American court hearing recordings and interviews - Season 2. Episode 13. January 24, 2024. In re FTX Trading Ltd., et al., chapter 11 bankruptcy case number 22-11068, audio of hearing held in the FTX/Alameda et al. bankruptcy proceedings pending in Delaware, USA #crypto

Episode Date: January 27, 2024

THIRD AMENDED NOTICE OF AGENDA FOR STATUS CONFERENCE SCHEDULED FOR JANUARY 24, 2024 AT 2:00 P.M. (ET), BEFORE THE HONORABLE JOHN T. DORSEY AT THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE, LOCATED AT 824 NORTH MARKET STREET, 5TH FLOOR, COURTROOM NO. 5, WILMINGTON, DELAWARE 19801This hearing will be conducted by Zoom only.Parties may observe the hearing remotely by registering nolater than January 23, 2024 at 4:00 p.m.To attend this hearing remotely, please register using the eCourt Appearances tool on the Court’s website at www.deb.uscourts.gov.MATTERS GOING FORWARD:1. Motion of the United States Trustee for Entry of an Order Directing the Appointment of an Examiner [D.I. 176, filed on December 1, 2022]Status: This matter is going forward as a status conference.2. Complaint for Avoidance and Recovery of Transfers and Obligations Pursuant to 11 U.S.C. §§ 105, 547, 548, and 550, Breach of Fiduciary Duty Pursuant to Antiguan Common Law and the Antigua International Business Corporations Act, and for Disallowance of Claims Pursuant to 11 U.S.C. § 502(d) [FTX Trading Ltd. et al. v. Lorem Ipsum UG et al., Adv. Pro. No. 23-50437 (JTD) – Adv. D.I. 1, filed on July 12, 2023]Status: This matter is going forward as a status conference.

I think we're ready to get started. Good afternoon, everyone. This is Judge Dorsey. Can everyone hear me okay? Can anyone hear me? Let's try this again. Can everybody hear me okay? Yes, Your Honor.

Okay. This Judge Dorsey, we're on the record in FDX Trading Limited case number 22-11068, advisory proceeding 23-504-37. This was a status conference requested by the court. I'll go ahead and turn it over to Debtors Council. Good morning, Your Honor. Good afternoon, Your Honor, I'm sorry. It's James Bromley of Sullivan and Promwell.

Can you hear me okay? I can, thank you. Thank you, Your Honor. I'm here with my partner, Stephen Aaronberg, who will be addressing the issues relating to the adversary proceeding. I will be addressing the issues relating to the status conference related to the appointment of an examiner. Your Honor, we submitted a letter to the court yesterday, setting forth our positions with respect to the decision of the Third Circuit. And it is our view that what we should be doing today at the Status Conference is setting

a process to first determine the scope, the degree, the duration, and the cost of an examination, as well as in a transparent and public fashion, setting a process for the selection and appointment of an examiner. Your Honor, we are sitting here in February or almost in February. of 2024, nearly a year after the hearing on the examiner motion. That was the subject of been appealed by the U.S. trustee. There has been a huge amount of progress and a different set of facts that presents itself today than we were facing when we were standing in front of the court in February of 2023.

Your Honor, while Mr. Ray's first day declaration, which was filed on November 17th of 2018, who set forth a number of very troubling issues that were discovered at the time of the commencement of the case. It is fair to say that the issues that were identified by Mr. Ray in that first aid declaration have been rectified. The situation that court has been described to the court by Mr. Ray in that declaration and in his testimony at the examiner hearing are fundamentally different than our. today than they were at that point in time. There has been the five issues that are objectives that Mr. Ray had set forth in his first

day declaration have largely been achieved. And most importantly, Your Honor, we are sitting here today within several months of an exit from Chapter 11, an exit from Chapter 11 that will take place with recoveries to creditors that, frankly, could not have been imagined at the time that the examiner hearing was held or at the time that the motion for the appointment of an examiner was filed by the United States trustee. And Your Honor, it's the view of the debtors that it's critically important that we take into account not just the substantial work that has taken place, but also the fact that we're faced with just a number of months before emergence. And so while the

Third Circuit clearly stated that the appointment of an examiner in these cases, is mandatory under 1104. The Third Circuit also made it very clear that it lies in the discretion of this court to determine the scope, the duration, the degree, and the cost of that examination. And so, Your Honor, our view is that the interested parties, and that should be a limited group of interested parties, being the debtors, the committee, and the United States trustee should make submissions to the court with respect to those four elements,

the four elements that were set forth by the Third Circuit, and then have an attempt to sit down in a meet and confer to determine whether or not we are able to reach agreement, and if we are unable to reach agreement, to have the court decide on those four elements, the scope, the degree, the duration, and the cost of the examination. Okay. Let me hear from committee counsel.

