea, well nobody would know. We have all these these names. It's a creditor list. It's not a customer list. our top 50 lists, even the redacted versions that are on file publicly do delineate between

customers and non-customer creditors, trade creditors and customers. And so that information, if it would be on redacted today, people can see very easily of the top 50 creditors, which of those are customers, meaning customers who hold accounts on the various exchanges in FTX. So the distinction that Your Honor references, we agree with. Obviously, there's nothing in what Your Honor would be ordering that would prevent any party from self-identifying if they so choose.

So was there a way to delineate between... You refer to the top 50 creditors. That's been sealed in its entire, or redacted in its entirety. It has not been redacted in its entirety. Your Honor. It has been filed in a redacted form that redacts the information that we asked and that the court authorized pursuant to the interim order. So we have redacted names and addresses of individuals and of institutions who are customers pursuant to the court's interim order. And it's reflected as such. But those documents are on file and redacted form.

So what I'm trying to get at is, is there a way to delineate the creditor list between who is a creditor, who is a customer, and who is both, and be able to disclose those who are solely creditors publicly without disclosing those who are customers and creditors? You know, it goes to the question. It's a question of what information for the full $9 million, whether that's a meaning. field that exists or that would have to be kind of independently reviewed and populated. And I'm not sure the answer to that, Your Honor. We'd have to look into that. I think the number from a volume perspective is very small,

comparative, in relative comparison to the customers. What we've been talking about here by and large and why we've been seeking to protect, and we talk about the customer list. the customers at the main debtors at the exchange are where the volume is and that's where we believe value is and that's what Mr. Kakovsky testified about this morning. So you know that does implicate of course the 107c issues which we are not pressing today but I think you know we would have to See, I honestly, Your Honor, we'd have to see whether we could make that delineation for all kind of non-customable creditors.

I suspect that we could, but I think that it would take some more. I suspect that we could. Well, in the top 50 lists. Certainly the top 50 lists. Are there those who now have been disclosed who are solely creditors? Not by name, Your Honor, because the interim order had the 107 CBOA. So at this point, all of the names are reacted from that customers that are, that are subject to the interim order. So the relief that we ask for in the interim order because it didn't prove the 107C relief is broader than what we're talking about.

I think on the GDPR issues, Your Honor, those are certainly secondary here. We do think it's relevant. We did brief, the appropriate sections. you know absent questions we're happy to stand on the briefing on that issue and otherwise happy to answer any other questions the court asked thank you no questions mr. Chris Hanson with Paul Hastings on behalf of the committee just quickly to address the one point the Sarthesian raised regarding 107c we do believe those issues are real and to the extent that the court wanted to hear

further evidence with respect to 107c we would ask for a continuance of the hearing on that basis so that we could come back and provide more robust information information to you. It would consist of information that's available from a public perspective, so newspaper, articles, etc., that you could take traditional notice of. But we also would probably seek to put witnesses on as well to talk about what has happened with respect to criminal and other type of activity within the crypto space. I don't know today whether we would be able to link that to the disclosure of a name from a bankruptcy case, but I think we could link it to disclosure of names otherwise that people were able to find out through social media and other

avenues but I wanted to make sure the court understood procedurally from where the committee stands if you need information and more information on 107c we would like to have a continuance on that basis we think the record's very clear on 107b that you have what you need in order to grant the relief that the debtors in the committee are jointly seeking thank you thank you very much so just clarify one point go ahead so just to be clear, Your Honors pointed out to me in answer to your Honor's question, currently on our top 50 lists, we have disclosed non-customer name. So for example, there are certain vendors at the non-exchange entities because we have pilot siloed top 50 lists. So if there was, for example, you know, a vendor providing services which is a non-customer, that information has already been disclosed and would be under the rules for today.

Is that for all creditors, solely creditors, or just some? Yes. For Paul? Oh. Okay. Thank you. Go ahead. Your Honor, with the record, Juliet Sarkeesian on behalf of the U.S. Trustee,

Your Honor's questions made me think of something with respect to the top 50 list. Of course, we formed a committee, and I believe all of the members of the committee were on that top 50 list, their names were. redacted because of the time the subject to your honor's order your honor did indicate at the first one of the hearings that somebody's going to be on the committee they have to be willing to have their name disclosed and we did file the notice of the appointment with their name since that is now I understood that that was we discussed it with all the committee members nobody had an issue with that that's been disclosed can the top 50 list be

revised in terms of redaction to now unredact the information with respect to those particular creditors whose names have been disclosed certainly makes sense to me I don't see why it can't be done that can't be done your honor frankly once we have clarity around the scope of what staying or not being redacted will update the document we understand that point thank you your honor the only other thing I again wanted to emphasize I am confused about why there would be another hearing about when it said in C. That was in the initial motion.

Everybody knew today was the day of the hearing on these issues. They had evidence to present, they should have presented it. So I would object to a continuance on that basis. We were ready, willing, and able to go forward today. Nobody told us in advance that they wanted a continuance. Well, I understand that. And ordinarily, I would say, yes, today was the day. today and you to put on your evidence I'm not going to grant any continuances but

we're talking about individuals here who are not present individuals who may be at risk if their name and information is disclosed and if that is the case I want to make sure I'm doing the right thing by those people I understand your honor so I would stress we are not objecting to their addresses email addresses telephone numbers being redacted while we're talking about names I understand thank you all yes your honor again Chris Anselman Paul Hastings on behalf of the committee your honor with respect to the individual creditor names that are on the committee the notice that the US trustee filed for individuals does not include

their addresses or other information just has their names for the institution that obviously includes their addresses so when the debtors make their disclosure respect to the top 50 for those parties. We would ask consistent with the notice that was filed from the US trustee with respect to their appointment that we do maintain that information under seal. Is that a nation? The union trustee has no objection.

We're in complete agreement. Okay, thank you. Anyone else? All right. Well, this case certainly presents extraordinary circumstances just by the nature of the case itself. The fact that we have a list of people who may be customers, maybe creditors, maybe both, and I don't know which is which.

And there are 9 million of them. I'm reluctant at this point to say I'm going to require the disclosure. I think that the debtor did put on sufficient evidence to show that customer list. And I think it goes without saying that a customer list in any bankruptcy case is something that is protected by 107. be it's a trade secret. Companies hold those things very closely and don't want them disclosed. The difficulty here is I don't know who's a customer and who's not, who's just a regular creditor. So at this point I'm going to overrule the objections and allow them to remain sealed at this point, but I'm not going to leave it open for six months. I would

approve an order that extended it for three months. By then, I think based on the testimony and the arguments of counsel, we'll have a better sense of whether or not the customer list is something that purchasers of these assets find value in and whether they are interested in making sure that they remain anonymous at this point. On the 107C issue, as I already indicated, I do want more on that. because I do want to make sure I'm protecting the interests of these individuals. And I, it's interesting because if you look at 107A and it refers, excuse me, 107C, it's, it refers to protecting information and referred, and in, in, excuse me, in defining what identification means, it refers to the criminal,

Title 18 section 128 D. And if you look at 128 D, it says that information includes names, numbers, or any combination of those two that would allow the identification of an individual. So certainly the criminal code recognizes that disclosure of a name could result in the identification of an individual. And if that individual needs protecting, we need to make sure that, that that is happening. I don't have enough on the record today

to say that 107C applies, but I want to make sure I'm doing the right thing. So I will, in connection with any further, I guess the question then is, do I hold that hearing before the three months is up? I think in order to make sure that we have a fulsome record and that the parties have the opportunity to engage in discovery if necessary,

to identify people who might come in and testify. I want to make sure that they have the opportunity. So we'll schedule a further hearing on the 107C in connection with the 107B follow up in three months. I do want to make sure that the debtors are, in the compiling the nine million names, if there is a way, to identify them if they are just a creditor and not a customer.

I expect that to be done. And I would like to have a status conference on that question alone within the next. I think we have another hearing scheduled on the 20th. So let's have a status conference on the 20th on the question of how difficult it would be for the debtors to provide a, lists of creditors and or customers and distinguish between creditors and customers. And if you can identify just customers on the list, or excuse me, just creditors on the list, I would expect that those names would be disclosed. Again, not disclosing for individuals' names, excuse me, addresses, or telephone numbers or other identifying information. But if there is, if there are customers,

who are, I'll keep confusing these, if there are creditors on that list of $9 million who are institutional or corporations and they are only creditors, then that their full identifying information should be disclosed as required. So with that, I would ask the parties to meet and confer, come up with a form of order

that reflects any questions or did I miss anything that parties want me to make. sure I've addressed. From the debtor's perspective, no, Your Honor, that's very clear. Thank you. Okay. Ms. Arcegian or Mr. Fenger, any concerns?

