American court hearing recordings and interviews - Season 2. Episode 14. January 31, 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: February 3, 2024

This is an exceptionally interesting bankruptcy court hearing in the complex international bankruptcy proceedings of FTX/Alameda. It opens with the bankruptcy court's bench ruling with respect to certain issues concerning the estimation of the IRS claim against FTX/Alameda. Does anyone knows... if the IRS wins that it has a multi billion dollar claim then couldn't that lead to the arguably statutorily mandated and arguably optimal result in the chapter 11 cases? In other words could an IRS win lead to return to customers of their stakes, then the rest of the cash, crypto etc. goes to the government/taxpayers, and what is left over would go to creditors with lower priority. Possibly, optimally, the chapter 11 cases could be wrapped up from there without a lot of litigation hanging out on the back end like clawback litigation. But the various litigants and counsel representing them would know better what suits their interests and concerns etc.

Thank you. Please proceed. Before we begin, Mr. Landis, I want to lay out how we're going to proceed today. First I'm going to give the ruling that I said I would give on the burden of proof issue for the IRS estimation here. We'll do that first and get that out of the way. As for timing today, we'll take a break for lunch at 1210. I have an internal meeting and I have to attend.

We'll take an hour of lunch break and we'll come back. We'll end at 5 p.m. today. I'm assuming we'll finish today, but if we don't, I have tomorrow and Friday available so we can continue the hearing. Today, for this hearing, we took a little bit different approach on access to the Zoom. Under our new procedures, parties and council have access to the live Zoom. They can see the proceedings on the Zoom call. Those who are not participants normally would sign up and receive a telephone number to dial in.

In this case, we have, and because we expected a large number of people interested in, we have a YouTube channel. And those who tried to sign up for the phone number received an email saying, go to the YouTube check. During the course of the hearing, if we have, and I'm going to ask people who are on Zoom, please keep your video off unless they call on you. For people on the Zoom, when witnesses are testifying under our new procedures established by the Judicial Council, they cannot continue to listen. So they will be disconnected.

And I will make an announcement ahead of time. Apparently it takes a few minutes for that to happen. So when the witnesses are called, we'll take a short five-minute recess to allow the YouTube channel to be turned off. And then once the witnesses are done, we'll re-establish the YouTube channel and bring those people back in and we'll take another short break to allow that time to happen. When signing up, we had a large number of people who did not follow the procedures on the on the website that you sign up by 4 o'clock the day before the hearing.

Close to 100, I think, signed up late. I'm not going to let it happen in the future. If you don't sign up by 4 o'clock the day before, you're not going to be able to participate. So make sure you pay attention. And then one other issue that I'll get to after I do my reading of the bench ruling on the IRS issue, I am going to make a preliminary ruling in this.

matter based on the filings that were provided to the court I don't need more argument on that issue so I will let you know what that issue is and that has to do with the time for when estimation is established when the one when the one to establish the value of the claim so I'll address that issue as well first let's get to dementia on the IRS issue the question before me today is which party should bear the burden of proof in the upcoming section 502c estimation of the IRS's claim against the debtors as judge Swain noted in her opinion estimating the net revenue claim of certain bondholders in financial oversight and management

board for Puerto Rico 23 Westlaw 418 9779 at page 7 footnote 11 district court for the District of Puerto Rico June 26th, 2023, quote, it is not clear that the court has to address evidentiary burden at all in the context of an estimation hearing where the prediction of hypothetical outcomes is committed to the court's discretion, close quote. However, as Judge Swain did in her case, I will provide guidance to the parties on how the evidence of hearing should proceed and allocate the burden of proof. Following an acute onset of financial distress in November 2020, the debtors commenced this bankruptcy proceeding when they voluntarily filed for relief under Chapter 11 of the Bankruptcy Code. By now it is widely known that the debtor, as debtors counsel writes, that quote,

the debtor's pre-petition management utterly failed to implement corporate controls and left behind a complete absence of trustworthy financial information. That's the DI-2204 at 6, creating uncertainty as to the debtor's potential tax liabilities. The IRS filed proofs of claim. in April 2023, claiming approximately $44 billion in tax liabilities. From the outset, the IRS noted that these values are estimates that consider information from the debtor's tax returns, along with the fact that the debtors were actively engaged in fraudulent activity.

As such, the amounts claimed by the IRS were designated to be adjusted if necessary. The IRS amended some of its claims in November 2023 to reduce the total to approximately $24 billion and more recently to $8 billion. In response, the letters filed a motion to establish a schedule and appropriate procedures for estimating the IRS claims pursuant to Section 502C of the Code. A hearing was conducted on December 13, 2023, where I decided that estimation was appropriate under Section 502C because the IRS's claim was unliquidated. At the hearing, I requested additional briefing from each party specifically on the issue,

of which party bears the burden of proving or disproving the validity of the IRS's estimates. Further argument on the burden of proof issue was presented during the January 17th, 2024 status conference. The IRS argues that the burden of proof rests with the debtors because the IRS is entitled to a presumption of correctness for all reasonable estimates it makes. The debtors disagree contending that the IRS bears the burden of proof because one, the presumption of correctness only applies to circumstances where the IRS has issued a formal deficiency assessment, which has not been done here, and two, because they believe that the estimated value of the claims qualify

as arbitrary and excessive. Because it is impossible for me to determine from the face of the IRS's proofs of claim, the basis for its conclusion that the debtors owe an estimated $8 billion of taxes, and I will require the IRS to first present its case setting forth the basis for its estimation. The debtors will then have the opportunity to present evidence to contact with predict the IRS's position and the IRS shall have a chance to rebut the debtor's evidence. For the reasons discussed below the burden of proof on the estimation hearing at the estimation here will rest on the IRS. At the outset, it should be noted that bankrupt judges are afforded substantial discretion in directing

the estimation process. That's Bitter v. Bourne Chemical Company, 691 FSEC and 134 and 135 Third Circuit in 1982. The bankruptcy code itself is, quote, silent as to the manner in which contingent or unliquidated claims are to be estimated. Close quote. The courts have acknowledged that estimation is, quote, at best and imprecise and uncharted process. That's In Ray, Fransela Enterprises Inc. 360 BR 435 at 458 Eastern District of Pennsylvania 2007.

This court has maintained that, quote, bankruptcy courts may use whatever method is best suited to the case as long as the case. procedures consistent with fundamental bankruptcy policies which require speed and efficiency. Close quote, In-ray Packed Sunware of California, Inc. 216-W, 425068 at page 3, bankruptcy district of Delaware August 8, 2016. However, there are a few generally accepted principles that govern the burden of proof to be used in estimation procedures. First, it has been widely noted that, quote, the estimation process is merely unmarked.

microcosm of the ordinary claims determination process. NRA, Inc. 221, B.R. 451 at 456, bankruptcy, Eastern District, Pennsylvania, 1990, and in-ray Financial Oversight Management Board, 2023, Westlaw, 4189779 at 7. Accordingly, the burden of proof should be the same in both claim estimation and the proceeding to determine the merits of the claim. Second, courts frequently recognize that, quote, where non-bankruptcy law identifies the burden of proof, the ultimate burden of proof for a particular claim is determined consistent with that law. In Ray Stone and Webster, Inc. 457B.R. 58 at 608, Bankruptcy District of Delaware, 2016. Although Section 502, the Bankruptcy Code and Bankruptcy Rule 2001F establish a burden-shifting scheme predicated upon the proper filing of a proof of claim. Courts recognized that, quote,

bankruptcy does not alter the burden of proof imposed by applicable non-bankruptcy law. In Reve Recto Public Commode Pool, LP, 554 BR 736 at 741, Bankruptcy District of Delaware 2016, citing Raleigh versus Illinois Department of Revenue, 530 US 15 at 21, 2000, Supreme Court case. As both parties have pointed out, this idea traces back to Raleigh v. Illinois Department of Revenue where the Supreme Court wrote that, quote,

creditors' entitlements in bankruptcy arise in the first instance from the underlying substantive law creating the debtor's obligation. Close quote, and that in this, and in the context of claims litigation, quote, the burden of proof is substantive is a substantive aspect of a claim, 530 US 15 at 20, 21.

Taken together, these principles require, quote, bankruptcy court adjudicating a tax claim by the IRS to apply the burden of proof rubric normally applied under tax law. Close quote, Inray Desert Capital Wheat, Inc. 2014, Westlaw, 390-7972 at page 11. Bankruptcy Appellate Panel 9th Circuit, August 11th, 2014, quoting Nelson v. United States. Inray Holshin, 356 F3rd 1078 at 1084, 9th Circuit, 2004. While there are no clear examples of the allocation of the burden of proof between the government and a taxpayer specifically within the setting of a bankruptcy claims estimation, the law is clear that the burden falls on the IRS in this case. Quote, in an action by the government or collection of taxes, the burden of proof is upon the United States under the rule that the party that alleges must prove. Merton's law of federal tax income, 49E, 54, 2023, Patsay v. U.S. 442, a third, 1155.

at 1159, Third Circuit, 1971. The IRS meets its initial burden by introducing evidence of properly certified tax assessment. The tax assessment is afforded a, quote, presumption of correctness, close quote, which shifts the burden to the taxpayer to disprove the accuracy of the government's assessment. The majority of tax collection cases includes such an assessment, and so in the normal case, the taxpayer usually has the burden of disproving IRS's assessment, C. N. Ray, Anastacio v. CIR 794, F. 2nd, 884, at 886 to 88, 3rd Circuit, 1986. Because there's been no assessment here, the IRS bears the burden of proving the accuracy of the figures contained in its proof of plain.

Inray Brown, 169, BR, 59 at 61, Southern District of Iowa, 1994. Quote, this court believes that when taxes and penalties have not been assessed, the better rule, is that the IRS bears the open burden of proof, close quote. Also, In re Conastaros, 36BR, 924, 931, District of May, 1984, quote, the presumption of correctness is accorded a proof of claim only because there is been a valid assessment, close quote. The policy behind the presumption of correctness also supports this conclusion, which maintains that the existence of the formal assessment itself implies, quote, that the IRS commissioner,

who made the assessment has done so with sufficient evidence. at his disposal. In-Rate Fidelity American Financial Court, 1990, Westlaw, 2994-4-9-4, bankruptcy eastern Pennsylvania, 1990. Under this logic, the IRS's estimates cannot be presumed correct, as there is no indication that the values of its claims are supported by an equally sufficient basis as the values in formal assessments. The United States offers the Greco and In-Rade Fidelity cases for the proposition that, quote, the presumption of correctness also applies to estimated tax liabilities. That's the I 5410 at 4. The Greco case is an applicable here because in that case the court examined the permissibility of

estimated values within a formal tax assessment 380 F-Sup second 598 at 612 Middle District of Pennsylvania 2005 while it is settled law that the IRS may use estimations within its formal assessments US for US versus 4 Italia Taliah Inc., 536 U.S. 238 at 245, 2002, there has been no formal assessment here. I'm also unpersuaded by the government's implication of in-rate fidelity for the notion that, quote, unassessed taxes presented in a proof of claim should be presumed correct, quote, quote, D.I. 5410 at 4. That case acknowledges one example of a court treating a proof of claim as though it were an assessment,

but the court ultimately refused to attach the presumption of correctness to the proof of claim precisely because, quote, There had been no pre-petition IRS tax assessment, close quote. 1990, Westlaw 299-418 at 6, Bankruptcy Eastern District of Pennsylvania, February 8, 1990. For these reasons, I disagree with the United States' contention that all reasonable IRS estimates made without formal assessments are entitled to a presumption of correctness. Claim estimation of bankruptcy is an imprecise process that is neither designed or intended to yield exact numbers. Nevertheless, I conclude that the IRS bears the burden. of substantiating suggested estimation of the debtor's tax liabilities where there's been no formal assessment any questions another issue before we get to you mr.

on the question of the estimation hearing for today I received a number of objections that the debtors selection of the petition date as a date for determining the value of the digital assets that are being estimated today is inappropriate because it's unfair. However, the code is very clear. The code says that a claim is to be determined in U.S. dollars as of the petition, this is Section 502 . It's no different in the context of a determination of the validity of a claim as it is for the estimation of a claim under 502 . . . . . there are limited exceptions to this requirement, none of the which are applicable here and therefore based on the filings that I received and the objections I review the debtor's position as well I conclude that the debtor's use of

the petition date as the date for determining the value of the digital asset claims is appropriate I have no wiggle room on that code says what is that and I am obligated to follow the code I understand those who have file objections mostly I think all of them or pro se litigants feel that this is unfair to them because of value of certain of the digital assets may have increased since the following of the petition date. The opposite is also true. Some of the digital assets decreased the value

since the petition. The Congress determined that we have to pick a date and they chose the petition. And therefore, unbound by that obligation under 502. So all objections to the timing of the date upon which the debtors chose to determine the estimated value of the claims are overruled on that basis. I don't need to hear argument on those issues.