Good afternoon, Your Honor. Kemposqually from Paul Hastings for the official committee with me as my partner, Chris Hansen. Your Honor, we too, the letter with our thoughts, with respect to the examiner motion. I won't get into the details of the proposal. We do generally agree with Mr. Bromley. A lot has happened in the case over the last year. The Third Circuit itself and its decision recognized. the court's discretion now to set the parameters of the investigation.

We have two main concerns, and the Third Circuit noted them in the opinion on page 15, and I'll quote, by setting the investigation's parameters, the bankruptcy court can ensure that the examiner is not duplicating the other party's efforts, and the investigation is not unnecessarily disrupting a reorganization process, close quote. Those are our two concerns. We don't want to see the examiner the expense, excuse me, of the examiner's investigation impacting the estates. This has been done. The investigation in the law part has been done.

So we think it's in narrowing the scope and certainly the cause. that has to be taken into account. And perhaps even more importantly, as Mr. Bromley alluded to, we are on track for a plan confirmation process in the next few months. The examiner process really should proceed in parallel, but it really should not in any way slow down that confirmation solicitation process so that distributions can be made to creditors. As far as our proposal, Your Honor, I think I'll wait on that.

and come back to that as Your Honor addresses the other parties. Okay. Let me hear from U.S. Trustee. Good afternoon, Your Honor. Interrichsend Berger from the Office of the United States trusting. Your Honor, I think we have a big disconnect here. I think that the proposal that was set forth in the debtor's letter, respectfully, ignores the appellate rules,

a procedure, the bankruptcy code, and the practice. code and practice in the process that has been followed by this court. First to address the issue of the appellate process. The issue of the appointment of the examiner will not be back into this court until the mandate is issued. This is something I had to learn an awful lot about in the LTL cases and especially LTL case number one. The issue does not come back before your honor until the mandate issues. And the mandate does not issue until after expiration of rehearing deadlines. Because the United States trustee

is a party to this case, it actually is a 45-day period, not a 14-day period, so that it would be 52 days after last Friday before we would see the mandate coming from the Third Circuit. However, under Rule 41B, Zimboy, of the appellate rules of procedure, the Third Circuit can respond to a motion to extend or shorten the length of the mandate period. Now, the mandate period there, of course, is to protect parties that want to make application for rehearing or hearing and bunk. I saw in the debtor's letter that they are pronouncing that they are not going to seek that relationship. I don't see that in the committee's letter. I don't know if there are other parties who participated in the appeal who feel differently. That would be a reason why there should be a motion filed with the Third Circuit regarding

issuance of the mandate, and then parties in interest can respond. It is also a subject that the U.S. trustees' office does not have the authority to speak on, because when it comes to appellate matters, that is handled by. the appellate civil division of DOJAC for the United States trustee. And there was a different grouping of people, in fact, who did the brief and who argued the case in front of the Third Circuit. So this would be the people who would have to be involved in this process with the debtors or the committee, whoever might want to take up the laboring war.

But this is something that needs to occur before Your Honor can issue any order. quite frankly, regarding this because the issue is not in front of this court. And I have to say, you know, we all were excited when we saw the opinion last Friday, but then we stopped and said, oh, no, it's not an immediate, oh, we go back to the court. It's we've got to go through this mandate process first. After the mandate is issued, then we have to look at Bankruptcy Code Section 1104D, as in David, which talks about the process of appointing. examiner. And I'm going to borrow from the Third Circuit here. The Third Circuit said, you know,

complex case, but straightforward issue for appeal. Complex case here, Your Honor, but a straightforward process that's laid out in 1104D for how we go about appointing an examiner, deciding scope, duration, and also the budget. Your Honor, our office has been through this with you already in the credit case. That case was handled by our assistant U.S. Trustee, Mr. McMahon, back when he was a trial attorney. It's the same process I followed, Your Honor, in PWR when we, Your Honor, ordered the appointment of a Chapter 11 trustee. Very similar process, and it's set forth there. 11.04D says that the United States Trustee, after consultation with the parties in interest, appoints an examiner

subject to court approval. So your order would enter an order stating U.S. trustee is ordered to appoint an examiner. That's what you did in credit. I have all the credit pleadings. And then we responded, went through the process. And believe me, Your Honor, we are very popular people right now in terms of our email traffic. Mr. Vera, Mr. McMahon, Mr.