Your Honor, I... Other than the fact that I ruled against you. I'll take addition to those. Thank you. Your Honor, I apologize if I missed it. Did you make a particular ruling regarding individual creditors who are not customers, but are members of the... the UK or European Union or Japan?

No, I did not address that. That's another question. And that's a difficult one. I don't think, I don't have any evidence on that. All I have is the arguments of counsel. Let's include that when we talk in three months. Because I would like further evidence on that. maybe have some someone come in and testify about the foreign law and how it affects.

Because I think, you know, I understand Mr. Finger and Ms. Sarkugian have pointed out that they don't believe that the European code would apply here, but I think even Mr. Finger recognized that could be argued either way, and so it's a question, so I'd like to know what the answer to that question is. Would this actually prejudice the debtors somehow? it would subject the debtors to large fines and you've seen all this in the press where companies in Europe have been had large fines imposed against them. It's certainly not something I want to have happened to the debtors here and it raises questions about whether I could even stop that. Does the automatic stay apply to the European Union seeking to impose a fine

against the debtors for violating disclosures? I don't know. So those are all open issues I need to have further, might be further briefing too. Your Honor, just for clarity, so between now and the three months, do those names remain sealed? Yes, until we, when we get to the status conference next Friday, if the debtors can come in and say, we can provide a list of the nine million names and identify those that are solely creditors, then I might revise my order to say that those people's names, and identifying information should be disclosed, except for individuals, at least with the institutional creditors.

And Your Honor, maybe another thing that could be discussed at that status conference would be to the degree that the debtors are able to call out which individuals are in fact citizens of the UK, the EU, and potentially Japan? If that's possible, then that would be helpful. If we know how many people, for my, I mean, I, I, I, I, I think from the first day hearing, I think I recollect there was some testimony in the declaration about how many of these people are not U.S. citizens that are foreign citizens. It may be most, if not, all of them, I don't think all of them would be, but at least most of them might be foreign citizens.

I don't know. Well, Your Honor, they may be foreign citizens, but they might be citizens of India or someplace that's not controlled. Right. I just, I'm not sure that we've heard testimony about the debtor's ability to determine citizenship of its customers. So, again, maybe that's something that could be discussed at the status conference. Do they have the ability to determine what the citizenship is so that they can know whether or not to redact the name? Right. I think that's right, yes. Thank you, Your Honor.

That's fine, Your Honor. We'll have to address that issue. Okay. All right. Okay, well, thank you. Anything else? So I'll look forward to the certification of counsel with the order so far. No, I think on that issue, that is it. I'm happy to move forward to the agenda, unless your court would like,

unless Your Honor would like to address any other issue. Mr. Finger. Maybe excuse. Yes. Thank you. All right. Let's go forward. All right, thank you, Your Honor.

I'm going to take one item, if I may, if it pleases the court, just agenda item 22, slightly out of order. out of order and then I will turn things over to Mr. Peter. Agenda item 22, your honor is the debtor's motion to authorize providing indemnification and exclamation on a final basis to certain individuals taking actions to secure at-risk cryptocurrency and cash. The motion was filed under seal prior to the connection with the first state hearing at docket number 95. interim order was entered at docket 140 and subsequently unsealed after the discussion with the court recently at docket number 3.23. Your Honor, there have been no objections filed with the restructed the motion.

The debtors have received informal comments and have had discussions at length with the United States' trustee and the official committee. In response to those comments, received the debtors. filed a revised proposed order last night. The motion, Your Honor, was filed, as the court will recall, on an emergency basis when it became clear in the initial days of these cases that certain of the debtors' cryptocurrency and cash assets were at significant risk of being packed, stolen, lost, or compromised if not immediately moved and secured.

This required individuals to act quickly on behalf of the debtors to take action in a difficult environment. Those assets included crypto and other digital assets that were held or maintained on third-party exchanges or in so-called hot wallets that are not maintained on third-party exchanges. There were cash assets held in bank accounts around the world and in certain cases on third-party brokerages where securities and other assets were being held. I am pleased to report to the report that very significant progress, Mr. Diedrich-Eluthan, this morning, has been made on the work that was done and necessary for which this motion and interim order has been integral, but the work to locate and secure assets remains on goal. Transfers of cryptocurrency are subject to certain inherent risks.

Some of those risks are very amplified here in these cases due to the inadequacy of prior to. control before the debtors current management team got in and put them in place. As a result, the protection, the limited number of individuals on the front line of this work remains critically important. I do want to note for the record, based on discussions with the committee, that the debtors are okay with the request from them to be sure that to the extent there are indemnification payments that ultimately need to be made. under the order that the debtors will see payment from any applicable insurance policies

and the debtors retain all rights of subjugation of respect to obligations that might arise under this order I think the committee is going to want to be heard on this as well but from the debtors respect of your honor we would ask that the order we would be ended okay thank you Hanson yes your honor again Chris Hanson with Paul Hastings on behalf of the committee your honor that was really our main point with respect to the indemnification motion which is that if indemnification payments are going to be made, that the debtor used its best efforts first

to look to applicable insurance, which is not only D&O insurance, it's other professional liability insurance as well. As the motion makes clear, they look to include parties in connection with that who may be covered by their own insurance. And so we wanna make sure that insurance assets are used to make those payments if at all possible,

and if the debtor needs to advance payments first, that it has subrogation rights to move against that insurance. Ideally, we would include that in the order so that it's clear. Obviously, we've all stated it here on the record. So if we could include it in the order, that would be the committee's favorite approach. Is there any objections to revise any order?

Mr. Cleggis? No, Your Honor. We're happy to sit back out with the committee and discuss the order further and submit and agree upon a whole board. Okay. Thank you. Was the committee the only objection?

I don't know if the US trustee has to take further on this motion. Again, for the record, Julius Circuit on behalf of the US Trustee, I believe we have worked out all of our issues with the debtors on this. I think the only thing I just want to make clear on the record is that the proposed final order will have an exhibit. The exhibit needs to be filed under seal, but the order itself, once it gets entered, the order itself should not be under seal.

The exhibit is a list of people's names that are going to be covered by the order, getting the indemnification exculpation. We've had some trouble with a seal order in the past got entered under seal, so I just want to make sure it's clear that the order itself is not under seal, but the exhibit will be. That's correct, Your Honor. We're not looking to seal the order. We've unsealed now with the court's permission, the interim order.

Mr. Arcasion is correct. We will, and we have, in fact, filed under seal already, the list of names that's contemplated that is contemplated to be attached to the order and so when we submit the final order for your honor's review and signature the order then will be on the docket but the exhibit to that order would remain filed okay I did see that list already I saw it this morning thank you all right so that one again will be submitted under CLC yes once we agree on the additional language with the committee we'll submit under COC okay thank you with that your

I will seek the podium to this Deerey to address cash management. Hello and your honor. For the record, Andy Deerex Sullivan and Cromwell for the debtors. I have docket 21, the cash management order. Your Honor, on this one, all objections have been resolved in our view other than one objection from the U.S. trust state. Before addressing that objection, I wanted to, I have a sentence to read into the record and a couple of general points for the court. I also want to talk about the evidentiary record here for just a moment.