Mr. Landis, now it's up to you. Thank you, Your Honor, and it please the court. Adam Landis from Landis, Bet Ratten Cobb, on behalf of FTX Trading, Limited, and its affiliated debtors. Your Honor just cleared out a number of opening comments I was going to make about the manner in which we proceed. Sorry for stealing you. No, not at all.

Thank you very much for the well-reasoned opinion and ruling with respect to digital assets motion. With that, Your Honor, we can go through the agenda relatively quickly. Item 1 through 9 have been adjourned. Item number 10 was withdrawn. Items 11 to 23 have been resolved with orders entered and the debtors are grateful for the courts having reviewed those matters and entered many, many orders. With respect to item number 24, the debtors have a status update that we would like to give, and I would yield the podium to Mr. Dieter for that.

I understand as well that counsel to the joint official liquidators in Bahamas may want to give a status update in that case. So after Mr. Dietrich, we would propose to have them give their update, and then we would proceed with our number 25 for digital assets motion. Okay. Thank you. Thank you, Your Honor. Thank you, Mr. Landis. For the record, Andy Deterick Sullivan and Cromwell. May it please the Court, I have an update on the status of the case broadly this morning.

The financial situation of the debtors today is radically different than it was when the case began. We remember what it was like in November 2022. This was an emergency filing on no notice. It took us weeks to have even a first day hearing. We started with no reliable digital asset security, no adequately. books and records, no clear list of who worked at the company, no idea even who were the officers and directors of some of the applicable legal entities. We had boards of entities that had never met.

There was a bank run on the exchanges and a bank run on Alameda. In response, assets have been transferred to favored insiders at the last minute. Entities and assets have been seized by regulators. We had a pending insolvency in Australia and impending insolvency in the Bahamas. different black hat hacks had stolen hundreds of millions in cryptocurrency. We had FBO customer accounts and are mingled with operating accounts. We had no reliable list of our banks or our bank accounts. We had billions of assets registered in the names of friends, romantic interests, relatives, and employees. We had a business record that was largely unsignaled, a disappearing

messaging app or in the head of Mr. Bankman-Fried. And Mr. Bankman-Fried was not only a custody but had declared bleep the regulators all I have to do is win a jurisdictional war with Delaware. It's been a very long 15 months. On behalf of Mr. Ray and the entire team, I'd like to say two things. First, we recognize the profile of this case requires scrutiny and we welcome it. We will continue to be as transparent as our duties allow. Second, the ongoing effort to provide recovery to victims here has been and continues to be some

the most rewarding work any of us will ever do as restructuring professionals. It will be one for the history books. And today, we can now cautiously predict some measure of success. Based on our results to date and current projections, we anticipate filing a disclosure statement in February describing how customers and general unsecured creditors, customers and general unsecured creditors with allowed claims will eventually be paid. in full. I would like the court and stakeholders to understand this not as a guarantee, but as an objective. There is still a great amount of work and risk between us and that result, but

we believe the objective is within reach, and we have a strategy to achieve it. I would like to drill down on our assets, our liabilities, and the upcoming schedule. First, our assets. We have had some disappointment. We had very discouraging financial results to our initial M&A exercises. Businesses FTX bought for hundreds of millions of dollars shortly before the petition time proved to have little substantial value and few interested buyers. Ledger X was a horrible investment by FTX. It was sold for only a fraction of its acquisition price. M-BED was worse and could not be sold at all. A related disappointment is FTX 2.0. We still have valuable customer data and information to monetize. But after

an exhaustive effort, no investor has been ready to commit the needed capital to a restart of the offshore exchange. Nor has a buyer emerged for that exchange as a growing concern. Why? The exchange, as I said before, was not what it appeared to be. It existed for only a few brief years and never acquired substance, the costs and risks of creating a viable exchange from what Mr. Bankman-Fried left in the dumpster were simply too high. So our current Chapter 11 plan does not include the expectation of any recoveries from a restart of FtX.com. We know there will always be true believers out there, and if there still are, they should call Pirella and make a bid.

We know that for a time, FTX played a function in the cryptocurrency markets, or at least pretended to. If that function is to be replaced, it will be by new operators with a new name and a better business plan and hopefully much better business practices. We as an estate will continue to consider all options and are open to all options. But the plan of confirmation, the plan of reorganization and the confirmation process have to move forward now in order to get money back to victims. And that plan, as of today, does not currently include a reboot.

This will be important when Mr. Gluckstein rises later today to speak about the value of FTT and is reflected in the evidentiary record for the estimation. Despite these setbacks, we've also benefited from some even more significant, positive developments. The first, and perhaps the most important, is the runway created by the jurisdiction of this court and the fact that substantially, completely, around the world, our automatic stay has been respected. The runway this created ended the bank run and allowed us the time necessary to deliberately create a new balance sheet.

We would be nowhere without this time under the protection of the stay. The second factor we benefited from is the profile of the case. We've been in front of you for litigation matters, of course, but not as frequently as could have been necessary. The main reason is that counterparties have been cooperative and settlement negotiations, and we have secured hundreds of millions of dollars from voluntary toneover without ever filing public complaints. A third main benefit to recoveries has been our relationship with governmental authorities.

As I mentioned in the early days of the case, Your Honor, in the first months, the first months, The Board determined that spending a state resources to cooperate with governmental investigations was in the best interest of our debtors. This was expensive, given the extent of those government investigations and the sheer number of them, but it has proven to be the right call. There has been no criminal indictment of any debtor as an entity. Governmental entities have worked with us collaboratively all around the world to secure assets. We hope to have a coordinated distribution scheme for the value that we control

and over a billion dollars under the control of governmental authorities that avoids the massive duplication of expenses that was seen in cases like Madoff and other cases. 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. You to contemplate early subordinated. It's been the special nature of some of the relief granted by this court. In particular, the court's advance approval of our digital asset sales. This was a novel relief. But can you give me the relief for digital assets in particular, Your Honor, was novel relief, but incredibly valuable. The advance approval of our digital asset sales, rather than needing to bring individual transactions back to the court, has allowed us to liquidate our digital assets gradually based on day-to-day trading opportunities with the sophistication of a major trading operation.

It has been a resounding success. A fifth main benefit is that we have to date avoided unnecessary litigation. There have been negotiated understandings with government stakeholders, including discussions underway with the CFTC and the SEC. We have settled our customer adversary proceedings, subject to confirmation of the plan. We have settlements early with the JPLs in Australia, and now happily with the JOLs in the Bahamas. And I'm pleased to add that this list today of settlements here. Your Honor, a settlement in principle that we reached only a few days ago with the founders of FTXEU,

who, as Your Honor knows, are litigation defendants and have filed many motions. All these matters, these EU matters, will be resolved by the settlement, which is being documented and will be presented shortly to the Court for approval. Finally, Your Honor, the last benefit is the incredible work done by Ernst & Young and the team on federal taxes. Not surprisingly, FTX not only misappropriated funds from the exchange and went to the casino, but they lost money again and again and again. Despite all the work done to maximize the recoverable value of assets and some individual

success stories, the portfolio remains a net loser. Accordingly, we believe we have billions of dollars of lost carry forwards from previous bad investments and subject of course to the resolution of our disputes with the IRS. Our plan does not currently expect that creditor recoveries will be materially reduced by federal taxes. Taken together, the results of everyone's efforts are substantial recoveries, not what was lost, but substantial recoveries. This hopefully puts to bed the alternative narrative that this business was just fine all along. It was not. It was not a healthy business facing a bank loan. It did not have a near liquidity crisis. It was an irresponsible sham created

by a convicted villain. I'd like to talk about claims. If our asset recovery effort is on the verge of being a qualified success, the next equally immense challenge is claim management. When I asked Mr. Kovrick of A&M this morning to remind me the amount of claims filed by our bar dates, He told me it was $23.6 quintillion dollars. I had to ask him how many zeros in a quintillion, and the answer is 18. I then asked him to run recoveries if we allowed all of those claims, and everyone would get a millionth of a percent. So we have a job to do.

As I said earlier, we currently anticipate that we will have sufficient funds to pay all allowed customer and creditor of claims in full. By allowed, I mean claims of exchange customers and general unsecured creditors for their actual petition time losses as calculated by the debtors. And in order to have enough to pay these legitimate claims, several assumptions have to hold. First and most critically, our relationship with governmental stakeholders has to continue on its current path. In particular, as I mentioned, we face over $9 billion of government claims that our plan

contemplates will voluntarily subordinate to the pecuniary losses of victims. If this does not happen, and we have to contest the merits of those governmental claims, recovery to customers and general creditors could decrease dramatically. Second, we have to successfully contest the allowance of claims that we believe are not legitimate, or, if legitimate, should be subordinated to the losses of customers and general creditor. There are several categories of these contested claims. Some Mr. Gluckstein will address shortly. Other material disputed claims include claims related to the OxyMAPS serum and other tokens,

billions of dollars in general allegations of fraud, and other claims the debtors believe unsubstantiated, and of course the claims asserted by the IRS. The frustrating fact is that we must hold over $10 billion in distributable value until both a plan is confirmed, and this claim's resolution, process is well underway. We're not a bank, and we should not be holding this money any longer than is needed. It is not ours. With respect to the first step, confirming a plan, we are unscheduled to file the disclosure

statement next month and proceed to a hearing and solicitation promptly, subject of course to any need to wait on the resolution of other matters. As I mentioned, we currently expect the disclosure statement to project that customers and creditors will eventually be paid in full. I should say customers and general unsecured creditors in our defined class of general unsecured creditors will eventually be paid in full. However, again, no one listening should hear that and think funds can come immediately. In terms of making distributions, neither confirmation nor effectiveness is the long pull in our tent. The long pole is now the quintillion dollars of asserted claims.

We cannot pay legitimate creditors until we resolve these claims. Customarily, as your honor may know, the know, debtors have waited until after the plan is effective to begin claims reconciliation in earnest. We're not waiting, as the court knows we're not waiting. Our hope is that we can not only have a plan become effective in 2024, but start making material distributions as well. We recognize in advance that this will place demands on the court,

and where sequencing matters to make sure that the most material claims resolution matters are first in the queue. such as the allowance dispute with the IRS and the next motion with Mr. Gluckstein today. Thank you, Your Honor. Let me ask you while I have you up there. Any update on the issuance of the mandate by the Third Circuit in the... Yeah, for exactly. Give you a moment. As Richard Rucker might know too.

Your Honor, we expect to be found a consensual joint motion to the Third Circuit either today or they are. Okay, anything different? Thank you, Your Honor. from behalf of the Office of the United States Trustee. Yes, we received the other day, I think it was yesterday, we received a draft motion from debtors' counsel, and it has been, I think, circulated to all interest holders, including the Civil Appellate Division of DOJ,

which represents U.S. Trustee's Office in terms of the appeal. And we have conceptually agreed to it. I think it's being under review right now, and I would anticipate it's going to be filed either to death filed either today or tomorrow okay great thank you we would hope therefore that the Third Circuit would react quickly to such an event okay thank you thank you your honor any other questions no other questions thank you thank you I think I'll see the podium mr. Shore for that's all I knew the name just not the

pronunciation for the JLSs thank you thank you good morning your honor Brett Bakemeyer of White and case on behalf of the Joint official liquidators of FTX digital markets limited. First, we'd just like to thank Your Honor, Chambers and the debtors for giving us just a bit of time this morning on the calendar to provide the court with an update with respect to FTX Digital's Chapter 15 case. I know there were a few small logistical hurdles we had to get through,

so thank you. Second, I do want to mention that two of our JOLs are here today in the court, Mr. O'Brien Sims, Casey, and Mr. Peter Greaves. They've come to attend the estimation hearing, which has an effect on what we'll adopt in the Bahamas. I'll be brief. I just would like to speak to the Global Settlement Agreement

that was recently entered into and approved by Your Honor and the Bahamas Court between FTXDM and the debtors. I think it might be helpful to just make a few notes for any dot-com customers listening. And I'll just finish with some important dates and notes with respect to the Bahamas liquidation proceeding.