Hackman and myself receive emails daily from people who are interested in serving in this role. We are not wasting time. We're conducting some due diligence in the meantime. We're not just sitting here, but we can't do anything until the honor issues the order, ordering us to make the appointment. We will have a very robust pool to choose from. We will be looking at the skill set, the background of the people, and we will be consulting with the parties in interest as we are ordered to do so under Section 1104D of the bankruptcy code. So after a candidate for examiner is chosen by the U.S. trustee, then we go through the application process. Again, something very simple. We did it in credit.

Information is supplied to the court. It goes out on notice. everyone knows who the candidate is, they know information about them, because it's very important that the candidate be disinterested. And then if your honor is satisfied with that, then your honor issues the order appointing that person as the examiner. And then usually that order, as in credit, said that the examiner works with parties in interest and comes up with the scope, comes up with the budget, comes up with the duration. They must be. involved in that process. They have to be involved in that process. Your Honor gave

the examiner in that case it was Mr. Stark a certain number of days to come back a plan of scope, duration, and budget. And it was filed under notice so it went out and parties are able to comment on it. No one's going to be acting in a vacuum here. We're not doing things behind closed doors. That's the great thing about the examiner. That's one of the things the Third Circuit said. The examiner's report will be public. The examiner needs to rely on the cooperation of the party here. He doesn't want to have to come running back or she doesn't want to come running back to this court saying, I can't get this from the committee or I can't get this from Mr. Ray.

Examiner will need to be involved with those parties. We'll need to be consulting with them. Now, as to scope just a couple of very broad-brust comments at this point in time, the Third Circuit spoke about the scope. In a very general way, first of all, it said that the investigation under 1104C2 is different from the debtors and the UCC conducting an investigation. You are working with a disinterested party, not working with the debtor and possession conducting an examination and believe me, Your Honor,

it's not to say anything derogatory about any of these groups and I'm also relying on the Third Circuit's opinion here but they are creditors, they are the debtors. This is an independent disinterested party. And even the Third Circuit pointed out that under 1107A, the debtor in possession

can perform the duties of an examiner. You hold on, one second, Ms. Rich and Dürfer. Hold on, one second. Certainly, Your Honor. It's an outside issue. I don't think we can do anything. Apparently, Ms. Rich and Derfer, there's some people who wanted to be in the virtual courtroom, but they're not picking up the audio.

I don't know why, but it's apparently an outside issue, not a court issue, so there's nothing I can do about that at this point. So we'll go ahead and go forward. Go ahead. I'm sorry. Okay. Just as an aside, Your Honor, at first, We had trouble signing in because we were using Chrome, and we moved over to Microsoft Edge and got us in with no problem seeing and hearing everyone.

I just passed that suggestion out there, but if people can't hear, they don't hear me saying that. So, I mean, the goal of the examiner is to issue a public report. And the Third Circuit also got a little more granular about scope and said there are issues of potential conflicts of interest. arising from the debtors' counsel serving as pre-petition advisors. It didn't make any judgments one way or the other, and I'm not suggesting that we debate the issues today. I know that was addressed in debtor's letter to the court. It was an observation made by the Third Circuit,

and it would be something that the examiners may look into. There was another issue that was also commented on by the Third Circuit, which was employees of FTCX who are still in place at the company. And I know that the debtor has spoken about looking into it. And there were certain areas in the debtor in its letter to Your Honor, even admit that they haven't completed their evaluation of certain things. But, again, this is premature to be talking about this today. We have to get the mandate.

Your Honor has to issue the order. we need to comply with 11.04D. We need to have the examiner come back with their report. Oh, me, sorry, with their game plan, so to speak. And, you know, in general, there's the corporate activity, the decision-making process. Nobody wants to reinvent the wheel. That's for sure.

And I would note, though, that the last time Mr. Ray filed a report on investigation, information was back in June of 2023. I know those things are noted in the debtor's letter, but there came a point in time when those reports stopped. But again, the Third Circuit strongly said that the difference here, there's a big difference, and it's independent the examiner, the examiner is disinterested, and the examiner will issue a report that will be placed on the docket. And, you know, coming up with different formats, which, quite frankly, Your Honor, I think have so many steps in them, I couldn't, well, I lost track after a while at different

steps the debtors were suggesting. It's there in 1104. Anybody wants the credit case number, I will certainly give it to them. Your Honor, that was a very simple process that got us to the examiner being appointed. It took, I think it took about four months, if you look at the dates on the orders, but we had Christmas in between. And I do recall that that was a little bit of, it lengthened the process a little bit with the holidays being in there. But no need to reinvent the wheel.