From the debtor's perspective, we believe the U.S. trustee has an objection that's a pure point of law, which is about whether or not the court has authority to grant super priority status to claims against the cash management system. I do not believe her objection goes to the reasonableness of that decision, and we do have a record, of course, for the reasonableness of the cash management system from Mr. Mowgli's prior to the reasonableness declaration which is on the docket from the interim hearing so I'd like to go ahead and proceed on that assumption but to the extent that Marquesian doesn't objection to the reasonableness of the cash management procedure we do reserve the right to call mr. Mosley put them on the stand and

ask him a few questions why don't we find out before we go mr. honor it's a pure legal argument I am not making any argument about the reasonableness of any decision that the debtors have made in this regard just whether it's permissible under the code. Okay, thank you. Thank you, Ms. Ocasian. Okay. On that basis, Your Honor, the evidentiary record here is where we're relying on is the

declaration of Mr. Mosley in support of First Day Relief, docket number 57, the supplemental declaration, docket 93. And although we're not relying on it for evidence for the court's information, there is a second supplemental declaration of Mr. Mosey last evening, which is generally applicable with the 13-week cash forecast, And that's at docket 460. So, Your Honor, we have, in order to resolve the objection from Evolve Bank, which is one of the banks where we have accounts that are nominally recorded as FBO accounts,

we have a little bit of language to read into the record. So in paragraph 13 of the form of order, where it speaks about the rules for closing FBO accounts, We have committed with Evolve that we will not close the accounts at their bank without notice in a farther order of the court. And so we will be submitting a revised form of order, but the language will make that clear, and we have text that we've worked out with counsel to evolve. Second, Your Honor, we have some objections from shareholders. So a couple shareholders have surfaced represented by our friends at Denver Boys,

and they reviewed this order. They have, I believe, an objection or a reservation of rights, one or the other, file and we've worked out with them that we've made some commitments to them to share information informally that they've accepted and on that basis I believe their objection is resolved. With respect to the overall motion, Your Honor, this is really the same cash management system that we proposed earlier. So there's been no substantial change in the management system we're proposing going forward with one exception.

And during the interim period we had some gates on the ability to move at the development. to make advances from silo to silo. There was a hard cap on the movement of money from silo to silo. We've had a number of discussions with the committee about what the right approaches to this case in terms of movement of money in the cash management system across silos.

And we've agreed with them on a flexible procedure where we will use a budgeting and projection process and involved them periodically in that process. And to the extent that we agree that it's appropriate and prudent to move money the silos will permit to do that under the cash management system and our business judgment with the committee's involvement. However, to the extent that the committee disagrees, either with the projections about

amount of silo movement or we have variances from time to time that are larger than beyond a certain cap, in that circumstance the committee can come back to your honor on an accelerated schedule with an objection. We think that's an appropriate basis. We will be moving money between the silos only to the extent we think it's obviously creates a reliable administrative claim. We have substantial unencumbered asset value at all of the silos. The question might just be really a question of working capital until we're able to monetize

monetize some of the assets and some of the pockets of the act. There's been no objection, Your Honor, that goes to that mechanism. The objections that we resolved went to more of the questions should we charge interest and how should the mechanics and the details work. So with that, Your Honor, I'll turn to the remaining objection we have, which is the objection of the U.S. trustee on the legal question of whether or not Your Honor has the authority to grant super priority status to advances under a cash management system. There's not a lot of case law that will be helpful to us on this point.

I think we have a reading of the bankruptcy code that says that which is not prohibited by the bankruptcy code, and we have an evidentiary basis of reasonableness for. on or can award under 105. We also think for the reasons that we put in the papers, which I don't need to rehearse, that the proper allocation of risk can assist them with many debtors between administrative creditors, because it's really a question of allocation of risk among different administrative creditors in the common system, that if the advances by the cash management pool are given super priority status, the consequence of doing so is that the first loss, if there was a problem,

heaven forbid we don't expect there to be a problem but if there ever was a problem anywhere in part of our system the super priority protects the cash management system and the other debtors against the localized problem and it allocates first administrative loss to the administrative creditors of that particular debtor the converse rule a rule that says it was an ordinary administrative advance the problem with that rule in our mind is that it then socializes any loss, any administrative loss among administrative creditors in our case all over the world. And so this super priority status for administrative advances, we believe, is consistent

with the approach that have been taken by the debtors that have really butted through in the complicated cases, in particular complicated cross-border cases. It's consistent with the way, and again, without evidence on this, Your Honor, but from mostly just informally from personal experience, it's the way international companies think about cash management, sure the system is protected as opposed to any particular arm of the organization. And we believe it's the reasonable approach, you know, on the facts of our particular case. In terms of the pure legal issue, we see nothing in the code that prohibits Your Honor from doing it.

The U.S. trustee, and we respect the argument, says there's only two circumstances where super priority expense can be awarded by a debtor. And we think those are two circumstances, excuse me, where the code contemplates it, but it is not otherwise permitted. And to the extent we do so on the record, so that all of our administrative predators know that the advances have super priority status, we think there's adequate notice to do it. In some ways, the greater power implies the lesser. We should be able to incur administrative debt at one of our subsidiaries on the understanding that the person we're dealing with knows that advances against the cash management system do of a priority. Now, the last thing I'll say, Your Honor, is this doesn't come up super often because of dip financing and the arrangement of dip financing often supersede this and it's embedded in the cash management system that's somewhat connected at least to the dip loan.

Here we don't have a diploma so there's a little bit more attention on the question. But those are my remarks on it and I'm happy to see the voting in this occasion and she can give you the contrary view. Thank you. Thank you. Like the committee wants to weigh in first. Hold on one second. We have the Zoom video.

They can still hear me though. That means everybody else has to dial back in? Technical glitch. I hope it's nothing I said. Happened when you stood up, I don't know. Unfortunately, we have to have IT come up and take a look at what's happening here. So let's take a recess until we can get this resolved, hopefully, pretty quickly. Just let me know when, all right, let's recess until we get this fixed.

Thank you. Actually, I made, so I, so for the cost. Apologies for the delay. Please be seated. Right ago. Good afternoon, Your Honor. Ares Gillard, Paul Hastings, LLP, proposed counsel to the official creditor's committee. Your Honor, I rise only to make some comments with respect to the cash management motion. We, as a committee support.

The cash management motion and I want to describe to the court that we have spent a fair amount of time negotiating and improving the terms of the cash management order. order. Our approach to the cash management system and the proposed form of order was to facilitate the use of a centralized cash management system, which all else can equal, was rather common to complex corporations of this size, but at the same time reflecting the realities of the case, preserving parties' rights with respect to assets of the debtors, offering visibility into movement of cash, and enacting appropriate safeguards for the benefit of the debtors of states. To that end, as a Council indicated earlier we did negotiate an extensive regime of reporting that is weekly

and monthly reporting delivery of monthly budgets a variance test intercompany reconciliation reports as well consultation rights and opportunities for the committee to step in and seek relief before the court if there are certain objections to either to the budget or any disbursements that sought in excess of a 10% variance there's also a negotiated result with respect to imposing a cap on transfers to non-debtors. We think all in these provisions strike the appropriate balance between ensuring the proper movement of cash and the efficient administration of the case,

which frankly benefits all constituents, but also affords appropriate protection to the debtors of states. And it's important to note that as part of the negotiated result, we did incorporate language into the cash management order, which provides a wholesome reservation of rights for the benefit of parties with respect to entitlements regarding customer funds,

and also a fulsome reservation of rights with respect to the rights to assert whatever rights and remedies they have, notwithstanding the silo creation, and notwithstanding the movement of cash between accounts and between silos. So we thought that that was similarly important for the benefit of constituents in the case,

both customers and creditors alike. From the perspective of the legal issue been presented in terms of the admin priority versus super priority. Obviously, the debtor's intent here is to ensure that to the extent there is movement of cash that the appropriate estates are protected. In terms of the super priority status, again, perspective there is that the debtor's view is that it's simply additive protection for the benefit of the transferor estate. It's my understanding that from a process and notice perspective at least, I believe that the interim reform order included the establishment of a super priority claim with respect to the transferor

estate. So I viewed from that perspective, I think it's been on notice now for purposes of the second day hearing that that relief would be requested. So I think that notice, coupled with the comments made by counsel that we don't believe that there's any prohibition against the court affording super priority status. We support the relief requested by the debtors. Mr. Hunter has any questions of me? That's why I'd say. Thank you. No questions.