That's right. The GSA, the Global Settlement Agreement, itself represents a monumental effort of the parties to solve a bespoke and complicated cross-border issue that warranted many months that it took for us to get here. As explained in prior hearings, the issue from the JOL's perspective was always to define the scope of FTSDM's assets and liabilities.

That set up a conflict between the debtors and the JOLs regarding whose assets were whose. After your honor's urgence to resolve the issues, over the past six months, the JOLs and the debtors engaged in hundreds of hours of negotiations to come up with a solution. The global settlement is structured around one key concept, that dot-com customers have the same claim against both the states. The solution embodied in the global settlement is that customers can now have their claim resolved by their choice of jurisdiction in a manner that will not prejudice them and allow both estates to run their individual processes in tandem more specifically if any of the dot-com customers with a deposit on the FtX dot-com platform not the US just the international platform wish to have

their claim adjudicated treated and paid out by the Bahamas they may simply make an election on the debtors ballots or submit a proof of debt in the Bahamas. Once they make their election, they release the other estate from that underlying claim. Then the estate that the customer elects will evaluate, adjudicate, and pay out that claim on largely the same parameters.

So we'll be working hand in hand with the debtors and the plan administrator with respect to the claims adjudication process. The dot-com customer's K-YC procedures and preference offer, if any, will also not change depending depending on which estate they choose. And importantly, all dot-com customers will get substantially the same percentage recoveries on the substantially same timeline.

Now I'd just like to note some important dates with respect to the Bahamas liquidation proceedings for your honor. Okay. This past November on the anniversary of the appointment of the JOLs, the Bahamas court sanctions the winding up order of F.TX DM, placing it into full liquidation, and appointing the JOLs as official liquidators. On January 22nd, 2022, just last Monday, the JOLs had a hearing with the Bahamas Court

and the Global Settlement was approved by the Bahamas Court with all ancillary agreements. Now that the Global Settlement has been court approved, FTXDM can officially launch its claims process. As a first step, the JOLs will host a meeting for FTXDM's creditors, including dot-com customers, customers sometime before March 15th. Thereafter, the customers can begin submitting claims or proofs of debt. On or about the first week of April,

FTFTM will open up its claims portal online, allowing dot-com customers and other claimants to submit their proofs of debt. The JOL's claims portal will be substantially similar to the debtors, so dot-com customers experience should be seamless. The JOLs are working around the clock to get this portal up and running with the assistance of the debtors. Also, as Mr. Diderk just mentioned, in the first week of April, the debtors are anticipating to send their ballots out, which provides that mechanism for dot-com customers to elect into the Bahamas. The JOLs have set a bar date of May 15th, 2024, which is also currently the debtors anticipated voting deadline on the plan.

That's the proposed date in which those ballots, must be submitted. These dates are intentionally matched up to help create a clean cutoff for the POMA selection. We don't anticipate meeting the Chapter 15 court for anything throughout this process, but we'll continue to keep the court deprived of any material developments as we go along, and we expect to have another status conference with respect to the Chapter 15 case right around the plan confirmation hearing. And unless Your Your Honor has any questions. I'll see the podium back over the way of thank you no questions appreciate the update your honor Andy Deereckon for the

record I should just add given the sequence here in the approval of the Bahamas settlement before the hearing that from our side this is also a significant event and to thank on behalf of the debtors the team for the JOLs the three JOLs and you know all of their advisors including of course our colleagues of White & Caves the conversations as you know were very contentious early, but I think as soon as we came to the breakthrough idea that the customers, we could create an architecture where the customers would receive effectively the same recovery, regardless of whether they put in claims, we were indifferent, whether claims are reconciled

there or here, as long as there's safeguards to make sure that no one is using the Bahamas to recover more than they would have recovered in Chapter 11. and once we had that central idea, the execution of that idea by the JLLs and their team was constantly professional. They've been a pleasure to work with, and it's nice to be on a personal basis. So thank you, Your Honor. Thank you. Morning, Your Honor, Chris Anson and Paul Hastings on behalf of the official committee. Your Honor, just a brief note, we wanted to say from the committee's perspective,

we appreciate the update, especially the effort and the contribution of all the core parties in advancing the cases to this point. That includes the principals and professionals for all of the parties. We're going to point out for the court that when the debtors, in respect to the update, it is a watershed moment for the debtors, obviously, the report that a disclosure statement will be filed in February, which will include, like, the payment in full of all customer claims and general in secure claims. But as Your Honor held, that payment of full is based on the petition date values of those claims. Many of those claims are premised upon currencies, which declined. dramatically in value in that tumultuous period leading up to the petition date.

So many customers and creditors who are out there likely won't feel like that's a true payment in full from where they started, but we recognize that the petition date is the date that needs to be used. As a result of that, Your Honor, all of the parties are committed to continue to work together as we assess assets and liabilities to try to determine a way to continue to provide maximum recovery for all parties in interest. Thank you, Your Honor. Thank you, Mr. Chairman. Good morning, Your Honor. For the record, Brian Gluckstein, Sullivan, and Cromwell for the debtors.

With that, I think that brings us to the remaining agenda item on today's calendar, which is the debtor's motion to estimate claims based on digital assets. Your Honor, just to kind of set the stage and a few housekeeping points at the outset, as reflected in the revised form of order that was filed this morning. And as noted in our reply papers that we filed on Sunday, the valuation component, assuming the estimation motion is approved and proceeds today, the valuation component

on a small subset of four of the spot tokens, MAPS, Oxy, Serum, and Boba, as well as certain related tokens, locked versions and the like, as reflected in the schedule. are being deferred to a future evidentiary hearing that we expect to occur in consultation with Chambers on March 20th to allow for the completion of discovery on those particular digital assets.

The relief, we expect that that schedule, as far as kind of a second evidentiary hearing on those discrete digital assets, would be a single hearing for those assets that don't proceed to the conclusion today, which again from the debtor's perspective is the fore. The remainder of the relief in the motion is we are proceeding with today, Your Honor, and we appreciate Your Honor's ruling at the outset. That certainly helps streamline the proceedings today. We have been in discussions with numerous of the objectives and various parties,

and are pleased to report that the revised order that we filed the morning by our understanding and I know some folks will want to be heard over the course of the day has fully resolved the informal comments we received in the United States Trustees Office as well as objections filed by Avalanche at 5685 the MDL plaintiffs at 5628 3 hours capital 5615 and Sunil Kavari and others who joined in that at docket number 5232 we have all Also, as I noted, during the objection of the Bova Foundation, as Boba token will go on the evidentiary track, as well as TMSI, who is contestant serum-related issues. That litigation has proceeded, that discovery process with respect to those tokens has proceeded.

The MAPS and Oxy folks reached out to us very early on make clear what was necessary to have been working collaboratively to advance that process to that hearing hopefully. to that hearing hopefully much. As far as today, Your Honor, unless the court would like to proceed in a different manner, we would propose to address the evidentiary issues first, then proceed to argument in motion, including with respect to the various objections. The debtor has testimony in the form of declarations primarily, which I'll get to in a moment, from three witnesses that we are offering in support of the ruling requested today. witness has submitted written declarations as direct testimony although your honor for

our experts subject to the court's preference we would like to briefly supplement those declarations with direct to qualify them in their report to subject to your honor's views we will be prepared to proceed with the evidence okay let's go ahead and see with the evidence okay thank you with that as I said at the outset we need to take a short break so that we can disconnect the audio from the YouTube channel. So let's just take a very short five-minute recess. Let's come back at 1122.

Let's come back at 1127. Thank you, Your Honor. I don't know if you were going to move maybe Matt wants to come up or we can move over and back and sit here. Are you going to move? I mean, we don't want to pick you out. You have every right to stay there, believe me. I didn't know if you.

Okay, so why don't we do that? I'll move over and take your place. You know, I just didn't know to what you said you may want to what that's in order. Yeah, because I still that pop off. Yeah, I'll get it up. This is a good. Thank you.

This is my great. Yeah. I don't. It's not great. It's great. It's good. It's good. I'm not that.

I don't know. I don't think. I don't think that part is. So I did be right. Okay. It's fine. It's fine. It's good.

Go ahead. We're going to be. I'm going to be. Thank you. We're not. I don't know. I just, I mean, I'm taking a bad line. Yeah, I was good.

I think it's pretty much for you. So I'll make a good. Yeah. I will be a good. I'll be it. It's okay. It's okay. I'll do.

That's fine. I'll start. Let's start. 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. The first witness, the debtors, are presenting in support of the motion, is Edward Mosley, managing director, that Aberress and Marcel. Mr. Mosley submitted a declaration at docket number 6728-3,

and we would respectfully request that. that the declaration, that declaration, be admitted to evidence as his direct testimony. Mr. Mosley is in the courtroom today available for cross-examination. Is there any objection? It's admitted without objection. Anyone wish to cross-examine Mr. Mosley?

Good morning, Your Honor. Thomas Beelli from Beale and Claude. Not admitted in this court. I was admitted pro hoc last night. My law partner, David Clauter, is present today. Your Honor, we represent Aris, Tech, Limited, who filed an objection to the estimation motion. Before we start, Your Honor, with the examination.

I did want to briefly status on our objection. We're doing witnesses now. You want to cross-examine the witness or not? Yes, Your Honor. Okay. Have the witness come forward to you? Please take stand and remain standing for the oath. Edgar William Mosley 2nd, M-O-S-L-E-Y.

Good morning. Can you hear me okay? I can't. Thank you. What analysis? Hold on, hold on. Can you get closer to the microphone this for? Thank you.

I'll try again. Can you hear me okay? I can. Can your honor hear the witness okay? Yes, thank you. Thank you, Your Honor. Yes. What analysis have you conducted that the estimation process,

without the estimation process, there would be undue delay on the bankruptcy cases? The analysis by which I drew that conclusion, conclusion is a bunch of different pieces. First, the recovery analysis. That was built by Alvarez Marsal under my direction, and it is a fairly detailed model of all the assets and claims of the debtors. We make projections as to what we think the The assets will be recovered by the date of effective, and then what will be remaining.

Those are the other pieces are valued. Then the distributed proceeds to the allowed claims proceed down the waterfall based on the absolute priority rule. So that's one piece. Another piece would be the claims resolution analyses of all of the claims filed and where we stand with those claims, what objections are yet to be made and what we think the claims will end up at. And I guess the last piece is not truly analysis, but knowledge of the process of

adjudicating those claims of how we would get there. Let's talk about that last part, how you would get that. Was there an estimate on how long the claims adjudication or process would take under a normal or ordinary procedure?

We've talked through what would need to happen for our plan. That includes the estimation motion. if by normal you're talking, what if we do it without the estimation motion? Is that what you're asking? Well, let's back up then. What would you say the normal claims objection process would be? In this case, with these facts and circumstances, I think this is the right way to adjudicate the claims.

Are there other ways? Sure. What are the other ways? the debtor could for the 87,000 claims, you know, go and try to adjudicate each one separately. Instead of having one motion to have all the values for each of the, we call them tickers, you could just go one by one for each of those claims. filed and go through a process by which you say that is object to your filed claim. We do give them time to respond.

We go through a discovery process or when we negotiate on whether or not we think we can come to some sort of resolution. We get experts involved and we have, you know, trials and motions to go put it in front of the court to adjudicate that claim. Is it your testimony that has to be on separately claim by claim? No, I want to be done in the estimation motion. Are they the only two ways, claim by claim or estimation? You can try to do it via omnibus as well. Can you explain that to this place?