In fact, you can't reinvent the wheel. 11.04D tells us what to do, and it orders the U.S. trustee to consult with the parties in interest when conducting its evaluation. but we do not feel that we can undertake anything until mandate issues, and Your Honor issues the order. I don't know if Your Honor has any questions about that. Yeah, other questions. Okay, thank you, Your Honor.

Mr. Bromley, any response? Yes, Your Honor. There are certain things that the U.S. Ristee's Office says that we certainly don't disagree with, but to start off with the mandate issue, there are three parties that participated in the appeal. That's the official committee of unsecured creditors, the debtors, and the United States trustee. It seems to us to be a relatively simple thing to stipulate together that the mandate period should be reduced and that the mandate should issue immediately.

So we don't see that as being an obstacle whatsoever. And if the U.S. trustee's office is saying that they want to take the full 45 days that they're allocated under the statute, that's frankly disturbing to us because we are moving very quickly towards confirmation of the plan. of reorganization. And as Mr. Pasquale said, one of the things that the Third Circuit said based on the current record is that this should not, this exercise with respect to the examiner should not get in the way of confirmation. Now, with respect to the 1104D exercise, I don't think anything that we said in our letter is inconsistent with 1104D. We want that process with the United States trustee to be open and transparent. That's all. We want that to, and we want

the scope and the degree, the duration, and the cost to determine first. Because the exercise here, Your Honor, yes, there are lots of phone calls that are coming in, emails, not just to the U.S. trustees off, but to the debtors and the creditors committee as well, because there are lots of people out there in our business who would love to be able to get into this exercise and see this as a possibility generating a lot of fees at the expense of our creditors, and we need to make it clear to everyone out there exactly what the scope should be before that exercise take on a life of its own. Because unless that is set first, our view is that all of the candidates are going to be incentivized to have a very large mandate and suggest a large mandate. So our view is we should

consult with the U.S. Trustees Office and the committee about what that mandate should be, If we can re-agreement on it, then we should come to the court with an agreed stipulation on scope and then move to the appointment of the examiner. There's nothing in 1104D that says that that is not appropriate or not authorized. So the fact that one other case that the OSRSTD had in front of Your Honor with respect to the appointment and examiner moves in a slightly different order, doesn't mean that it can't operate in a different order here. Now with respect to with the Ostrassiz office's statements with respect to scope, she stated,

I don't want to talk about scope, I don't want to talk about scope, and then proceeded to talk and detail about scope, right? So I'm not going to go into the issues with respect to scope, but the fact is that the dicta that is cited with respect by the Third Circuit has no basis in the current set of facts. They relied on two things, Your Honor, right? They relied on Mr. Ray's declaration on the first case, and to insinuate today that the same people who brought this company into bankruptcy are today in place, in office, running that company is simply impossible to believe, right? That is incorrect, and it was incorrect in February of 2023. It's incorrect today.

And the idea that the U.S. fees office is a year later continuing to sing that same song is highly disappointing. There hasn't been a single question from the U.S. trustees' office in the last 12 months about anyone who was supposedly involved in the case prior to the filing and whether they still have roles. The fact is none of them do. They are all long gone. And completely ignoring the fact that while the debtor itself may not be disinterested in the classic sense of the word, Honor has already held evidentiary hearings that have determined that Mr. Ray, and his team are disinterested, that the council that have been pointed to represent him are disinterested. The Office of the United States trustee withdrew their objection to all of the council that were appointed. There was no objection prosecuted by the Office of the U.S. trustee against my firm,

against Quinn Emanuel, against Paul Hastings, against Young Conaway, against Landis Raffa. Zero. Those orders were entered, finding disinterestedness, and those orders are final, unappealable. So we cannot ignore what has taken place. And so it's critically important in our view that as we're moving forward, let's get this mandate issue solved. If the U.S. Prestise Office of the Department of Justice in Washington are somehow incapable of accepting the fact that they won and shortening the period for the mandate, that I think is. speaks volume. So I'm hopeful that that is simply a misstatement by the office today.

We should move forward quickly to get that mandate, put it squarely in your honor's court and discretion to form the scope of this investigation and the timeline and the cost. Because, Your Honor, on 31st of January, we're going to be before you telling you in substantial detail information that goes to the recoveries to creditors, not just creditors, but victims because this is a case that's very different than other cases. We're talking about people who suffered as a result of the frauds of Sam Bankman-Fried and his cronies. And what has happened over the past year is that the debtors have relentlessly provided information to all of the regulators, including the prosecutors in the Southern District of New York, and Mr. Bankman-Fried

was convicted in less than four hours after a six-week trial, which was a trial of the decade. And when Mr. Williams, who is the U.S. attorney for the Southern District of New York, stood on the steps outside of the courthouse, he said, this is what relentless looks like. We investigated from top to bottom and side to side everything that went on in connection with the fall of FTX, and we have brought justice by convicting Mr. Bankman-Fried and getting the plea agreements from Ms. Ellison, from Mr. Singh, from Mr. Mr. Wang and Mr. Salem. And watch out everyone else in the crypto world because we're going to do the same thing to you.