Thank you, Robert. Speaking in support? In support, yes, Your Honor. Good morning. Sidney Levinson, Dev Boys, and Flint, for paradigm operations. Paradigms is a substantial stakeholder in these bankruptcy cases, including about 280 million of an equity investments in two of the silos, West Realm Shires and FDX trading, limit. We've heard Mr. Ray and others take aim at the poor record keeping of the debtors prior to

bankruptcy filing, and we recognize that the process of identifying the assets and the liabilities of each debtor, as well as the pre-petition into company claims and relationships that exist among them is very much a work in progress. It's fair to say none of us really know at this point how all that's going to shake out. But given that state of affairs, it's absolutely vital for all stakeholders to be able to preserve the status quo as of the petition date to the fullest extent possible and to maintain the separateness of the various debtor entities to the fullest extent possible so that each of the individual debtors and their respective stakeholders aren't prejudiced by anything

that's going to be happening during the bankruptcy cases. The cash management order obviously has some impact on that status quo and accordingly there need to be protections implemented to minimize that threat. We engaged in informal discussions, we did also file a limited objection, but those informal discussions have been ongoing with the debtors for several weeks to address our concerns. And in fact, the revised form of order includes many of the suggestions that we had made with respect to the form of order. And given that, as well as the commitments that Mr. Petrick referred to in his comments, paradigm is withdrawing its remaining objections. I would, if I may, Your Honor, just be like to be heard briefly.

on the United States Trustees limited legal objection, because the inclusion of super priority claims is fundamental to our support of the current cash management order in its current form. Contrary to their position, I would submit that the bankruptcy court does, in fact, expressly authorize the grant of the super priority claim, and I think that express authority can be found

in Section 363. which governs the use of property in which an entity has an interest. If I can indulge your honor, just to read from 363E, notwithstanding any other provision of this section at any time on request of an entity that has an interest in property used, sold, or leased, or proposed to be used sold or leased by the trustee, the court with or without a hearing, shall prohibit or condition such use sale or lease as if necessary,

to provide adequate protection of such interest. Now here, the debtors and non-debtors whose funds are being used have an interest in these proceeds and are entitled to request a grant of adequate protection from the debtors that are, in fact, receiving those proceeds or the benefit of those proceeds. Section 361 authorizes the grant of adequate protection in many forms, including the realization of the indubitable equivalent of an interest. in such funds. And one thing that 361 makes clear is that a mayor administrative expense priority is not sufficient by itself to provide adequate protection. Thus, we would

submit a super priority claim as the bare minimum that would be required to provide adequate protection. And indeed, if it turns out that any form of adequate protection turns out to be insufficient, the entity advancing such funds would be entitled to a super priority claim under Section 507 so we think the United States trustees limited objection is misplaced not only for all the reasons outlined by the debtors in their paper and by Mr. Dietrich today but also by by that provision as well and that this court does in fact have the authority to grant super party claims and we respectfully request that your honor approve that provision unless your honor has any questions no questions thank you

Thank you. Good afternoon, Your Honor. Ellie Warren, Cline, Depp-Boys and Plinton, a separate Deppervoirs and Plinton team on behalf of certain Lightspeed funds here together with our co-counsel, Colchots. I'll be very brief, Your Honor, because I don't want to repeat a lot of the points that are removed by Paradigm as well as the Committee, our interest on concerns that paradigm at Light Speed had are very similar to the concerns of the Committee as well as the concerns of paradigm.

But very briefly, as noted in our Reservation of Rights, which is docket number 389, which is document number 389, light speed funds are substantial equity holders in several of the debtor entities. Based upon the debtor's public filings and statements thus far in the case, the debtors have acknowledged that certain FTS entities in the WRS silo as well as certain other entities are solvent. So as noted in our brief, the light speed funds concerns were that it's imperative in this case to preserve the status quo for all the reasons noted by Paradigms Council just a moment ago that it's in It's imperative to maintain corporate formalities and preserve the status quo, especially at this early stage of this Chapter 11 case.

And we must do that to the greatest extent possible in order to ensure that the rights of legitimate stakeholders are preserved. The license is conserved at the original motion and proposed order as originally drafted. The debtors were able to transfer funds from debtor entities to non-debtor entities and vice versa, and that's how they were intending to fund these Chapter 11 cases. the concern of Lightspeed was that those initial proposals didn't have sufficient safeguards to protect the interest of those solvent debtor entities as well as the various stakeholders of those debtor entities. And therefore the original proposed order left a substantial risk that solvent FTCS entities

will be funding, seeing their cash being used to the benefit of other debtor entities. And this wasn't only a concern of the Lightspeed funds. This is a concern that all stakeholders, as you know, the committee, noted as well, that it's important that different stakeholders obviously have different claims against different legal entities, so it's imperative to preserve and maintain corporate formalities in order to ensure that each stakeholder against the individual debtor entity could preserve the status quo of whatever cash or rights or assets they have. As noted earlier, we're happy to report we have in light of the revisions to the proposed

order. Most importantly, the grant of the super priority claim, as discussed earlier, And I won't repeat those legal arguments that were already mentioned. We believe that those satisfy the license fee funds concerns at this time, and we're going to withdraw our reservation of rights and any outstanding concerns in light of the extensive back-and-forth armed-laced discussions we've had with FDX's counsel over the last few weeks. However, we will note just for the record that we'll continue to monitor these cases carefully, especially in light of the reservation of rights for the various issues in the proposed order, namely interest, allocation of expenses, and some of the other points,

which are all issues that are reserved for later in the Chapter 11 case. But the Life Reefund will maintain a careful monitoring of the case to ensure that the debtor entities are maintaining corporate formalities, transparency, as we heard earlier in the hearing, the key of tracing and monitoring all the cash flows during the Chapter 11 case, just to ensure that no specific debtor entities and their various stakeholders are prejudiced at the expense of other. better IDs. So unless the court has any questions, that's all we have to add to the record.

Okay. Thank you. No questions. Anyone else in support? Just Rukes? Again, for the record, Juliet Sarkitian on behalf of the U.S. trustee. Your Honor, as Your Honor is, of course, well aware, the priority scheme of the bankruptcy code is a key part of the bankruptcy code. It is crucial, and it's set forth under 507. There were only two of the bankruptcy. grounds in the code where super priority, it's an administrative claim that has priority over all other administrative claims. There's only two places in the code that provide for that. One is under 364C in connection with div financing, and the other is under 507B for adequate protection of pre-petition wounds. So now counsel for Paradine had just argued that super priority could be granted under

three. You might need to lower the microphone. Oh, I'm sorry. Thank you, Your Honor. That super priority could be allowed under 363E. But if you, and it does talk about adequate protection there, But if you turn back to 507B, and 507B does reference 363, but it says if under 362, 363 or 364 of this title, if the trustee provides, or of course, debtor in possession, provides adequate protection of an interest of a holder of a claim secured by a lien on property of the debtor. So it is limited to that.

There must be a lien. So I don't think that it's my understanding that the transfers we're talking about here between debtors or between non-debtor affiliates to debtors are not going to be secured by a lien and certainly not on a pre-petition name. So the debtors argument and other parties have argued that well just because the code points out two places that allow for super priority claims does not mean that super priority claims are otherwise prohibited. Well, again, the priority of claims under the bankruptcy code is a key portion of the code. And so when the code says there's two places where you get a super priority claim and there's no other provision where you could say, all right, well, this, you know, maybe under this one,

then that's it. That is it. Otherwise, what you come up with is, well, then what's the standard for super priority claims? I mean, we know it would, of course, have to be a post-petition claim. But then what's the standard? Is it just whatever the debtor thinks should be a super priority claim? Iper talks about what there's plenty of notice. If there's no statutory authority to grant something under the code, then giving people notice about it doesn't resolve that problem.

It's great to give parties notice, but you have to be that. But you have to have a statutory provision to hang your hat on. Again, what are the parameters who decides and what are the parameters of other super priority claims that are not referenced in the code? You know, here what the debtor is saying is it's basically elevating claims between themselves and non-debtor affiliates into the debtor, that those claims are being elevated over claims of ordinary post-petition vendors and service providers. They're the ones that are being effectively, they're having their claims subordinated effectively without, again, there being anything in the code to provide for that. And when you, the other problem is when you start expanding super priority to cover other things

that are not specified in the code, eventually it becomes meaningless. Because, you know, everybody's going to get super priority. For example, if you say, well, maybe you view these transfers between the debtors' post-petition financing, in which case, please file a motion to get that approved. But, well, then one could say that a vendor, if a vendor is selling goods on 30-day terms, that's giving the debtors post-petition credit. Did they get a super-priority claim? I mean, where does it stop?

Because if everybody gets super-priority, then super-priority is completely meaningless. And somebody had said, this is usually not an issue because usually there's dip financing. Under the code, they get super priority. And that's the end of it. They're not going to share super priority with inner debtor transfers. You know, we don't have that here. But that doesn't mean, just because we don't have a dip financer, it does not mean that the super priority status can be given without authority under the code. just because it's convenient for the debtors or because they gave notice to parties.