So an omnibus objection process is where we're going to take claims that we think we have the same objection to a set of claims. and object on that basis to say all of these claims we object on this basis and put that in front of the court. So. Okay. Have you done an analysis as to whether or not this debtor can do, as you mentioned, a separate claims objection for each claim or an omnibus process for the claims?

My team is still working through the 87,000 claims that have been put on a file. It takes a long time you got to look at each one. And so, no, we do not have a feel for how long it would take or which buckets we would put each of these 87,000 claims into to bucket them up into various omnibus objections. We are moving forward with the estimation motion. I want to talk about a little bit about the estimation methodology, okay? Okay, other than, I mean, obviously,

everything that's in my declaration makes sense but if you're asking about things that aren't under my purview like the valuation of each of each of the tokens I can't speak to that okay okay have you been involved has this in your scope in this case have you begun any on the bus claim objection or see Yes. And what steps have you taken? So my team has first and foremost tried to take the filed claims and match them up with customer accounts.

If we can match up that claim with a customer account and thus something that's on the schedules in our books and records. Then we can say, okay, this is what we thought the claim should have been. Here's the variance. Let's now try to put it into, you know, where are we different? And then we have like a process to say, okay, what are the ways that we can object to this in an omnibus manner? We only get three shots at each claim with omnibus. So you've got to be careful on how you do it.

You can't just come up with an omnibus and file it. You've got to make sure that you can get everything you need done with that particular claim done with three shots at it. With regard to everything else, that we don't have a way of matching it up to a customer account, that has to be manually done where we're pulling it up and looking at the claim, trying to match it up with a customer,

seeing where it came from, going through discovery process, etc. That's going to take time for this 87,000. When did you start that process for these debtors? Before the end of the bar date, I mean, I don't remember exactly when our bar date was, but over the summer, it was kind of when you started? When did you abandon that course of action? It's not abandoned. We continue to reconcile all the claims.

Okay. So you'll be filing omnibus claims objections? We will be filing omnibus claims objection. Was when a claim objection, when a proof of claim is filed with the bankruptcy court, it's deemed allowed, correct? I don't know. If you don't know, that's okay. I don't know. Okay. If a debtor files or if anybody else files an objection to a proof of claim that's filed, there would be a response, correct?

If the debtor files an objection, they don't have to respond, but yes, they can respond. But they can respond, right? A creditor would have the right to respond? Correct. And how about discovery? Did you mention that earlier in your testimony, that there would be discovery after a claimant filed a response to a claim objection? Yes, we can do discovery. And then you said there'd be an evidentiary hearing too, didn't you?

You could have an evidentiary hearing, yes. Right. Are the claimant's given that opportunity here if the estimation moment? if the estimation motion is granted not for well I mean first thing your honor I don't know any other questions you didn't answer the question so not for not for the the pieces that we are saying are in the estimation motion so the value of each token we're gonna have evidentiary hearings on you know how many tokens that they have if we have a disagreement on that the estimation

motion is for the valuation of the particular ticker. I don't have any other questions this time, Your Honor. There's going to be, I guess, I don't think it would be redirect, or perhaps I'd like the optator recross. I don't allow recross. Thank you, Judge. Anyone else we should cross?

Good morning, Your Honor, Kurt Gwynne from Reed Smith, on behalf of the Foundation Serendipity and Foundation Elements Creditors. Good morning, Mr. Mosley. Good morning. In paragraph two of your declaration, you describe some industries in which you have experienced. Do you recall that? It would be better if I had the declaration in front of me.

You don't have a copy of it with you? No. Your Honor, may have provided a witness to talk? Yes. Is Your Honor, you get a copy? No, thank you. Come there, sir. You see in paragraph two where it lists a number of different industries

in which you tout your 20 years of restructuring and distressed investment experience? Yes, sir. As the cryptocurrency industry, one of those industries in which you have restructuring, you list that you have restructuring and distressed debt experience? Not before this case.

Okay, can you please take a look at paragraph three of your declaration? Come there. Do you see where you talk in paragraph three about the Chapter 11 restructurings in which you have been involved? This is some of the

list, but yes, I see it. Are any of those cryptocurrency cases? As I stated before, I've not been involved in a crypto case before this one. You believe that scheduled or filed proofs of claims that were asserted in crypto quantities need to be estimated so they can be converted to U.S. dollars, correct? Correct. I think that's what the, you know, the general I don't think that's what my declaration says exactly, to be honest. My declaration says I think we need to dollarize the claims. Well, do you need to dollarize scheduled claims? Correct.

And do you need to dollarize Prusa claim? We want to dollarize all of the filed claims, yes. The debtors have, you say, over 2 million in scheduled claims. right correct who scheduled the debtors claims the debtors so myself my team in concert with the management team as well as you know other professionals in the case and the debtors and you and your team scheduled the customers claims in crypto quantities right correct You didn't schedule the claims in U.S. dollars, right? No, we scheduled them in quantities with the estimation motion process in mind.

Okay. And that was the debtor's choice, whether to file the scheduled claims in quantities or U.S. dollar values, right? Yes, it was our choice. Did you ever suggest to the debtor that it simply scheduled the claims in U.S. dollars amounts? The price of the tokens, we didn't feel like we had a reliable source in the AWS system. Obviously the exchange had a price for every item on the exchange. But as with everything else with the IT at FTX, we didn't trust it. You know, we were using, you know, we were looking at other sources and so we didn't feel comfortable taking a stance at that time on exactly what the value of each token would be as a petition time.

So you didn't suggest that the debtor value the claims and its schedules in U.S. dollar amounts, is that correct? I'm not a valuation expert. And when I didn't feel like we had a good, you know, reliable source for the price of each token because they're all complicated and different, we didn't feel like we could put that on the schedules. Okay, let's talk about the file proofs of claim. You say the debtor has approximately 87,000 filed proofs of claim.

Right? Yes, sir. And isn't it true that the debtor asked the customers to file those proofs of claim in crypto quantities, not US dollar amounts? We asked them to respond to our crypto quantity amounts. There's a portion of the proof of claim form where they could fill whatever they want, and they did.

And you're entitled to explain your answer. But can you answer yes or no to whether or not the debtor requested all of its customers to file the proof of claim in quantities, crypto quantities, not US dollar amounts? We did ask them to do that, yes. But as I said before, the proof of claim form is the debtors interacting with the customers.

And on that sheet, we asked them to fill in anything else that they that isn't in our table and that's where they have their opportunity if they some of them put it put in dollars into that so the debtor who decided to file its schedules in crypto quantities and to ask creditors to file their proofs of claim in crypto quantities is now complaining that it has too many claims in crypto quantities and therefore needs to estimate them correct The debtor is asking to estimate all of the claims, scheduled and filed. Does that answer your question?

Well, you agree then. I was correct in what I said, right? Please ask you to explain your question. You didn't understand it. Did you understand my question? Please ask it again. The debtors, who chose to schedule claims, in crypto currency quantities, not dollars,

and who asked its creditors to file proofs of claims in crypto quantities, not US dollars, is now saying, Your Honor, we have too many crypto quantity claims, we can't possibly litigate all of them to a dollar value, right? I disagree with how you said that. We asked for cryptocurrency amounts for each token, and we want that. We need to know how much of each token they think they had as a petition date. And that's a valid data point.

We need that to do our process. In addition, though, to dollarize the claims, I have to turn those crypto currency token amounts, quantity amounts into a dollar amount via a market price as of petition time. And that's what we're doing here with the estimation motion. And a creditor also can dollarize its claim as you indicated by completing that portion of the proof of claim, right? Some of the creditors put in different tokens or the same tokens and a price and you know the math that that stood out some some of it was with errors but you know

some of people put in what they thought the price should be in there are you aware that the foundation serendipity and foundation elements proofs the point total approximately three hundred million dollars I don't I didn't memorize all the proofs of claims sorry I don't know that do you know if the Did you hear debtors counsel tell the court that I believe he used a phrase a small subset of digital currencies aren't being valued today? I heard him say that, yes. And did you hear him include the oxy? And do you remember the tokens he said that were not being valued today?

One was oxy. I'm fairly certain it was maps. oxy boba and i think serum but i don't remember the last one and do you know what percentage of the outstanding unsecured claims are represented by the oxy and maps creditors i'm sure i could i'm sure that i have that in files somewhere but i do not have it committed the memory. As I said, there's 2 million claims, 87,000 filed claims. I don't have them committed the memory. I'm sorry. Do you hear debtors counsel tell the court that the debtors have $26 quintillion in claims filed against them? I think that number is a little off, but over 20

quintillion, yes. And is it fair to say that the claims of creditors that hold oxy and maps tokens are a very small portion of that 20 plus quintillion dollars in claim tell me what your threshold did for small is I mean it's very objective what you're asking and I've told you a couple times I don't remember I didn't commit in the memory I don't know what to do that math I'd have to know what their amount is and divided by 20 you can Quintillion which is a big number. Well, I'll give you a threshold for a threshold of what I would call a small amount. Is it less than 1%? It is going to be less than one percent. Is it less than a half of a percent? I don't have that math. Sorry.

It's common for debtors to put a range of potential recoveries in a disclosure statement, right? It is common, yes. And it's also common for debtors to object the claims post confirmation, right? Correct. The claims resolution process continues on, normally post-effective it. And it's also common for a debtor to establish a disputed claims reserve at confirmation

to actually litigate claims post-confirmation, right? You've finally broken loose from work. Three friends, one tea time, and the 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. It's common to do that, but I will tell you that it is difficult. to do that when the number of the number and amount of the claims in question is as large as we're talking about. Well, you concede here that the debtor will have a reserve to deal with disputed claims, right? I believe the debtor will have some sort of reserve for disputed claims. We're going to do our best to try to get through as many of them, but there will probably be some that follow post-emergence.

And is it fair to say that you believe that it's a fair to say that it's, important to dollarize the cryptocurrency claims so that it will most accurately reflect claims amounts and estimated recoveries in the disclosure statement? Do you please ask that question? Do you believe it's important to dollarize the value of the digital asset claims so that the disclosure statement accurately reflects claims amounts and estimated recoveries? In my opinion, it's essential. I can't do the recovery amounts without having some sort of value for the claims.

You know, that math, I need that denominator. And you also believe it's important to permit creditors to make an informed decision when voting on the planet, right? Indeed. And if there was a claim or right, for example, that somebody was asserting that could take all the assets away, all the digital assets away, you would want to have that resolved before the disclosure statement hearing, right? That's a hypothetical.

There's a bunch of facts and circumstances associated with it. I mean, there's always going to be claims that are big and, you know, you need to know the facts and circumstances of that case to say whether or not it has to be taken care of before you can feel comfortable with your range. So you're saying it's possible that you could have a claim to the debtor's assets that could take them all out of the estate where creditors would get nothing under a plan. But there are some circumstances where you wouldn't have to

address that in the disclosure statement. You wouldn't have to have that claim resolved before the disclosure statement is sent out. Once again, that's a hypothetical. But I'm sure that I could get comfortable with certain, claims you know if there was no merit to them if I knew they were duplicative right I could get comfortable with that but I need to know the facts and circumstances of the hypothetical before I could tell you with certainty whether or not we're

comfortable saying that it has to be done pre-emergence or not have you ever read the service guidelines for the debtors that FTX's crypto-express change the service guidelines yeah the the the rules of that are on the website for customers the terms of service yeah I've read most of it in the context of other parts of what we're doing but clearly that's not in my declaration we're now way beyond scope of direct and you're now into the terms of service which Your Honor, the witness was testified in his declaration about undue delay. He also testified about needing certain information to have in a disclosure statement for

people to make an informed choice. And one of the things I'm going to ask him about those terms of service is the fact that they say the customers own the assets and that there's a customer claim to those assets. whether he thinks that's something that should be in the disclosure statements, I think it's well within the scope of his testimony. Eliminate to that particular issue. You can answer the question. I'll just re-ask you.