What has happened in the past 12 months is absolutely astonishing in terms of taking what had truly been a dumpster fire in a crime scene and turning it into quick, speedy, and affect convictions through the cooperation of these debtors and their professionals and the prosecutors. We also have done the same with the Securities and Exchange Commission, the C.S. CFTC, dozens of regulators around the world and within the United States. We are engaged right now with the CFTC with respect to their multi-billion dollar claim, the IRS with their multi-billion dollar claim. This is now a freight train that is moving towards confirmation that is going to deliver very fast and very substantial recoveries to creditors who a year ago thought they were going to get sense on the dollar.

So the fact that there was a victory on Friday for the U.S. Trustees Office before the Third Circuit, okay, now we all know what 1104C says. I still disagree with it, but we're not going to appeal it, and we're not going to seek en banc review. But the time is now to decide what is the scope and what is the cost and what is the duration. And with all due respect, Your Honor, the United States Trustees Office should simply say, thank you, we won, and sit down with the parties to decide those key issues. And what I've heard today, unfortunately, doesn't sound like that. Mr. Boscoe.

Thank you, Your Honor. First, just for the record, the committee has no intention of seeking on bond review. We agree with Mr. Bromley. You can stipulate tomorrow. As I said earlier, we are most concerned with speed to keep on that confirmation schedule. Just one thing on the scope and the process, Your Honor. We did propose in our letter a slightly different process by which the examiner be appointed first and then meet with the parties.

We don't feel strongly either way, but that scope needs to be discussed among the parties. As I said earlier, we do think it needs to be limited, but the process needs to proceed. So, in essence, Your Honor, I don't understand the delay in waiting 56 days to get this process moved. Thank you. I think Ms. Richard Duffer has said that she'd be willing to. to work with the parties to see if we can get that mandate issued faster. Your Honor, if I could correct, I don't think I misstated.

I think I was misheard. And it was, quite frankly, I at first was surprised that Sullivan and Cromwell came to, Your Honor, and didn't first talk about the mandate and how we were going to address it. So we felt it necessary to bring up that issue at the hearing today. The point is that absent anything being done, it will be 50 to date. Our point is, something needs to be done. Under 41B of the appellate rules of procedure, something can easily be done. And we would just ask that the committee and the debtor get in touch with, or we will put them in touch with,

the civil appellate division DOJ, to speak on behalf of the U.S. trustees' office, and it should be done as soon as possible. if the committee and the debtors had already decided that they were not going to take further action, they could have started that process on Monday if they wanted to. So the point was not we were going to drag things out. We don't want to drag things out. The point was we can't miss that step. We can't run the risk of something being done that then is without authority because the mandate has not issued.

It must issue first. And thinking that we should just sit down and be grateful, that the Third Circuit reads it, the way that the Sixth Circuit does, the way the U.S. Trustees Office does, I don't think that maybe the Federal Council understands what the true goal and what my responsibilities are as a member of the U.S. Trustees Office. we will comply with 1104D. As Mr. Pasquale, I think it was, just said, let's get the examiner first, then talk about scope, then talk about duration, and then talk about amount. Everyone's assuming that for some reason that everyone, that we, the U.S. trust, they are going to be in there fighting

for something that starts from the get-go. Maybe these are just precautionary tales, that they're throwing out to try to cut us off that notion, we don't know what the scope will be. We need to get the examiner in. That is the way that it's done. That is the way that the committee has suggested it be done. Let's get the examiner.

We will be consulting with parties in interest, including the debtors and the committee regarding the identification of the examiner, and we will do it once the mandate has been issued, and once your honor can issue an order to us, direct us to appoint an examiner. So I agree with the trustee that the code does provide the process by which an examiner gets appointed. It's 1104D, which govern the appointment by the trustee after consultation with parties and interest, and subject to approval of the court. Rule 2007-1a

also sets forth that a motion to appoint an examiner is governed by Rule 2014, which makes it a contested matter. And I think it's not just the motion to ask for the appointment of an examiner, but I think the appointment of the examiner itself is a contested matter, which can be heard by the court in accordance with Rule 1914.