And, you know, as we mentioned in our objection, I mean, here there's, I guess I would say it's somewhat ironic that I've been told by debtors' counsel that the majority of these transfers between debtors are going to be loans from the Alameda silo to the dot-com silo. not in the motion. The motion actually has very little information about what these transfers are and why they're needed or the amounts or anything. That's what I was told. I assume that's true. And of course we have no pre-petition allegations of money from customer accounts in the dot-com silo being rated and sent to Alameda. Now Alameda is going to be lending money to the dot-com silo and getting super priority status. There's something that's I'd say troubling about that.

And I understand that there's reservation of rights, you know, put in the order so that if later on it's determined that money that Alameda has really belongs to customers of other debtors, you know, that those rights are reserved. But, you know, again, elevating those types of transfers from Alameda to silo to the dot-com silo over ordinary course professionals, not professional, excuse. Well, actually, they are elevated over ordinary course professionals as well. And if professionals are here and if they want to voluntarily subordinate their claims, then that's fine. They can do that. Somebody can consent to that. But there's certainly no evidence that the, I'm assuming numerous vendors and service providers to these debtors post-petition have agreed to have their claims subordinated to claims between the debtors or claims from non-debtor affiliates.

to the debtors that take place after the petition date. Isn't there protections built in to avoid the issue of Alameda loaning money to the dot coms? And the question being, well, is the money that Alameda is loaning belong to somebody else? And that's being preserved, right? I mean, the only thing that the super priority claim will do is make sure that any money loan goes back to Alameda.

And then the question of whether that money actually belongs to Alameda or some of the other debtors or customers, or whatever the case may be, is something that can be decided at a later time. Yes, Your Honor, it is my understanding that that is being preserved, but it does not, it doesn't address the issue of not having statutory authority to expand super priority claims beyond what is specified under the code. Okay, I understand. Unless Your Honor has any further questions, that can face my argument.

Thank you, Mr. Rakeasy. Thank you, Mr. Cajian. briefly, Your Honor, Andy. Might need to raise the microhomes back up again. Sure, sorry. Understood. Understood. We should leave one low and one high, maybe.

Your Honor, just very, very briefly. One factual correction is we're talking about liabilities to the cash management system. Under no circumstances, are we granting super priority status to a claim by a non-debtor? So even a non-debtor subsidiary won't have super priority status under the cash management system. This is for interdebtor.

advances only other thing I'd say is that there's lots of practical arguments about this. I think the question before the court is whether your honor has authority to grant super priority status. And again, I submit that with respect for Ms. Sarkasian's position, there's no case cited that you don't have the authority. There's no case cited for the reading of the bankruptcy code that says that in the absence of a specific reference to super priority, you can't grant super priority status.

And there's no case cited for her particular reading of 105, despite lots of jurisprudence about how 105 is applied to circumstances where the code is, as it is in so many things in our practice, silent on a particular practical issue. Congress did not think about the question of how to run in her company, catch management,

the systems in a multi-jurisdictional debtor. I can assure you without having looked to it, we're not going to find that in the legislative history of the bankruptcy code. But what it did do is it gave debtors discretion, put a creditors committee in charge to oversee us, and gave your honor the authority, where something is not prohibited by the code under 105

and consistent with what needs to be done in a case to issue the relief on that basis. I think there is an interesting argument whether you would have authority, under 363E to do it as adequate protection for a use of property of one debtor by another debtor and whether a debtor is an entity within the meaning of 3603E? We didn't make that argument. I think it's an interesting argument.

I think we're just standing under basic 105 authority. We can invest in the position. Thank you. Your Honor, if I could just address this one factual issue, I'm looking at the proposed final order that was given to me last that I'm not sure if it's been filed yet, but the language says the net post-petition liabilities at any time from any debtor to any other debtor,

and then they go silo pooling account, and then they have, and from any non-debtor affiliate to any debtor under the post-petition cash management system shall be entitled to super priority. That's paragraph five. So if that's wrong, we can change that. But I'm reading that to say transfers from a non-debtor affiliate non-debtor affiliate to a debtor get super priorities.

Ms. Arcazian, thank you. Let me look at quick one. I think that's correct. I think that is wrong. That speaks to an obligation nonsensically from a non-debtor to the system having super priority status, which is an overdraft. Obviously, you can award super priority status

to the obligations of a non-debtor because you don't have authority over the non-debtor. So that could be cool. That's an excellent catch, and we can fix that in the form of the order. I guess my work is worth something. It's worth a great deal. And that's not your one.

And for the record, that is by far not Ms. Arcadian's only very good catch. Oh, I know. She catches a lot of stuff. Thank you, Your Honor. One way of the able to. Okay. Well, the only question is whether I have the authority to grant super priority status under 105. And I think that I do is not an issue that has obviously come up in the past because there is no case law on it.

But a number of courts have entered them. in situations such as this. And again, we have an unusual situation here. There's no dip financing. Thetters are operating on their whatever cash they have available, and some might not have the cash to do it. And so I think this is consistent with 105 to the extent that 105 is intended to provide the court with the ability to fashion resolutions

where the code might not provide a specific, resolution, but it's necessary to protect the interests of the constituencies involved in the case. And here I have all of the constituencies agreeing that this is good for the case and good for their individual constituencies. So I will overrule the objection and we'll enter the order subject to the revisions and can work with Ms. Sarkesian and again submit this under COC once you have a revised form of order. Thank you, Your Honor. I think the last...

Oh, not the last. Sorry, just a second. The last motion for Your Honor to consider today is the bidding procedures motion, Docket 24. I was going to say last, but we also have, of course, have the status conference on schedule or the scheduling conference. So, Your Honor, the bidding procedures motion,

before we start here, we do have an evidentiary record on bidding procedures today, there are two declarations to move into evidence. The first is a declaration of my partner, Brian Glusty, at Docket, 412. This is simply putting in front of the court the privacy policies for the various debtors. And again, this Arcazian can confirm, but I do not believe we have an objection on anything that goes to consumer ombudsman issue. I'm saying that correctly.

Ambudsman. I've always had trouble with that word. Ombudsman, I believe. Budsman the I believe that the consensus is that no ombudsman is required in the case for the Sarkasing confirmed the and so if I just asked to move the declaration of Mr. Kloxki into evidence any objection submit without objection the second is the declaration of Kevin Kovsky who we heard from earlier at docket 413 and I'd like to move that into evidence at this time as well I think more succasing they have a comment about

that declaration thank you julietz nartesian on behalf of the u.s. trustee i object to the provisional the statements in paragraph 17 of mr. ockowski's declaration concerning bid protections he addresses you know he gives an opinion that certain bid protections are you know common etc no the court's not Nobody's asking the court to approve bid protections at this time. This is not relevant. We would ask that this, there may be something else in paragraph 17

that doesn't relate to bid protections, and I don't object to that, but anything relating to his opinion or his testimony about bid protections, we would ask that it be stricken at this time, you know, without prejudice. They want to submit that if later on the debtors are requesting bid protections, and there is a procedure within the proposed due procedures, or there is a procedure whereby they can do that

if they find a stalking horse. At that time, if they want to put in, and in fact we would say they would need to put in evidence to support it, they can do that at that time. Okay. Deeder? Your Honor, Andy Deere, we disagree. We think Mr. Kovsky's paragraph

has actually been drafted with respect to the basic situation, which is that we are not. either approving a sale nor the grant of stocking horse protections today. However, we are publicly announcing to the world that bidding protections, stocking horse protections are available. And in addition, we're shortening the notice period for people to object to those stocking those projections. So Mr. Kovsky's declaration is not intended to prejudice anybody's ability to argue that

bidding protections given to a particular bidder in any circumstance are unreasonable or inappropriate. What they say is that. that based on his experience with bidding procedures generally, bidding protections as reflected in what we're doing publicly are appropriately and customary for sale transactions of this type and in amounts that are reasonably and generally consistent with such amounts in comparable circumstances. He's not saying that as applied to the facts of any particular bidder or situation

that they will be reasonable, but they're reasonable generally. In addition, he's saying that having this publicly helps, quote, the ability to attract a prospective stocking horse bidder by offering the bidding protections. So it helps us as the debtor to have a banker who has expertise in this area be able to say to anybody who might be interested in putting forth a stocking horse bid that generically this kind of stocking horse protection is reasonable and customary for the circumstances. We will not be making any assurances to bidder that bidding protections will be granted to them in the particular facts of their circumstances.