Okay. And you say you've read the terms of service for customers of FTX's crypto exchange, right? I read part of them, yes. Did you read the part of it that says the customers actually own the assets? in their account? I've read parts of it in which folks have pointed to as though this is the reason why, you know, they think they have ownership of it or not, but I'm not a lawyer. I didn't, I don't make a determination on whether or not I think that's valid or what it says

or, you know, I've read it from a business person's perspective. And so you're aware that customers are on that language to assert that they own the digital assets in their accounts, right? I haven't talked with any customers, so I don't know what they're relying on. Do you think that's an important thing to know as the debtor's financial advisor who's testifying regarding the debtor's disclosure statement? I know what the code says and the process around the claims adjudication. You know, not often do I read terms of service with customers and make a determination without counsel on whether or not, you know, that they have a claim.

Well, and not often have you been involved in a cryptocurrency case either, right? I've never been involved in a cryptocurrency case before this. I have nothing further, Your Honor. Thank you. Thank you. Mayor LaCross. Read right. I'd thank you, Your Honor, Bernie Goldstein for the debtors.

just briefly mr. Mosley you just turn to your decorations not that in front of you yep I just want to make sure the record's clear paragraph six of your declaration you stayed in there that the debtors have over two million scheduled claims and 87,000 filed claims that include at least a single digital asset you see that yes sir you want to say that the claims are scheduled and filed almost exclusively in quantities see that yes sir so mr. Mosley in order to have the information that you need and that customers need to understand the value of their claim what needs to happen I need to be able to multiply the number of tokens for each of these tokens by a price in dollars and to do that I need a price

I need a price for each token in dollars. And with respect to the spot token, in respect to tokens in particular crypto currencies, the debtors have a price that you could have provided in the schedule that you believe was reliable for equity? Say it again. Do you have, did the debtors have at the petition date a price with respect to spot token that you could have put into the schedules and dollarize the claims yourself? We didn't feel comfortable using the price that was on the exchange server as the price for that

token. You know, we felt that we needed to say what is the market price to sell this token somewhere else. What would that price be? And for that, we, we, we know, we, we would that we didn't have that handy at the time there was some questions mr. Mosley about the process in a in a claims objection process as opposed to estimation you call that yep and there was questions about whether there would be discovery and an evidentiary hearing do you call that yes in your experience do individual claims objections that discovery and evidentiary process take time? They do. Do you have a sense? Do those get resolved generally in a week? Based on my experience it's you know two to three months right

to go through the full process of you know doing having the objection on file giving the the claimant time to respond having some negotiation doing discovery taking experts, putting with those reports on, you know, doing depositions, et cetera, and then going back to court. Have you seen claims rejection take longer periods of time? For sure. There was a question about whether there would be an evidentiary hearing with respect to the estimation motion.

Do you call that? I do. Do you understand that we're having an evidentiary hearing today? I thought my testimony was evidentiary hearing. was evidence. So yes, I thought we were doing it. But maybe you've got the terminology wrong. Thank you, Ron. No further questions. Thank you. Thank you, Ms. Mosley, missed up there. All right, we're 1202. It doesn't make sense to call another witness for just a few minutes. So why don't we take our break a little bit earlier? We'll come back at 1 o'clock and we'll reconvene and we'll go from that.

Let me just get an understanding. We have two more. Are you calling both of your experts for supplemental? I am, Your Honor, but very briefly. Only five to ten minutes for each. And do the parties who have crossed, do you intend to cross-examine the expert witnesses as well? Mr. Wynn? I'm sorry, Your Honor. Do you both intend to cross-examine both of the expert witnesses that the debtors are calling? Kirk Winn for the record, Your Honor, I do not intend to cross-examine those witnesses because we agreed that the valuation of our client's claims, if it's going to be estimated, is not being handled today. of the small subset of claims that aren't being valued today.

The reason I cross-examine the first witness is because the issue that we are litigating today is whether or not estimation of our client's claims is appropriate or whether we should have a regular claims allowance proceeding. So that's why we cross that witness and we'll not be crossing the other two. All right. Thank you, Your Honor. Dennis O'Donnell, D.L.A. Piper, on behalf of Matt's fault, we're similar to line. we have reached agreement with the debtors that those witnesses to the extent they affect that that future valuation hearing will come in today for what what's on the calendar today not what's going to happen in March.

So we will not be crossing the time. All right. Thank you. Thank you, Your Honor. Your Honor, I represent TMSI. The token that my clients are concerned with is serum and consistent with Mr. Gwynn's statements. Those issues are not going to be decided today, so we're going to reserve our rights on cross when we have to further. I want you're hearing with respect to that. All right, thank you.

Good afternoon, Your Honor, David Quater, with Mr. Viali on behalf of Oro's. I think we'll have crossed with respect to one of the experts, I believe it's Dr. Hal. Okay. So we'll work over the lunch break to try to make that focus. All right, thank you. All right, then we are recessed until 1 p.m.

Thank you. No, one more, sorry. Sorry, Your Honor. John Weiss on behalf of the program foundation, essentially just to reserve rates as well we would put over to the hearing that will be held in March I believe with respect to the estimation issue all right thank you thank you anyone else all right thank you we're recess until one I'll see everyone thank you this I put together for the

all the pleading so I'm gonna leave that right here I'm ready to proceed your honor let's go okay thank you again Brian Gloucstein for the debtors The next witness that the debtors are calling is Kevin Liu, who's the director of data science and product at Coin Metrics, Inc. Mr. Lew submitted a declaration containing the pricing analysis and docket number 5204. Before requesting the declaration to be admitted to evidence, we would like to call Mr. Lou briefly to the stand to provide some foundation for the court.

All right, thank you. Mr. Lou, please come forward, take the stand, and remain standing for the OAP. Kevin Lou, last name is L.U. Do you affirm that you sell the truth, the whole truth, and nothing but the truth to the best of your knowledge and ability? Yes, I do. Thank you. Your Honor, may I first, the witness with a copy of his declaration. Sure.

Does Your Honor need one? I have it. Thank you. Good afternoon. Good afternoon. Mr. Lou, can you please describe for the court where you are currently employed? I'm currently employed at Coin Metrics. And what is your role at Coin Metrics?

I'm a director of... data science and product. What formal education degrees do you hold? I studied at the University of California where I received Berkeley where received a bachelor's in business administration and a bachelor's in economics with distinction. Did you have professional experience in data sciences prior to joining coin metric? Yes, my professional experience consists of about 15 years at various companies, all of which involved applications of data science financial data including data sets that relate to prices for financial assets.

Mr. Lee, when did you join Coin Metrics? I joined five years ago. Can you briefly explain for the court what Coin Metrics is and what it does? Sure. Coin Metrics is a data provider of cryptocurrency-related data. We have several product offerings that range from market data, network or blockchain-related. data, indexes, and risk products. And our clients, our financial institutions, and companies engaged in the digital assets space.

Mr. Liu, what do you do in your role at Coin Metrics as Director of Data Science? I have a range of responsibilities. I oversee many product lines, but one of the product lines I oversee is the Coin Metrics prices. This is one of our commercial data offerings, and it represents prices that we calculate for a wide range of cryptocurrency and digital assets at various frequencies using various methodologies and they're used by our clients for a wide range of purposes. What role did you personally have in the development of the coin metrics prices?

As I said, I joined five years ago when the company was founded. This was when the company was pre-revenue and didn't have any commercial product offerings. I played a key role in developing the coin metrics prices and bringing it from inception to a successful commercial offering today. I was the principal author and designer of its methodology, and on a day-to-day basis, I oversee its performance and evaluate its performance during times of market stress, volatile price movements, and other situations. Mr. Liu, what were you asked to do when you were attained by the debtors in these chapter 11 cases. The scope of my assignment was to calculate prices for certain digital assets

that were listed on the FTX exchanges, as well as to calculate a confidence interval, reflecting the uncertainty of my determination of the price. I was also tasked with writing a declaration that would contain my qualifications and the methodology that I used. And did you, in fact, repair a declaration detailing your pricing and methodology? Yes, I did. And, and Can you summarize at a high level, just a very high level, what you did to provide the pricing set that set forth in that declaration? I leveraged the data and methodology that are used in the quaint metrics prices and applied that to calculate the prices of the assets within the scope of my work. At a very high level, my methodology consists of two components. One is to select a set of high-quality constituent markets as input in the calculation of,

of the price of an asset, and the second component is the application of statistical methods to actually calculate the price and the confidence interval. I applied these steps to the 428 assets within the scope of my work. Mr. Lou, you have a copy of your declaration in front of you? Yes. Is this the declaration that you prepare for submission to the court in this case? Yes, it is. And does that declaration an accurate reflection of the coin metrics pricing that was provided to the debtors here?

Yes, it is. Your Honor, at this time, I'd like to move Mr. Liu's declaration docket 5204 into evidence as a port of motion. Any objection? Submitted without objection. No further questions, Your Honor. He's available for the cross, obviously. I believe I asked before we broke the length if I knew I was going to cross. I don't think anybody was going to cross Mr. Liu. Is that correct?

Mr. Liu, thank you. You may step down. Okay, then moving right along, Your Honor. Our third and final witness on behalf of the debtors is Sabrina T. Howell, who's the Associate Professor of Finance at the NYU Stern School of Business. Dr. Howell submitted a declaration that attached an expert report at docket number 5203, as well as a supplemental written declaration filed at docket 6728-4. And similarly, before requesting her declarations be admitted,

we would like to call Dr. Howell to the stance, provide some foundation to the court. Ms. Hal, Dr. Howell, please come forward, take the stand and remain standing for the O. Sabrina T. Howell, H-O-W-E-L-L. Do you have to be able to be? I do. You may be able to.

Thank you. Good afternoon. Professor Howell, could you please describe to the court where you are currently employed? The NYU Stern School of Business. And what is the focus of your work at the NYU Eastern School. My research and teaching focus on fintech,

entrepreneurial finance, and innovation, among other topics. What formal educational degrees do you hold? I have a BA in Economics and East Asian Studies from Yale University, a master's in economics from Harvard University, and a PhD in the economics track of the Political Economy and Government Program at Harvard University.

Do you have any professional experience in the areas of economics and finance outside of your role as a professor at the Stern School? I worked for two years as an economic consultant at Charles River Associates. Professor Hal, do you have experience in your teaching and academic writings with valuation and digital asset in age? I do. I designed and teach a course at Stern on fintech-focused entrepreneurial finance, where we value blockchain-related digital assets. And in my research, I wrote a paper about initial coin offerings, which, to my knowledge, is the most highly cited paper on that topic with about 700 citations and published in a top finance journal.

And in that research, there are several elements that are directly relevant to my work on this case, including evaluating the most. market capitalization of tokens, analyzing price data, looking at token investing in lockup schedules, and studying how tokens are listed on exchanges. Dr. Howell, what were you asked to do when you were obtained by the debtors in these bankruptcy cases? So I was asked to assist the debtors in determining the value of customer claims. I understand that the debtor is liquidating its holdings

of all the digital assets that it has. And as part of that, I was asked to consider whether there may be any appropriate discounts that should apply to the various classes of assets that are being liquidated and to which there are customer claims. And you just at a high level, summarized for the court the types of the discounts that you consider in your analysis in this case? Sure, so I considered three types of discounts within the scope of my assignment.

The first reflects the fact that the markets from some of the assets that the debtors are holding are relatively illiquid and the debtor is holding a very large quantity relative to regular trading volume. So I estimate the price at which the debtor could likely sell its holdings, and in some cases, there is a shortfall due to price impact from selling these very large holdings. I call that an asset liquidation discount, and I apply an asset liquidation discount to 71 of the 1321 unique digital assets to which customers have claims. The second type of discount reflects the fact that some claims are to assets with marketability restrictions. So for these, I apply a discount for this lack of marketability.

And finally, I consider claims to equity and equity-like instruments, and this includes FTT, and I I assign zero value to these claims. Dr. Hal, did you prepare a declaration and report detailing your opinions and findings? I did. Your Honor, can I approach the witness to give her a copy of her declaration? Yes. Do you have a copy of your declaration with the annexed report in front of you, Dr. Hal? I do.