Rule 2007.1D lays out, about the process for the approval of an examiner. The U.S. trustee identifies who that examiner is going to be appointed. In this case, I know in CRED, I appointed an examiner, asked the examiner to provide a scope for the investigation that was a way going to be conducted. In CRE, that process began early in the case. In this case, I probably know more about this case than anybody who's going to be appointed as an examiner knows at this point in time.

And the Third Circuit Court said that I have the broad discretion to determine the scope, the degree, the duration, and the cost of any examination. I think it is important in this case because I do believe that This needs to be done in a way that does not reinvent the wheel. Does not redo investigations that have already been done. My view is, at this point in time, back up here, I've made some notes here about all of this stuff. Yeah, nothing in the code or the rules

describes the process for determining the scope to create duration or cost of an examination. That's up to the court. So I have to make those determinations, not the examiner, not the U.S. trustee, not the debtors of the committee. It's up to May to decide that. But as I said, it's under 1914, so it can be an adversarial process if necessary. Hopefully, the parties can meet and confer. And I think we can go through, we can start this process now, even though the trustee can't appoint an examiner at this point,

and even though I can't approve the appointment of an examiner, and I can't prove what the scope of any examination is going to be, we can start this process so that we can figure out how long this is going to take, how much is going to cost, before we get too far down the road. So here are, I thought I would try to shortcut the process a little bit, at least, by giving my preliminary thoughts on my view on the scope of an examiner. My view is the examiner should review the investigations that have already been concluded or that are currently underway by the debtors, the committee, and any third parties including the SEC, the DOJ, the Southern District of New York, the CFTC, anybody else who's investigated these debtors, and provide a report that outlines those investigations and what their findings were and make recommendations for any additional

investigations if any that the examiner believes would be necessary or helpful to the court or the estate if the examiner recommends additional investigations the report should include an explanation of the nature of the investigations the process for conducting that investigation and the projected costs and how the investigation will benefit the court and the estate that should be in a summary form it should be something that can be done very quickly. I would say probably within 30 or 45 days after appointment, we can get that kind of a report from an examiner. And then, if there is requests for additional investigations, I will seek comments from the parties in interest,

and I will make a determination as to whether or not those proposed investigations are in, are necessary and proper in the context of this case. Again, the goal here is not to reinvent the wheel. I don't want to spend another tens of millions of dollars on an investigation that's going to tell me we've already done all these investigations and here's how they've concluded. I'm not going to give any guidance at this point

on the cost of that initial investigation. I think it could be done relatively inexpensively compared to what other costs in this case have been so far. I'm talking about low seven-figure number, very low seven-figure number. I do want to address the three issues that the Third Circuit reason. Mr. Bromley talked about these, and Ms. Richinger talked about these. One is the conflict issue that the court said has been really. raised repeatedly. I'm not sure where that comes from. I'm not sure where it was raised beyond the motion to approve the retention of Sullivan and Cromwell in these cases. I held the contested

evidence you're hearing. And before that hearing occurred, the U.S. Trustee withdrew its objection after the, after Sullivan Cromwell had provided additional information. There was still a creditor who had objected, and we went forward. And the allegation, was that Sullivan and Crommel had done work for the debtors pre-petition and therefore should be precluded from representing the debtors in the bankruptcy case. I heard evidence. The objecting party had the right to take discovery and to present his own evidence.

He didn't do either. And I concluded after that hearing that Sullivan and Comal did not have a conference. And that was based on, partially on Section 1107B, which states specifically, that the fact that a professional does work for a debtor pre-petition does not mean that they're automatically excluded from representing the debtor in the 327. And there was no other evidence submitted at the hearing

that led me to believe that there was any conflict of interest. But that leads me with the dilemma that the Third Circuit raised it is an issue. So I think the examiner should look at whether there was an examination, excuse me, whether there are conflicts and interests involving Sullivan and Cromwell. That was the only one that was objected to. All the others were not objected to. There's no reason to look into any of the others as far as I'm concerned at this point.