Or do we mean to prejudice in any way the ability of Ms. Sarkasian or the committee or any other stakeholder to argue that the bidding protections is applied to a particular bid or unreasonable? On that basis, we'd like to have the evidentiary record that we will propose. All over all the objection and take the testimony for what it is, Ms. Sarkesian. It certainly has not intended to indicate that these bid protections will in fact be granted, and everyone's rights are reserved to object in the future once we have potential bidders lined up and are asking for bid protections. Your Honor, will my ability to cross-examine the witness later if there are bid protections

being sought, will that be preserved or do I need to cross-examine him now? Oh, no, absolutely preserved. You'll be able to cross him on anything when we get to that point. Thank you, Your Honor. Your Honor, the other concerns, so as we move now to the merits of the bidding, procedures order, Your Honor. I believe that all concerns have been addressed and objections resolved other than the objections

of the U.S. trustee and Mr. Malin, the Malman objection that's on the docket. Before I address the specifics of those, I'd like to make a few general points for the court and for the record. The first is by far the most important. We have not made a decision to sell anything, and we're not asking you permission to sell anything today.

This effort is part of the court. a process to look at all of our options across the very complicated set of assets. These particular businesses have been identified early because they are less integrated and sometimes not integrated at all in the operations of FTX. Ledger X is a separately regulated exchange, a derivative exchange, with a different business model regulated by the CFTC. It has regulatory capital requirements, a relationship with its regulators, et cetera. embed is not regulated in the same way, but is separate.

Japan is in Japan, subject to pretty intense regulation by the Japanese authorities. The Japanese rules for cryptocurrency Iran are totally different than our rules. Japan requires for a cryptocurrency business the segregation in cold wallets of all of the cryptocurrency responding to customer entitlements. And it's very strict rules about and trust relationships that are established under law and segregation rules that are established under law for cryptocurrency and cash, completely different profile from what's happening in any of other exchange transactions. And Europe, of course, as a Cyprus exchange that has been run independently with a different customer base.

All of these businesses were actually recently acquired by FDNs. They weren't originally developed as part of the development of the international platform. They're all recent acquisitions that have not been fully folded in to FDNs. access operations, which is one of the primary reasons that we believe there may be independent value. But again, this is price discovery. This is the ability to create an option to sell if the debtors and the consulting professionals believe it's appropriate under the circumstances. And I just want to assure everyone that there has been no decision. Our board hasn't decided to sell anything. And we would need to present the business case to our board based on the facts and circumstances.

The second is related that we don't know if we're going to sell the businesses and how we're to sell the businesses. So there's a comment from the US trustee that we should have a form of asset purchase agreement. We don't have a form of asset purchase because we don't know it's an asset purchase. It might be a stock sale. It might be a merger.

We might sell one of the businesses in combination with one of the other businesses. What will determine this will be indications of interest that we have not received at our sense, again, working with the consulting professionals, on how to make the most money to return to creditors and customers. There is a question whether some of these businesses have synergies with businesses that we are looking at,

retaining, or possibly reorganize, or selling separately. For example, the international platform or even the US exchange. The question on synergies, of course, is not that you wouldn't sell something because they're synergies, but on whether or not the buyer is paying you enough to compensate for the loss of those synergies if you get the asset.

These are synergistic to other buyers, just as they might be synergistic to us. And so we're going to look at the price determined determines out of the marketing process in order to make decisions. We do have substantial interest so far in all of these assets. The other thing I'd note is just that, and I've mentioned this in my preliminary remarks about this motion, that we do have a shortened procedure for relief, a shortened objection period for stocking those protections.

And so you're just be aware of that. I'd like to turn to the objection from the U.S. trustee. As I mentioned, the first objection was that we should have a form of asset purchase agreement, Again, we don't know that we're going to be using that particular form of a transaction we might. We're highly likely to for some of these assets. And when we have a form of asset purchase agreement, we've committed to put that in front of people well in advance of an eight of it. Obviously, if we have a stocking horse, the stocking horse will have an important role to play against any asset purchase agreement. And there's many bidders and many auctions where we run the auction off the back of a specific

asset purchase agreement or structure their stocking most believe it's important to the stocking most. A related objection is a request that we commit to the U.S. trustee now to preserve, quote, all books and records, close quote. We absolutely intend to retain copies of books and records for the businesses we're selling for a long list of reasons. And in any standard form asset purchase agreement, there's a set of covenants about records retention. We're not able to retain records in most circumstances for any purpose whatsoever.

Generally, there's a purpose moment in our ability to retain records when we sell a company. One of those purposes is always our ability to investigate, our ability to relate to regulators, our ability to do our taxes. And so the debtors are not going to lose access to anything that has to do with causes of action or investigations and connection with an asset purchase agreement. But again, with respect, I think the objection is premature until we have announced a purchase agreement to show to stakeholders so they can review this provision and determine whether or not it's added. But we're not going to commit today, we're not willing to commit today to simply preserve all books and records with such simple language.

The other objection from the U.S. trustee is that we are not agreeing now that we will never release claims against emphotives. So we have committed because it's obvious and easy to do that we are not. not releasing claims against Sam Dain Fried, Gary Wayne, Caroline Ellison, Nishat Singh, or I believe we have some language, any of their family-related persons. But releases of employees are sometimes an important part of the disposition of a business when you're the buyer, because the value of some of these businesses is in the people. And as the buyer, you want the people protected. The last thing you want to do if you buy a business is to have rank-and-filed employees,

sued by the person you just bought the business from. Now, this raises a related point, and it's important to say, I think, for the record, as a more broad, as something for your honor to understand, based on the review of Mr. Ray and his team, so far, we have no indication that rank-and-file employees of the debtors generally were complicit in fraudulent activity. Neither the indictment of Mr. Bainton-Fried

nor the pleas of Ms. Ellison or Mr. Wang include criminal charges against the debtors as enterprises. Indeed, from my initial remarks, Your Honor, I explained that at least a core part of the fraud could be implemented with a single number in the code for the platform put in by programmers. The nature of this is still under investigation to be decided, but for the sake of all of the employees of FTX,

we have no indication that this was the kind of problem that results in a criminal charge against an enterprise as opposed to it against individuals at the top. Your Honor, I have to object. I feel like there's testimony, factual testimony being given here. I agree, and I take no note of it. It's not in evidence. Thank you.

And that is exactly my point. And my point is that this is a subject. objection and that when we have a sale transaction and if that sale transaction involves the release of employees we will have to make an evidentiary show and we have a business judgment for that release but right now it's a sale objection it's not before the court and it's I don't we would submit respectfully it's not appropriate to restrict our ability to solicit interest in these companies on a basis that we have to commit now for what's going to

could be in our sale order. Oh, one other thing, Your Honor, before I beat, sorry, Mr. Malin, his objection alleges a security interest arising as best I can understand it under Swiss law. That objection, obviously, can be resolved by, it's a sale injection, but in addition, we're able to attach a lien to the extent of security for some of the proceeds of the sale, and that will, of course, resolve in connection to the sale. So we think that objection should be overruled at the matter reserved for the sale here. Okay.

Thank you. Thank you. Your Honor, Chris Hanson, with Paul Hays things on behalf of the committee, and just before Mr. Harkesian goes, I wanted to note our reservation of rights. I'll be brief. I realize we're running along today. Your Honor, the committee is taking a very cautious approach to this bidding procedure of motion. It's early days in the case, and as I mentioned before,

we have a lot of concerns about value preservation and value maximization, and so we support the debtor's view that this is a wait and see process. We have a number of issues that we've identified in our reservation of rights, from timing to access to information, to be able to make decisions for the debtors and the committee and for the court, but also for bidders to be able to make those decisions. And I won't go through them all individually here. I would just, again, refer the court to our reservation of rights, but I did want to make sure that the court understood from the committee's perspective,

we may be back to the extent that the debtor seeks to sell an asset, and the committee disagrees with that. we may raise an objection at that point in time. And it's about value maximization, and it's about alternatives. One of the things that Mr. Dederick alluded to is the connectivity of these businesses or maybe the lack thereof to the broader platform. And as I mentioned earlier to the court, the committee is hard at work with the debtors to try to understand what the parameters are for potentially restarting the exchanges and reorganizing this enterprise.

And when we move quickly to sell off pieces of the business, we need to understand their connectedness. And so, yes, Ledger X from a factual perspective and embed and others were purchased more recently, but we don't know if they're entirely severable, A, B, if that severance of them from the broader platform will have a deleterious effect on the value of the enterprise as a whole.