Is this the report that you prepared in connection with submission to the court in? case it is you also have a copy of your supplemental declaration I do and you also prepared that declaration in support of the motion in this case I did your honor at this time I'd like to move professor Howell's declaration with annex report at docket 5203 as well as for supplemental declaration at 6728 dash 4 evidence to support the debtor's motion objection admitted without objection thank you your honor no further questions thank you cross-exam good afternoon your honor good afternoon miss howell

good afternoon thomas gilely on behalf of rs tech limited can you hear me okay dr hale i can thank you doctor how who retains you to prepare this report Sullivan and Cromwell on behalf of the debtors when did they do that I believe in late summer do you remember who you spoke to about the retention the lawyers here Brian and Julie did you ever speak to anybody at FTX yes I spoke to Mr. John Ray as part of the retention as well do you have an engagement letter or

retention letter that governs the scope of your engagement I do And who is that from? It is from Sullivan and Crownwell. Did you receive any instructions in the late summer of 2023 as to what they were looking for in this report? Yes, I was asked to examine any, I was asked to consider the various types of assets

to which customers have claims and was told that the debtors would be liquidating all of their holdings of digital assets in an orderly fashion, starting on the petition date. And I was asked to assess whether there should be any discounts applied as a result of that liquidation process. And who gave you those instructions? The lawyers at Sullivan and Cromwell in concert with the team that I've been working

with and that has been working under my direction at Analysis Group. Okay, I'm going to back up for a second before we get into the analysis group. And maybe my question wasn't clear, but what I'm looking for is to who gave you the assignment. Was it one lawyer? Was it a group of lawyers? Was it FTX? Was it a Zoom? Was it a phone call? How did you get this assignment?

The assignment, I believe, was from Brian Bucksine and his team at Sullivan and Cromwell. Is that your initial interaction? I think that, sorry, just to be, if I can just clarify, sorry, just to clarify, my understanding is that they are acting on behalf and under instructions from John Ray and the management at the FTX estate. But I'm not a lawyer, and so I, and I, I don't, I can't speak exactly to the, to the hierarchy on that side of things. Right, and I'm not, I'm not trying to trip you up. I'm really asking, you know, who gave you your instruction. and is it your testimony that your assignment, the instructions for your assignment, were given to you by debtors counsel at Sullivan Cromwell. Is that correct?

That's correct. I think acting on behalf of the debtors. Okay. And you received that engagement in the summer, late summer of 2023, correct? Yes. Okay. When was your report completed? In late December of 2023. Your report dated December 27, 2023. I assume it was completed prior to that date or close to that date? Yes.

Was it completed before December 16th? No, it was completed on the date it was filed. Okay. When you completed your report, did you send it to anybody for review before it was filed? I was the final reviewer. Okay. And your testimony is you reviewed it? on December 27, 23, two days after Christmas.

Correct. Okay. Are you full-time faculty at Stern? I am. So how many classes do you teach? My teaching load, as we say, is three classes per year. I teach less than that because I usually buy some out with grants. So how many classes did you teach in the fall of 2023?

None. None. You mentioned a group. I think it was the assigned group. I apologize, I don't have it in front of the name of the group that you work with in your preparation? Analysis group. Analysis group. Who or what is the analysis group?

Analysis group is an economic consulting firm. What does that mean? It means that they conduct various types of analytic work to support, as I understand, as I understand, a range of clients in the private and public sectors. Are you a client of that group? No. What was that group's involvement in this expert report? At my direction, they conducted analyses of data and markets

and conducted various calculations that I requested. Were they paid for that? I believe so, yes. By whom or who? or who? I believe by the debtor and the estate. So is it your understanding that they were this group, the analysis group was separately retained by the debtor and not by you? I believe there is a single engagement letter that covers all of the work that I did and the analysis group team did under my direction but i can't say for sure whether there may be any you know additional engagement

letters do you have an approximation as to how many hours you and the analysis group spent on this report from the late summer of 2023 through december 27th 20203 exclusive of your preparation for today i don't have that off the top of my head were you played a flat rate or an hourly rate for your services? An hourly rate. Okay. Do you know how many hours you billed to this engagement? I would have to go and look.

I don't remember each month. Okay. Okay. Have you submitted invoices for your engagement to either Sullivan and Cromwell or FTX? As of today? I have. I submit in my invoices via analysis group, which as I understand, aggregates them and submits them.

and submits them to Sullivan and Cromwell. And as you sit here today, you don't know the amount of hours you've spent. Is that correct? I don't. I think ballpark, I can give a ballpark number around the order of 80. But that's just an estimate. And does that estimate your hours or not the asset group's hours or analysis group hours? Correct.

Do you have any ballpark of what the analysis group spent? on this report i do not you mentioned during your direct and i think you mentioned it when one of my questions that you were tasked with valuing the debtor's assets to be liquidated as of the petition date is that generally sound what you testified to i was asked to assess the likely prices at which the debtor would be able to sell its holdings of digital digital assets and an orderly liquidation commencing at the petition date, as well as to account for a lack of marketability, and finally, to assess the fundamental value of FTT and equity claims in FTF.

Okay. On the value, on the assets that could be liquidated, how long would that take? In other words, you were doing it as of the petition date with the debtor's intention to liquidate it. How long would that take the liquidation? It was not part of my assignment to estimate the time. to liquidation. Do you know what it would be? No, it would depend on, you know, how, how the liquidation occurred. Did you review the debtor's plan that was filed on December 16, 2023? No. Okay. Do you know that

the debtor filed a plan on December 16th, 2023? I do, but I did not read it. Understood. You testify during your direct that strike that. If I say the debtor's books and records, do you know what I mean? I think so. Okay. Did you review the debtor's books and records when you prepared this report? I did not. Okay.

Why not? Because that was not within the scope of my assignment. Okay. And you should testify that you did not value the debtors or these assets that were held by the debtor as of the petition date, but rather a liquidation commencing as of the petition date, correct? That's right. I have the, just to be clear, I observe the holdings of each digital assets, sorry, of each digital asset, and then I observe petition time prices and market data, and I use that information

to calculate the likely prices at which. the debtor could have sold its digital assets in an orderly liquidation. And that's where you apply the asset liquidation discount, correct? Correct. Did you come up with the asset liquidation discount or was that provided to you by either debtor's counsel or the debtors? I came up with it. Who authorized you to file the declaration and the expert report? I think this is a legal question.

No. I think I authorized counsel to file on my behalf. On behalf of who? Your behalf? On my behalf. Okay. I don't have any further questions, Your Honor. Thank you very much. Thank you, Dr. Howell. Thank you. Any other cross? I think that was the only one that was mentioned before the break. Redirect? No redirect, Your Honor.

Thank you, Dr. How would you step down? Your Honor, that concludes the debtor's presentation of evidence on the motion. Does anyone else have any evidence? have any evidence they intend to introduce at the hearing and have heard nothing we can go into closing card thank you your honor your honor as is detailed this morning by mr. Deter Rican otherwise before the court debtors have worked tirelessly since the petition date to secure preserve and maximize the value of their assets for the benefit of customers and other creditors

he's sorry hold on one second yes I forgot about our YouTube books We need to let them back in so they can hear the closing arguments. Absolutely. So let's take a five minute recess and we'll come back and let them. We'll recess until 11.35. All right. I have a nice. I need to stop.

I just want to hear of the . That's like the same. I'm looking at this. Thank you. Sorry, I'm just on the I think it for the way of the Is it a vision of order? Is it a vision that I'm related as a

Sorry for cutting off there, Mr. Glickson Why do we wind and start over again? Absolutely, I have forgotten as well, but it's all fine, Your Honor, of course. Brian Glaxse for the debtors, Your Honor. As Your Honor is aware, and as the Court heard and the parties heard as recently as this morning from this of view, the debtors have worked tirelessly since the petition date to secure, preserve, and maximize the value of their assets for the benefit of their customers and other creditors. These efforts led by Mr. Ray have been extremely successful to date.

As the Court is aware, the size of these Chapter 11 cases are massive, with more than 2 million scheduled and filed claims by customers and other creditors located around the world. This scope of these Chapter 11 cases also dwarfs other cryptocurrency exchange bankruptcies, for among other reasons, as reflected in the digital assets conversion table attached to the proposed order today, there are 1,321 different digital assets that are the subject of customer plan. The debtors are in position to commence the plan confirmation process with the path to emergence from Chapter 11 and most importantly, returning value to creditors within sight.

We continue to build consensus around our plan. set forth in Mr. Mosley's declaration and his testimony today the debtors need to be able to provide adequate information in our disclosure statement, permit creditors meaningful information to vote on the plan, permit the debtors to project claims recovery information, set reserves, and ultimately make distributions. That's why we're here to customers and their other creditors. To accomplish these critical tasks, the debtors need to value every claim that's based on a digital asset. This case is unusual in that every one of those millions of claims based on digital assets

is currently unliquidated. While the majority of the value of claims are denominated in FIA or stable claim, there are approximately 79% has set forth in Mr. Mosy's declaration of all creditor of claims that include at least a component in part claims based on digital assets that are not readily converted to U.S. dollar values. As has been clear, from the first day of these cases, due to the fraud committed by Mr. Bankman-Fried and other insiders, the debtors did not have sufficient digital assets on the petition date to consider a structure of returning digital assets to all customers in the economy. Armed with the orders entered by this court, the debtors have been, as Mr. Dietrich discussed this morning, strategically monetizing its remaining digital assets where appropriate to maximize

the cash assets that ultimately will be available for distribution to creditors. The plan that's on file is premised on providing U.S. dollar recoveries to creditors, and it is therefore necessary for these claims to all be dollarized and to permit them to be addressed alongside the existing Fiat and Stable Coin claims that the debtors have. To do that, prices for the claims based on digital assets need to be established. And the debtors seek to do so by estimating those claims pursuant to Section 502C of the Bankruptcy Code in accordance with the proposed valuation table that's attached to the revised word. As detailed our papers and the evidence that is now before the court today,

the debtors believe the pricing and methods for setting those prices before the court is both appropriate and fair to creditors. We notice this motion to millions of stakeholders, and while we certainly have received objections, the overwhelming majority of those creditors have not objected to either the process or the pricing that's set forth in that table. And, Your Honor, the disparate and often conflicting positions that have been taken, by certain of the objectives, who plainly are looking for ways to increase their claim recoveries at the expense of others from a finite set of assets, necessitates a comprehensive solution that both complies with the requirements of the bankruptcy code and treats creditors and their finite pool of distributable assets most barely. As Mr. Mosley's testimony establishes, any need

to liquidate the value of each claim based on digital assets on an individual basis would unduly delay these cases and distribution to creditors. This is due to the fact that the claims based on digital assets as we heard are scheduled and filed in quantities of digital assets in accordance with the procedure set out in the bar date notice and order that was approved by this court. This issue has been identified since the early stages of the case, and certainly noticed out to all creditors as early as the bar date notices that went out last year.

We submit there cannot be a serious argument that these claims that are held in denominated digital assets are in fact liquid. In considering the question, courts look at the question of whether a claim is capable of ready determination or not. And that has been done in the context of estimation proceedings under 502C as well as many other analogous context.

There's a suggestion today to Mr. Mosley that the debtor could have simply priced these assets and scheduled the claims in dollars. And we heard from Mr. Mosley that the debtors did not, the debtor's conclusion was that with respect to the spot assets on the tokens and coins, they did not. have reliable information to do that in the books and records of the company. And so, Your Honor, for the debtors to have done such an exercise would have been the debtors unilaterally choosing some form of a market price to determine the value of these digital asset claims.

And while there have been some complaints around this estimation process that have been large, We submit what the debtors have done here has provided more due process and more transparency than has happened certainly in some of the other large bankruptcy, crypto bankruptcy cases. We filed the motion. We noticed it to all creditors, millions of people. Everyone has had an opportunity to come forward. Everyone had the opportunity to interpose an objection. Everyone had an opportunity to say, I need time, in advance of today to contest the valuation with respect to any aspect of the experts of Mr. Lewis testimony or Dr. Hall's testimony that were presented to Your Honor today. A handful of those objectors did so.