And determine whether or not there was a conflict. Again, not reinventing the wheel. Look at what was submitted at the hearing. Look at what my ruling was. And make a report as to whether or not the examiner believes there is any other. other potential conflict. The Third Circuit also addressed the U.S. trustees concerned about reports of widespread fraud

at the debtors and that employees were still working for the debtors. Mr. Bromley just told me that all of the employees have been removed. I don't know if that includes everybody or just ones who may have been involved in the fraud, I don't know, at this point. But I think that is something that can be addressed

in the broader scope that I outlined. earlier that the court, the examiner can look at what was, what investigations have been conducted and give a report on whether or not the examiner believes any other investigations need to be conducted. And finally, the Third Circuit raised the issue of the debtor's use of its cryptocurrency, FTT, to inflate the value of FTX and Alameda research. And the court specifically said the report could bring the practice under further scrutiny aiding potential investors to undisclosed credit risks in other crypto companies

and allow the court to consider greater public interest when approving the debtors reorganization plan. Again, I think this is something that can be addressed in the broader scope of review that I talked about, look at the investigations of Enven. This is something that's well in the public knowledge, everybody. I think this is, it's been in the press. I've seen it. where not just, you know, concerns have been raised by third parties about crypto companies creating their own cryptocurrency and then inflating the price because they also control the sale

in the process of getting that crypto out into the market, and they can manipulate the market on both sides of the transaction. I don't know what the debtors have done in terms of looking at that part of it, but it's, again, it's something that can be addressed in the broader scope. review by the examiner look at what investigations have been done and provide a report that would give some a good word to describe it could could provide parties with a understanding of how this process worked at FTX so that as a third circuit said in other cases parties might be able to take that into account and making their

decision to invest on the question of when this process will be done again I can't really say at this point how long this is going to take. Like I said, I think 30, 45 days after appointment would be sufficient at this point given the scope of the examination

that I'm outlined here. And this is, I said this is my preliminary. So if the U.S. trustee or any other party believes that there is additional investigations that need to be done, they can raise those at the time, the motion to appoint the examiner.

is put before the court. And I would like to see the examiner, the motion to appoint the examiner and the scope of the examination at the same time. I don't want to have an examiner. I don't have a two-step process. I don't want to appoint an examiner and then have to wait another three, four weeks or a month to get a report on what the scope of the examination is going to be

and then have to have further hearings on that. I wanted it all done at one time. Appoint the examiner. who it's going to be and what the scope of the investigation is going to do. We can get that all done at one time and shorten the process. Any questions? No questions, Your Honor. No questions from the debtor.

Mr. Pascuali? Thank you, Your Honor. We understand. All right. So I think that will address the issues, the concerns that the Third Circuit had, and my concerns about trying to control the cost of this investigation. because, as I said, I think left to an open process, it could result in tens of millions of dollars.

I think at the original hearing, I said it could go up to $100 million if this was a broad-based investigation starting all over from scratch. And I don't think we need to do that in this case because of the investigations we already have in hand, which have been extensive. All right, thank you. Now we need to move on to the... Thank you, Your Honor.

Move on to the adversary proceeding. This is the question about appointment of a mediator. Is that what we're talking about? Good afternoon, Your Honor. Stephen Aaronberg, Sullivan Cromwell, on behalf of the plaintiffs and the adversary proceeding. I think that's right. Okay, go ahead.

Thank you, Your Honor. As we indicated in our letter, we have no indication that the defendants in this action are at all serious about revolution at this time, and in fact have spent quite a lot of time and energy launching collateral attacks on the entire Chapter 11 proceeding. Since the letters were exchanged on this, the principles in these actions have had some limited discussions,

very preliminary, but nothing that changes our view about the rightness of a potential. mediation at this time, and we think that the status of the case indicates that this is just not the right time. Expert discovery has not begun at all in this action, and we think in this case in particular there are important issues around valuation and other matters that are really going to need to be illuminated before the parties can really make any significant movement. Mediation is obviously going to require a lot of preparation. And there has something in terms of material for the mediator to work with, like the expert opinions that are going to be rendered in this action.

So right now there's really very little for a mediator to go on beyond what is in the motions to dismiss that are not yet fully briefed and haven't been argued yet. Discove is also still in our view not sufficiently advanced to make it likely to be a fruitful exercise for the, parties to mediate about what the fact are or what the value is. In plaintiff's view, the mediation ought to be had at a much more advanced stage of the case to have any likelihood of success. This is not simply a matter of identifying a mediator and getting something on a calendar so that we have it in the event that we need it. It takes a lot of work to identify and to agree on a mediator.

and, you know, it's no reason to think that that is going to be a simple exercise in this case any more than it would be in any other case. And once we have something on the calendar, all of the parties are going to have to begin working on that mediation sufficiently in advance of whatever date we would choose in order to be prepared for it. Or we have to conclude months advance that we still think it's not likely to be fruitful. So all of that to say is – and then we're going to find ourselves right back in a conference like this one. So all of that to say, Your Honor, we think the right time to do this is when the case is more advanced and when the parties have a better sense of the claims and defenses of their adversary.