So that's something that we're keeping an eye on. We recognize this process is moving quite quickly, so we're doing our work quickly as well, but we just wanted to note our reservation for the court. Thank you. Good afternoon, Your Honor, and may it please the court. Matthew Harvey from Morris Nichols-Archton, Pano on behalf of the AdHoc Committee of Non-U.S. Customers of FPX.com.

I rise, Your Honor, only to say a couple of sentences on our resolution with the debtors. Your Honor, we filed a limited objection to the sale. We discussed our limited objection with the debtors in connection with, excuse me, a larger role of the Adon Committee, or the large role of the Addo Committee is serving. and ensuring that FDX.com customers have access to information and an opportunity to be heard where there may be conflicts and maybe conflicts isn't even the right word with the debtors of the official committee. We were pleased with the debtors' acknowledgement and discussion with us of the group's role in the cases and representations regarding further cooperation going forward and accordingly we will withdrawing our objection.

Thank you. Thank you. Your Honor, our objection set forth, I would say four categories of objections we have resolved two of them so the first objection was going ahead with the sale without having adequate information that included both yes I may have used the form asset purchase agreement asset you know any type of sale agreement whether it be stock sale asset sale there's no form of sale agreement and of course there's no schedules and statements or rule 2015-3 reports we have resolved that

The debtors are going to be filing forms of whether the asset purchase agreement, stock purchase agreement, whatever it is, at least two weeks before the sale date of any sale, they are also going to give the U.S. trustee and the committee, even before that, before it's uploaded to the data room, they're going to give the forms to us. With respect to these schedules and statements, a order has been proposed order has been submitted, that it maybe your honor's already signed it, where the schedule statements will be filed for the asset sales at least two weeks prior to the sale, which will give my office enough time to take the 341.

And then the same will be done for the rule, 2015.3 reports for those debtors who are selling stock in non-debtor subsidiaries, they would be filing that report at least two weeks. So I'll stop to do two 341 meetings on those, but at least I won't have to do three. So that's definitely an improvement. So that has been resolved.

The other thing was essentially a reservation of rights regarding the Ombudsman because there was nothing in the record about the privacy policies for these particular businesses. And now they have put in that evidence. They've attached all the privacy policies. There was even an official translation of the Japanese one. And based on an order of view of that,

we believe that the debtor has, has established that a consumer privacy on businessmen would not be required with respect to these particular sales. So we are not pursuing that objection. So what remains, and so there's two issues that remain. I think on the records retention, you know, we just want to make sure that nothing is lost, that the debtors are retaining or records that could potentially be, relevant in any civil criminal proceeding and you know we'll look to see what the wording is when we see if there's a sale agreement but you know we're glad that

they are willing to do that and we think that that's very important we just want to make sure that everything is preserved and there's not some type of discretion I guess I would say from the debt of viewpoints and we understand that the original records will be trans we're just talking about copies here but you don't want to say well we're not going to keep a copy of this because the debtor makes the determination that it doesn't think it's going to be relevant down the line in some proceeding well a regulating might have a different view of that so we think the widest and again we're talking about saving copies of documents almost

all of which I'm going to guess are electronic so I don't think it would be any for it on the debtor I don't think that needs to be addressed now I agree with that we just wanted to put on the radar but the issue that does need to be addressed now is we aren't very concerned about the possibility that the debtor is going to be selling or welcoming offers to purchase causes of action against current or former, it's not just rank and file employees, it's directors, it's officers or rank or employees. And that specifically mentioned in the bid procedures that if someone is interested in purchasing they have to indicate that.

So I think they're welcoming that type of thing. And, you know, yes, after we made our objection, or after we conveyed our objection to the debtors on this regard, they put in a paragraph in the order that said, okay, with respect to Mr. Bankman-Fried and three other top officers, we agree. We will not sell any positive action against them or the family members. And that's a good first step.

But I think it seems that the debtors have concluded at this very early stage of the case before there's been an investigation, an examination by an independent entity into possible causes of action arising out of the debtors, the events that caused the debtor to fall for bankruptcy. Before that's taken place, they reached the conclusion that there's only four people at the top that were responsible for all of this, and that out of the 100-plus companies of the debtors, that there was nobody else, be it other officers or other employees, they either assisted them in wrongdoing or aided in abetting,

or were negligent, and missed something they should have seen, turned a blind eye, maybe nobody else was. Maybe it was only four people that committed this allegedly massive fraud involving billions of dollars and nobody else in the organization and none of their professionals and nobody else knew about it. But there needs to be an investigation before those causes of action are sold. You know, okay, there's a business in Japan. Where's the evidence that nobody in Japan was involved with any wrongdoing?

Where's the evidence that nobody in Japan knew about any of this? We don't know. It's too early. So we feel that, you know, given the situation, that there should be added to that list of, you know, not just the four names, any officers or directors, any employees, any family members of officers, directors, any companies that are controlled by officers or directors, again, former or current, or controlled, you know, among an officer and their family members. members. I mean, there's a wide range of these causes of action should not be sold at this point in time. Now, the debtors say, oh, well, you know, we can deal with that at the sale. Here's the problem. We have, right now we have no purchase agreement to look at.

We have no idea what they're proposing in this regard. We're going to be getting, potentially, if they're stalking horses, we're going to be seeing a stalking horse asset purchase agreement or stock purchase agreement. we're going to have seven days to review it and make an objection. It's a very small period of time. There's going to be schedules. There will be schedules about which positive action are going to be purchased. There may be placeholders in those schedules. I mean, we've seen this many time.

Schedules aren't filed. They're not ready yet. Then we go to the auction. Somebody else, maybe somebody other another stalking horse wins. Now you have a tiny window of a few days between the auction and the sale hearing. where they're negotiating the purchase agreement. That gets filed maybe a day before the sale hearing. And again, a lot of times, oh, the schedules aren't attached.

They're not finished. Or here they are, but they can be amended. They can be amended up until the time of the closing, or even after the closing. And so we'll be scrambling, trying to figure out, it's hidden somewhere in there. Are they selling causes of action? I mean, it's not going to be like there's a bright shine

light on it. And that's a real concern. It's going to be a very small period of time to look at it, and we might not see it. It might not even be included. Or again, they could amend later after the sale hearing. That's typically said, oh, we have the right to amend the schedules. So in this case, given what the situation is, this early on before an independent investigation, we think it is just completely inappropriate to be selling, to be even considering selling. These types of claims and the debtors are willing to have a prohibition against claims against the top four They should be willing to expand that to all directors officers employees Again companies that are controlled by them and professionals

Then if the petition professionals no claims against them should be sold So that's what we think is appropriate at this point in time and if the debtors cannot do that If they say we can we we're not able to do that then maybe the sales should be put off Then maybe it's too early to do the sales if that's the situation because we don't have the information, we don't have the investigation, and you're going ahead with the sale. So either that has to be carved out of the sale or you have to wait to do the sale until that investigation is complete. That's what the U.S. Bustee thinks. One way or the one choice or the other, you cannot move forward at this stage of the case without an independent investigation selling causes of action against direct, officers, employees, or professionals. Well, isn't there a way, I mean, I certainly would consider any requests from the U.S.

trustee if the debtors were trying to jam the trustee at the time of sale hearing, that you didn't have time to conduct whatever review you needed to do, to raise whatever objections you needed to raise at the time of sale hearing. We don't even know yet whether the debtors are even going to sell these assets. We don't know and we don't know where it's going to be an APA, a merger, stock purchase. We don't know at this point. I think debtors are trying to dip their toe into the water to see what happens, see what kind of interest they receive.