We've been working constructively with those objectives, as I outlined this morning at the outset of the hearing, to set a subsequent hearing date on the valuation of that small subset of tokens that Your Honor will consider subsequent to today. on March 20. But it is clear from the evidence that is now before the court and how that evidence was put together and analyzed and calculated that helped pricing to establish evaluation for these novel digital assets trading on markets

that are at different prices, different times around the world is far from readily determinable or easy. We submit the evidence before the court details a comprehensive and deliberative process that was undertaken to arrive at the estimated asset values set forth on the digital assets conversion table. Mr. Liu explains how he and coin metrics set baseline petition time pricing for the digital assets that they priced. Professor Howell explained how each and every digital asset all 1,300 plus, was analyzed to determine if a further adjustment to the valuation was necessary due to the protection. facts and circumstances involving the asset and these debtors on the petition date. We have addressed in our reply papers that were filed at length the various objections, but I want to just touch on a few points in summary fashion at this time.

Professor Hall and her testimony today touched on the question of F.P.T. One of the areas she looked at that. the native token of the FTX exchange. And her conclusion of that of the debtor is that that token has no fundamental value because it has no utility outside of an operating exchange, which did not exist on the petition date. As Mr. Diderick updated the court and the stakeholders this morning will not exist at this point going forth.

Without an operating exchange, every source of FTT value is eliminated. Professor Howell explains that the market price for FDT were unreliable and likely distorted in the period leading up to the petition date due to the concealed fraud at it. Professor Howell's report and supplemental declaration explains the valuation of claims based on futures position as though futures positions had been closed out by the holder at the petition time.

One of the objectors that has been active asking questions today is such a holder of future's position. The debtor's view, as expressed by Dr. Howell, is that this is the most consistent way a future contracts operated and consistent with how the futures contracts operated and with the fact that the debtor ceased operations involved for bankruptcy. That testimony as an evidentiary matter is now unrefuted in the record of the court. Futures traded on FTX were not an exchange of assets between the parts, but rather resulted in fiat-denominated profit and losses without the bets, that transaction, betting on winners and the winners. Perpetual futures, which are common with respect to digital assets, use a funding mechanism, in which two parties in the contract make periodic payments depending on whether the futures price is above or below the price of the underlying reference asset. As the price of the P&L changes, the customer's P&L changes.

As explained in Dr. Howell's testimony, every day, the debtors conducted an exercise every 24 hours to repriced supposedly mispriced perpetual futures contracts meeting that creditors would have potentially received payments through this system prior to the petitioning. The arguments and the objections that have been put forward objecting to the debtors' pricing of futures fail for numerous reasons that we detail in our papers and in Dr. Howell's supplemental declaration, which is very briefly, as testimony explains, it's now before the court, debtor's bankruptcy file cannot be equated with an accelerated settlement and delisting event, which is the primary argument that's put forward by the jail.

We have no evidence of the contrary. The debtors did not delist the futures or underlying tokens, but rather the debtors ceased operations in their entirety. Second, unlike SpotTopen, futures and other derivatives, were FTX-specific financial contracts, whose payoffs were inherently tied to the market dynamics of the debtor's exchanges. As a result, customers with futures positions on the debtors' exchanges were exposed to the risks of the debtor's futures markets specifically. And third, Your Honor, making after-the-fact adjustments to futures prices would be inconsistent of how the debtor's exchange has operated historically

and could certainly result in negative balances for certain of our customers. Repricing supposedly mispriced perpetual futures contracts could also unfairly benefit those creditors who could have received payments through the funding rate system that's detailed in our papers. The proposal that's being made is simply a reallocation of value between customers,

and presumably if adopted, would be objectionable to other customers who are not here. This highlights the issue more broadly. The debtors through this motion have sought the most fair and reasonable valuation of claims based on digital assets so that we can set a fair and reasonable process and march forward towards returning that value

to our creditors. Finally, Your Honor, I want to just note that numerous of the pro se and other objectors raise different versions of an objection that customers may claim a property interest in certain of the digital assets. The revised order that's before the court makes clear that nothing in this motion or the order that we have asked the court to enter seeks to address or preclude any party's rights with respect to whether any digital assets constitute customer or other predator property.

All parties' rights reserved with such arguments are fully reserved. We've discussed that issue. We've announced the settlement we have with the ad hoc adversary proceeding, which is the only adversary proceeding that's been filed on an issue, but we understand that those arguments remain outstanding for certain predators. They can be asserted. We will address that issue in connection with plan confirmation. but there is nothing about anybody asserting I have a property right that is precluded by entry of the order we're asking today,

and we clarify that and made that expressly clear in the revised plan of order. The revised order similarly contains some other reservation of rights provisions to make clear that certain other issues that could arise in this case are unaffected by this order that has, we've worked with other parties to address. And of course all evaluation arguments with respect to the four tokens deferred until the March hearing are fully deserved as we've been talking about over the course of the day. So I'll pause there, Your Honor. I'm happy to take questions from the court or let others speak. I would request time on rebuttal to the extent based on any arguments that are made today with respect to any of the still outstanding objection. Thank you. I have no questions at this time. Thank you.

Thank you. from anyone who wants to speak in support of the debtors. Thank you, Your Honor. Excuse me. Kempfascali from Paul Hastings for the committee. Your Honor, for such an important motion, I actually have very little to say right now. And the reason for that is the committee has been working very closely with the debtors over a number of months with respect to the evidence and the arguments that are being presented today. for the committee in its role as a fiduciary for all creditors,

the committee can't pick winners and losers. And so our role, as we saw it in this process, was to make sure that the methodology being applied to value all of the digital assets as of the petition date was fair and reasonable and that the methodology was appropriate across the board for all creditors regardless of their digital assets holdings. And we think the presentation, the evidence today, Your Honor, satisfies that standard.

The only other thing I'd like to say now, Your Honor, and I'll reserve any other comments for rebuttal, if I may, is just with respect to the estimation process. Obviously, and I think Mr. Mosley testified well as to how long it would take to litigate each and every one of the customer claims with respect to the value of digital assets. Just look at the number of individual objections that were filed to this motion, raising individual issues and individual values for their respective holdings. To litigate all of those would take us, I won't even estimate. Certainly would not make the committee or our constituency happy to delay comprehensive

and more importantly what follows, and that's the distributions. The other thing, Your Honor, that I think is important to note is the uniformity that the estimation process would provide. If the debtors and the estates had to litigate each and every one of the individual's claims on an individual basis, you can talk about collateral estoppel and the like, but none of those findings would be binding on any other customer. would be binding perhaps on the estates it's obviously a process that is completely inefficient and not equitable for the estates generally and the creditors

specifically so unless the court has any questions I'll refer or defer any further comments no questions thank you thank you anyone who also speak in support of the motion good afternoon your honor Doug Mince of Schulte Roth and Zabel for Steadview Capital Mauritius limited which holds a preferred equity interests which are detailed both on docket 450 as well as Steadview's proofs of interest. Last month we read the original motion to estimate as well as the order in Dr. Hal's testimony and the conversion table to seek to value preferred equity somehow at zero dollars. We were concerned in particular with, among other things, paragraph 33 of the motion.

paragraph 85 of Dr. Howell's testimony in lines 509 and through 521 of the conversion table. We reached out shortly thereafter to Debtors' Council and raised this concern with them, which they addressed with us very constructively, and we appreciate that. We worked collaboratively with them as well as some others, and they acknowledged that wasn't their intent. we work together to develop what is now paragraph 5 of the order, which I believe makes clear. The intent here is not to estimate the preferred equity in any way, shape, or form, and reserve those issues for another day. I'll let the language speak for itself, but we appreciate that those issues have been reserved, presumably, for some process as part of confirmation. I don't have anything else for your honor, if you have any questions, happy to answer.

No questions. Thank you. Thank you, Your Honor. Anyone else in support? All right? Let's turn to the objectors. He wants to go first. Good afternoon, Your Honor. Thomas Viali, on behalf of R.S. Tech Limited.

Can Your Honor hear me okay? I can, thank you. Your Honor, my client's objection falls into three categories. First one being procedural, second one being substantive, the third one being the methodology. Procedurally, this is an unfair process, Your Honor. Frankly, this is a violation of my client and every other credit are subject to this motion to process. This was filed two days after Christmas on December 27th, a week between Christmas and New Year's on 14 days notice.

It contains two expert reports, totally in over 100 pages, and predicated on thousands of pages of data. It curtails our clients and other creditors' rights to the normal, ordinary, claims reconciliation, and adjudication process. That was outlined by the debtor's expert. That's because what this is, ultimately, is a claim objection or claim disallowance motion.

Claims are deemed allowed when they're filed, Your Honor. the debtors then filed an objection, claim objection, which creditors have a right to respond to. Limited discovery filed by an evidentiary hearing, and this court's adjudication of that claim. But that won't happen here. What's being proposed by these debtors turns the ordinary normal claims adjudication process on its head. This isn't the claims of the judication process. It's an estimation process. Well, the courts are very clear.

An estimation process is subject to the discretion of the bankruptcy judge. And they are used, Your Honor, in asbestos, mass tort claims, and the debtor cite to those cases in their motion. But they don't link it to this case here, Your Honor, because there's estimation in those cases, the estimation process is akin to a trial process where those claims do get adjudicated, experts are retained, they're examined, trust. That's not going to happen here.

But I'll move on, Your Honor. And it's not required. I mean, there are other cases where the courts have said, I could look at the pleading of the case and decide the value on an estimated basis of that claim. I understand, Your Honor, and I do understand that. And I know that other courts in other crypto cases, like the Celsius case, for example, up in the Southern District, under Rule 1009, the judge ordered that the debtors take this digital asset conversion table,

attach it to their amended schedule AB, and then list it because that's what we're doing, Judge. We're valuing the debtor's assets. We're doing a liquidation analysis. That's what this is. Dr. Hal testified on the stand that what she did at the debtor's direction was a liquidation analysis that took her 80 hours. We had the debtors expert, Mr. Mosley testified that his process took two to three months. And for your honor to rule, or for your honor to make a finding that we have this unduly

delays the bankruptcy process, we had expert testimony tonight. or testimony from the debtor and then test her from Dr. Al. She spent 80 hours. Mr. Moseley spent two to three months. There's delay. And delay is okay. Because your honor is a pretty big job to do there. And delay's okay because the creditors,

committees, constituents, everybody on Zoom, they want your honor to get it right. They want you to get it right. They don't want to have this rushed by. the debtor and their expert who quite frankly have been working on this since the summer and then file it lob it out two days after christmas did you file a motion for a continuance no your honor i'm going to move on to the substance your honor in the dow case the bankruptcy law is general rules to liquidate not to estimate your honor

i tied that into the procedural objection your honor would need to make a finding that the normal ordinary claims process will unduly delay these bankruptcy cases, the bankruptcy process in itself. The debtors haven't made that show me, Your Honor. And as I mentioned, the delay is okay. It's unduly delaying the case that's the problem. Not just any delay. Some delay is justified. And Your Honor will need to make that fine. In some of the other cases, they knew Your Honor was getting to, especially with respect to the mass story, that I mentioned, those estimations were done when a distribution was imminent and the distribution will be delayed if this estimation wasn't the case. That's not where we are in this

case. And in fact, Your Honor, these debtors followed a plan, a good faith plan on December 16th that now is going to be changed based on something followed 11 days later, which was this motion. What Your Honor didn't mention, or Your Honor, excuse me, what the debtors didn't mention, mentioned today that I didn't hear anything about this was other types of valuations of the petition date we heard a little bit about the books of records but we didn't hear as to or at least in depth as to why the debtors because again we're valuing the debtors assets is what they're seeking to do they're calling it the claims but the valuing that what the debtors holding as of the

petition date presumably the debtors books and records has this information We've heard testimony from Mr. Mosley, it was really the response to that was we are reliable and it stopped there. I don't want to put words as math, or we didn't trust that information, and it stopped there without any further information. I think that's important, Judge. Let me ask you questions. You ask questions of Mr. Mosley about why the debtors didn't do this and ask the claimants

to file their proofs of claim in dollar amounts instead of the amount of crypto they held in particular type of crypto they held. But whether they did it as the amount of crypto they held or the dollar amount, I'd be in the same position. I'd still have to determine whether that dollar amount was correct or not. I'd still be estimating the claims. Well, Your Honor, if they, if your honor,

your honor, allow me on this, if they, if a credit are put in their proof of claim, if they listed a dollar amount, then I'd argue that claim is liquidated. And your honor is to meet two fighters. You have to be finding that these claims are your own liquidated, attention, and the claims adjudication process or liquidating those claims is going to unduly delay this case.