I mean an idea what the case is about. What are the valuation issues you're talking about? Your Honor, this is a case to avoid the acquisition of a company. called digital assets AG by FTX. The company paid in excess of $300 million for this company, and we contend that it was not worth anywhere near that amount, and that the debtor didn't receive reasonably equivalent value. We've alleged actual fraud in the transfer.

So this is about avoiding a corporate acquisition. I hear from the defendant. Good afternoon, Your Honor. Heath Rosenblatt of Morrison-Cohen on behalf. of Patrick Groon, Robin Mattsky, and Loraminsome. Your Honor, this is kind of blown up into something that we did not anticipate with our letter as we spoke with Mr. Aramberg yesterday about.

Under Section 6 of the order, it says that we're supposed to file a stipulation by January 24th. We were unable after a meet and confer to reach even, you know, agreement on an individual to be immediate, and we just wanted to notify the court of the status of the situation so that the court need to do anything going forward as per the order. We, to kind of rebut some of Mr. Aaronberg's comments, though, we do think it makes sense to agree on an individual now,

and we're not pushing for mediation tomorrow. We just want to have the, I guess, the person and the system in place for when it is right. We're not disagreeing that it isn't right with this particular time, but we just don't understand why we can't agree on an individual, and we also just wanted to make the court aware of the fact that we complied with the CMO, we met and confer, and what would the status of that need confer was, Your Honor. All right, what are we, Mr. Aaronberg, what are you talking about in terms of additional discovery that you want to take before you get to the mediation process? I mean, the employment of a mediator shouldn't take that long. That can be done fairly quickly.

Yes. Your Honor, we're still at a very early stage of discovery. We are in document discovery. As of now, there have been no depositions. There are no depositions scheduled. Expert reports are not due until June. So there is a fair amount of work to do before the parties really have a solid sense of what the issues are. And in our view, knowing what those issues are contributes to each party being in the best position to identify a good mediator.

And we don't know today. Maybe the parties are going to be closer on issues of, you know, for example, solvency than they think they are today. So we think there's benefit in pushing this out a little bit until the parties are further along, in fact discovery and indeed into expert discovery. How long are you talking about it? Our expert reports are due in June. Theirs are due, I want to say, roughly 30 to 45 days after that.

And I think somewhere in that neighborhood, the parties will have, there are replies, but I think the parties will have a materially better understanding of the state of play on the important issues in this case. Mr. Rosenblatt, I take it from your comments. You're not contesting the idea that now is not the right time to do remediation, that there needs to be some discovery. Thank you. Your Honor, and Mr. Amber presents a fair depiction of the timetable that we're dealing with.

I guess our confusion at this point is this provision in the CMO, which seems to be standard with the debt of other CMOs, was proposed by the debtor, and they're the ones who put the date in or we agreed on the date. And again, we were just technically trying to comply with the date. Again, I don't understand why this has turned into this type of issue. We'll work with the debtor. It's a fair point that Mr. Anberg makes that as we get further along in the process, that may inform who we go with. But I also think, given that we've all done this enough to some of the names that we're being thrown around by us, would have complied with that at this point anyhow, Your Honor.

Well, let's go ahead, and I understand it was in the CMO. Sometimes things get put in, and then parties realize later, we really need to have a little bit more time. and there's not the right approach at this juncture. So let's go ahead and get the discovery done that the parties think need to be done, and we can come back later to, hopefully you can meet and confer and come up with a media once the time is appropriate. If you can't, I'm here, and I can get something done fairly quickly if I need to appoint something.

Thank you. I appreciate being heard today. Thank you, Your Honor. All right, thank you. Anything else? for today, Mr. Bromley? No, Your Honor. That's all we have for today. Okay. Thank you. Going back to the, just on the mandate issue, I'm hoping that the parties can meet

your first. I'll confess, I know very little about appellate procedure as I sit here at this moment. I don't know what the requirements are. I don't know if you can, for example, file something under CNO or COC as we do in the bankruptcy court up in the Third Circuit. but let's see if there's a way to get that done fairly quickly, hopefully by the end of the week maybe even if possible, so we can get this process going. We will coordinate with the U.S. Fristice's Office, Your Honor, on that, and move as quickly as possible.

And if I wasn't clear, I'm hoping, also, I can't direct you to do it, but I'm hoping that the parties will sit down and talk about this issue of the scope and who the examiner is going to be and what kind of examiner you want to have doing this. We're certainly prepared on the debtor's side to do that year. All right, thank you all very much. And your honor, we will consult with the debtor and all the interested parties in doing some. Okay, thank you very much. I appreciate it.

All right, thank you. That's it for today. We are adjourned.