And I think it's important to be allowed to do that. We always have a lot of cases where there's an expedited sale process for one reason or another. And I understand your concerns about whether there's other people who might have been at Baltimore, then these four executives that have been specifically named. And I would also perhaps say to the debtors that if they do receive a stalking horse bid that includes the purchase of causes of action, that they immediately notify the U.S. trustee. so there's not hidden in a gigantic sale agreement and you have some advanced notice that the issue is live and it might not be they might not want to buy the causes of action they might want to just buy the

platform or the assets and leave the employees behind i don't know but you honor can we i mean following up on that idea um i think it should be we would appreciate if it was more than just letting us know of course we'd like to know we think this is important enough that there will be a filing that highlights so that everybody can see if the debtors are selling that's right I agree highlight it I agree I agree that should be done and it can be done like we do with a motion for to approve a dip we have certain requirements that certain things have to be highlighted in that motion so everyone knows that it's in there so we can fashion a form of order that includes that when they file when they receive a stalking course bid and they file it they include in that

filing something that highlights for everybody that they're proposing to sell the causes of action and I think that might that helps alleviate some of the time issues for you and for others who might want to object and I'm certain that mr. Hansen and his colleagues on behalf of the committee are going to be investigating whether our causes of action against any of these other employees. And hopefully we'll have some understanding of that as well before we get to the point where these sales are being sought to be approved. Your Honor, thank you. I appreciate that. I think, again, that it could also come up again, assuming if the stalking horse bidder is either not the winning bidder or it's the winning bidder, but the agreement gets amended, which is possible, right, and at the auction. okay, we agree to pay more, but then we want these causes of action.

But again, at whatever stage, if causes of action are being sold, that they be highlighted. So whether it's a stalking horse stage, whether it's the winning bidder or the auction, and now they're filing their purchase agreement to highlight that. And specifically, not just we're selling causes of action, what clauses of action? I agree. I agree. That makes sense. Thank you, Your Honor. Andy DeDore. We can confirm.

That's a great approach. solution in fact that is exactly why we actually had it called out in the solicitation of indications of interest because we knew we had a special process to run for any bidder that wanted to do the release so thank you your honor with that I don't think there's any other comments on the sale orders so I would respectfully ask you the court to enter the order well we need to revise the order and then submit it under COC and we'll get that right thank you and with that I think the only remaining business is the scheduling matter.

Okay. Ms. Bromley, go ahead. Good afternoon, may it please the court, Jim Bromley of Sullivan Cromwell on behalf of the debtors, Your Honor. This is the time that we need to deal with the scheduling of the motion for the appointment of the examiner. Motion has been filed by the U.S. trustee's office. We have consulted with the office of the U.S.

trustee and the Creditors Committee's Council and the view of the debtors and the creditors to the council is that the hearing that has been reserved on the 8th of February, which is an omnibus hearing date, is the appropriate date to go forward with the motion for the examiner. We debtors are cognizant

that the motion has been filed for some time, but the date has been held in abeyance. We do have certain limited discovery requests to make of the U.S. Trustee's Office. We will have submissions ourselves that we would be making, both evidentiary and legal. Our suggestion is that the papers and our declarations and support of our papers be filed on Monday, January 30th. That would give the U.S. Trustee's Office time to respond and to seek to oppose any witnesses

that we have. And we would suggest as well with the U.S. Trustee's Office, and we'd just to respond. the committee and we consult for a pretrial order that would be submitted to the court no later than Friday the 3rd February. Ms. Archeson? Let me ask Mr. Hansen first. Now that we have a committee, we need to know your review as well. Yeah, exactly, Your Honor.

So we agree with Mr. Romigan, Chris Hanson and Paul Hayes and is on the applicant. We agree with Mr. Romney in terms of the dates. I just wanted to point out for the court that we also may have evidence to present. make that decision in enough time to let Mr. O'Keeza know so that she can similarly take discovery of our witness as well if we have that. Well, I currently have an omnibus hearing on the 8th, Schedule of 1 for this case, and I have two other matters on that morning. So if we're going to have an extensive evidentiary presentation, I may need to move the date.

If I can, I'll move the other matters and move this one up for the full day. It sounds like we might need a full day for this hearing. I think between argument and potential evidence, I don't know that would take the full day, but I think you should reserve that all. Okay. Jim, I'm not sure if you have a different view. I agree with you.

All right, well, I'm here from Ms. Sarkesian. Jury and Sarkishon on behalf of the U.S. trustee. Your Honor, we understand from the last hearing that Your Honor had the February 20th date that's scheduled in this case, that Your Honor has the entire day for this case. I'm correct about that? February 20th? I'm sorry, January 20th.

I'm sorry, January 20th. That's a holiday. Court holiday. January, January 20th, Friday, January 20th, which I believe had been scheduled primarily for a hearing, well, there's a few things. There's a hearing in connection with the Robin Hood stock, which has been seized,

and I believe the last time around Debtors Council, indicated that might be moved because of the seizure. There were also five or six retention applications that are on for that date. And the US trustee believes that that would be the best date for the hearing on the examiner in part because we do have issues with certain of the retention applications that are scheduled for hearing

on January the 20th that the scope of the retention encompasses work that must be done by an examiner. So we think that that argument is dovetailed with the examiner motion and it makes sense to have them both heard at the same time. Our examiner motion has been on file since December the 2nd. So obviously the debtors have more than enough time to address that. We recognize the committee council has not been, is retained on, I believe, December the 20th. Nevertheless, there's been a good amount of time to respond. So we would ask for that.

But absent in the alternative, we would ask if your honor has a date. We, too, were concerned about February 8th, not being added time with it being scheduled at 1 p.m. So we were wondering if your honor has a date between the 20th, January 20th and February the 8th, that would have more time available than the 8th. The other thing I would say is that the U.S. trustee would need to get their reply on file three days, three business days prior to the hearing. And so we would, they're given how long parties have had our motion, we would like to have at least a week between when the objections are filed and when our reply is due. so if for example your honor was to say put the hearing on the 8th

since our reply would be due February the 3rd we would want objections filed to January the 27 to give us one week I do think I need to the 20th is doesn't work I don't think for this it's too soon there is outstanding discovery if it hasn't already been

issued it will be issued I assume are you taking any discovery I have received no discovery I'm trying to imagine what possible discovery there could be against the US trustee but I have not received any we have not seen an objection so we don't know who the witnesses are we have no idea if there in fact your honor in the US trustee's position is that this is mandatory under the code and therefore there's not need to have any evidence it's legally mandatory nevertheless we understand that the parties may want to put on evidence but we don't know what they who they plan to put on what they plan to put on you have no idea

I think you're familiar with my position on the mandatory nature of appointment so which for the record is I do not believe it's mandatory but let's do let's do this I think the eighth want to make sure we have a full day I'm going to reschedule this for February 6th which is Monday we'll start at 930 a.m. The debtors and the committee's responses will be due by the 25th. The trustee will have until the first so you have a week Ms. Arcasion for your reply thank you and then we'll have the hearing on the 6th if there's a pretrial orders are always helpful for me. So if there's going, if we're going to have an evidentiary hearing

on the sixth, let's have a pretrial order by close of business on the third. So 5 p.m. on the third. Mr. Bromley, Mr. Hanson, one, if you're going to take discovery of the US trustee, please do that immediately so that Ms. Arcusian knows that she needs to do some discovery work. Ms. Archeon, in light of my view on the mandatory nature of the appointment of an examiner,

I don't know if that now opens up for you your desire to take discovery of the debtors, but if you do, you should do that, obviously, as soon as possible. Yes, understood your honor. Did I miss anything? Did I cover all the issues? Do I have all the dates that we need for everybody? I think that's all the dates. Ms. Arcegen, anything else? I think those are all the dates in connection with this.

with the exam. Okay. Thank you. All right. Are we done? I have oral argument. Understood your honor. 13 seconds. And we really appreciate the court indulging us for this long hearing today.

The only other scheduling matter to raise your honor, Brian Bucksstein for the debtors. We referenced the January 20th hearing. We did allude to this as the status conference a week ago. We have been in touch with counsel With Blackfye, we are asking to adjourn the hearing on the 20th with respect to our motion to enforce the automatic stay. With respect to the botherhood issues, Blackfye has a related motion to have an entry motion.

That's part parcel at that hearing. We're asking at this time that that hearing be adjourned to a date to be determined. We'll come back to the court in light of the government seizure of the shares. There's a proceeding in the blacked by the case earlier this week. And the parties are continuing to talk about next steps there with respect to all of the issues involved in the livelihood shares and with benefit from time. So we would ask, if Your Honor, with Your Honor, permission that we adjourn that hearing on those two issues. There are other things, of course, scheduled that day, retention motions and the status confidence that Your Honor ordered this morning on the redaction issues. So we respect to the debtor's motion and the related evidence.

issue we asked that that would be a true what's blocked by his position on the continuance of their motion they represent me they they we had an email exchange this morning where they said they were okay with us so represent okay we'll take that off then the 20 both of those off of the 20 anything else then before we adjourned well thank you all very much we are adjourned I will see everybody on the 20 thank you