I think you're making the case for why it would unduly delay the case, because if someone put in their proof of claim, I held Bitcoin on the petition date, but I'm going to value it three months later when the Bitcoin went up. Now I got a question, okay, now there's an objection to that. And then there's someone else who files has a different type of cryptocurrency. And they say, hey, on the petition date, my crypto was worth X, and now it's worth much less than that. I want you to use the petition date.

Now I've got to decide all those issues on an individual basis. And don't forget, I've done this before. I sat on the other side of this bench before. I know how this process works. I understand, Your Honor. And I understand your Honor's ruling with respect to the IRS on that estimation, and it will be done on the petition date. I'm sorry, your preliminary ruling today that it will be done on the petition date.

And if a creditor signs, whether a penalty of perjury, their claim objection, that they have Bitcoin worth X on a petition date, and that's deemed to be a valid claim until someone files a claim objection. Well, now it isn't. If Your Honor grants this motion, it's not. I'm not adjudicating the claims. I'm not allowing or disallowing any claim. I'm estimating what the claims are. That process happens later.

I understand, Your Honor. And that's all I have for my argument. I appreciate your honor listening to me that thank you thank you your honor Kirk Gwynne from Reed Smith on behalf of the foundation serendipity and foundation elements creditors your honor the debtors have neither a right nor a need to estimate our clients pursuplean section 502 only authorizes the estimation of contingent or unliquidated claims on page 13 footnote 8 of the debtor's omnibus reply, the debtors concede that our client's claims are not contingent.

Our client's claims also are not unliquidated. As the debtors acknowledge in paragraph 30 of their omnibus reply, our clients did file claims in U.S. dollar amounts, approximately $300 million, based on a conversion rate for maps and oxy tokens. And by the way, our proofs of claim, Your Honor, were filed based on the values on the petition date or very near the petition date, whichever information was available. But the debtors argue in paragraph 27 that a claim is liquidated when the amount of it can be determined with relative ease. Well, it really doesn't get much simpler than the liquidation of a claim here, Your Honor. You take the number of tokens you have and you multiply them by the conversion rate. It's that easy.

The debtors dispute the claim. They may dispute the amount of the claim. They may dispute whether the conversion rate is appropriate. But the claim itself is easily liquidated. It's no different than if a debtor was objecting to a secure creditor's claim on the basis that the interest was calculated incorrectly. Maybe they used the wrong SOFER or the wrong base rate. It's similar to that situation.

This is a dispute regarding the claim. It's not a dispute regarding whether the claim is liquidated. For that reason alone, as a matter of law, your honor 502C does not apply, and the debtor cannot estimate our client's claims regardless of any alleged delay in the confirmation process. Now, even assuming that our client's claims are unliquidated, and they're not, the debtor still cannot estimate the claims because there would be no undue delay

in the administration of the case with respect to resolution of our claims in the normal process. There should be neither a delay nor an unduly long delay for several reasons. First, Your Honor, I do want to point out this is a problem that the debtor has created This was, and this motion was, you know, the solution to the problem they created. The debtors filed their schedules. There was testimony, well, at that time, we weren't comfortable with the available conversion rates. And I think technically what the witness said is he wasn't comfortable with the debtors' systems and regarding what the conversion rate was.

But the debtors have filed multiple amendments to their schedules, and in fact on the exhibit list, for today they had they listed amended schedules that were filed in June of 2023 and then again in January January 23rd 24th of 2024th when the debtor files its amended schedules it can list claims as disputed it can put the dollar amounts in there it could list all the two two million claims list them as disputed if the creditors don't object or don't file a proof of claim then that would resolve those claims. But the debtor chose not to do that.

The other thing the debtor could have done is in the bar date motion, not to just ask creditors to file proofs a claim in the amount of the tokens that they held, but to put a dollar value on them. Because in many cases, the debtor may agree with them. The debtor may use the same, would have used the same conversion rate,

or one very close to it. And I do agree, Your Honor, if someone files a claim and they're valuing it in a dollar amount, but they're not using the petition date, then that that would be wrong. And that claim is one that debtor may be able to object to, but I don't know that it's an estimation. It's that the claim is improper because it's

using the wrong conversion rate. Wouldn't I have to look at every single claim and the debtor would have to look at every single claim to see if when the claimant filed their proof of claim, that the dollar amount they put in was actually the dollar amount on the petition date and not some other date? The debtor, well, yeah, but the debtor has to do that anyway. Even when Your Honor estimates claims, right,

the debtor has to look at each individual claim and determine what the value of that claim is based on your ruling. They have to do that anyway, either in objecting to the claim or determining, okay, your honor says, like you said today, this is, is the relevant date for the valuation of creditors claims the petition date. So debtor's going to have to make sure claims comply with that. Just estimating them and saying that's true and waving the magic wand doesn't mean that

someone doesn't have to review the claims to make sure that they comply with your ruling. That has to happen in any event. But they're estimating them as a whole, not one off, and I don't have hundreds or thousands or tens of thousands or hundreds of thousands of objections when the debtor files an nominibus claim objection and all of the sudden I've got thousands and thousands of claimants filing objections saying wait a minute no that's not how I valued it or they're saying wait a minute I didn't hold one Bitcoin I held three bitcoins or no I didn't do this I didn't do that I have to do them individually that process would take forever

tell me how that's not how I would shortcut that process well your honor the I don't know that you need to shortcut that process here, but I think I already said how it could be a shortcut. One is that the debtor filed amended claims, and you list the claims with the appropriate amount that you think the claim should be asserted in. If the creditor files a proof claim, then it's challenging. If it doesn't, that amount is binding. Or you list it as disputed, and if they don't file a proof of claim, then that amount covers.

But that's a lot fairer than this process, Your Honor, which was started between, Christmas and New Year's Eve and giving people 15 days notice to deal with what really amounts to a disallowance of claims I'll ask you the same question did you file a motion for a continuance we did not your honor but we had negotiated we negotiated it as I indicated earlier that our claims aren't being valued today the only question for our clients is whether or not estimation is appropriate our claims are not going to be estimated or valued based on your honor's ruling today and that won't prejudice us in any way is the agreement that we have

with the debtor as set forth in their revised proposed order by the way that's important because this proposed asset liquidation discount is unprecedented it has nothing to do with the creditors claim so debtor's assets but that will deal with that later in connection with with our claim we're prepared to proceed on the liquidation of our claim in the first week or two of April. The debtors proposing the estimation of our clients' claims, the Oxi and MAP claim, on March 20th.

That's not undue delay to push it back for a couple more weeks. That, I think when you're on- That issue is not in front of me today. Well, yeah, but the issue of whether estimating our claims or not makes, you know, is appropriate, is before you, and what you what I'm telling, Your Honor, is that we're prepared to go forward on a regular litigation of the claims in early April. And I think that should be relevant to Your Honor and how you, whether you decide that

estimation is appropriate with respect to our client's claims. And that's just really a few more weeks more than what the debtors proposing for an estimation hearing. And we're saying we don't need the estimation hearing. Let's just have the claims allowance. disallowance hearing a couple weeks later. Additional month, I don't think it's undue delay when you look at the process here.

The debtor's witness took approximately four months to prepare their expert report. We were given 15 days over the holidays to respond. We did respond. We have retained experts. We have, you know, as a backup plan, have an agreement that if we have to have an estimate, that it wouldn't be today, it would be in the future,

but reserve the right to say that we shouldn't have an estimation hearing, we should have an allowance or disallowance of our claim. Dr. Hal, according to her report, reviewed over 200 legal documents, articles, books, studies, websites, and data sources. The creditors should have a similar opportunity, Your Honor, to conduct that type of review and analysis. And of course, they have another expert report. from Mr. Liu and all of these were being all of that work was being done when the

creditors had no idea what was coming debtors counsel says we noticed this to people before all the debtor said was at some point they would come up with valuation they never said we would try to estimate everyone's claim you know on 15 days notice over the holiday that was never noticed to the creditors and it shouldn't your honor does have if estimation is proper under 502 C you're honor does have discretion to determine the method and what we're saying your honor is that if you're going going that route we should be given the you know a little more time fair opportunity and just have had you've been giving that are you speaking on behalf of other creditors you

well i'm not speaking on behalf of our our client and your honor when you're you already got that taken care of it's there's going to be another here right but we don't have the issue we don't have taken care of is whether we're going to go to that estimation here or we're going to have a claim allowance hearing, a disallowance, a regular hearing, not an estimation. The debtor's witness testified that our client's claims are less than half a percent of all the claims. If the concern is we need to give an estimate in our disclosure statement as to the recoveries, and we need to give an estimate that people can that has some reliability so people can determine

whether to vote in favor of the plan or not well then you know not estimating our clients claims still gives everyone else 99.5% certainty because our claims are a small subset as debtors council said we're just actually a part of that small subset of claims that aren't being estimated today if the debtor gets the relief it's asking for and all the other claims are estimated then And there's really no reason that our claim needs to be estimated at that point, because now we don't have all these claims that have to be estimated. We have a small handful.

And I would request that, Your Honor, give us that opportunity to have the regular claims hearing because the debtor seeking to disallow our claims in full. And that's significant. And when you're determining the type of estimation proceeding or whether or not, the Third Circuit, You mentioned Bittner earlier, the fact that Bittner said in some instances, well, you had indicated that there was a case I was saying in some instance, you can maybe just decide estimations on the papers. But in Bittner on page 135, the Third Circuit said in some cases, maybe a rare or unusual case,

but in some cases, you might actually need a jury trial to estimate a claim. So obviously there's a big, you know, wide disparity in what might be, um, you know, you know, required to estimate a claim. And here, rather than fight about that, seems easiest that if the debtor gets the relief it's looking for today, that we just deal with our claim on the claims allowance process,

not an estimation process. That's all I have, Your Honor, unless you have any questions. Thank you. No question. Thank you. Anyone else? Your Honor, Dennis O'Donnell, DLA, Piper, again, on behalf of MAPS Vault, limited. it. Your Honor, MAPS vault holds over 7 billion tokens, MAPS, Oxy, and serum tokens, which, based

on publicly available prices on the petition date, were valued as we state in our crucial claimant, approximately $525 million. If the debtor's estimation is currently proposed were to be accepted, all but a couple of million dollars, that $525 million would go away. So clearly, we have a lot at stake here and want to make sure that this process works as best as it can for us. As Mr. Glickstein indicated, we have been among the group,

I think we would be an initial member of the group working cooperatively with them to come up with the process that works. And we do have a schedule in place, which involved the delivery of an experts report this past week, a rebuttal coming from them next week and discovery of all that, which we believe covers most of what we need to cover.

But that being said, we still think that we have an entitlement to more, because we don't think that estimation, as presented here, with respect to the millions of claims, should necessarily control how a very small subset of the claims, which includes the MAPSoxy and Serum claims. I mean, basically the 71 claims that Professor Hal referred to amongst the 71 tokens amongst the 1321 is a subset that should have really been on a separate track to start with.

And of those 71, I think there's only a fraction of those, which may well be represented by the parties who have now been moved into this later hearing, that should be entitled to a separate process. Whether we call that process estimation or allowance may be at this point a matter of just terminology. I think what we have on the table going forward will be a full process with discovery and a hearing and evidentiary hearing with witnesses that will take place as proposed now on March 20th. But again, because I think we have an entitlement that I'll get to in a second, I would only

ask that we have flexibility built into that process. We now have four or five, six different participants in it. It may be that things need to get moved around. It may be that that hearing needs to get moved to some extent. And based on the fact that I think properly, there should have been an allowance hearing, that flexibility should be acknowledged. And to reiterate much of what Mr. Wynn said. There are two reasons why, at least as to our clients.

We're not talking about the millions and millions, but we create great headaches for the court in debtors. We're talking about this small subset of customers here, which include my client. As to them, number one, their claim is from their perspective, I think from any reasonable perspective, liquidated. As Kevin Liu, one of the debtors' witnesses acknowledged, there are parties, or maybe it was Mr. Mosley,

There are many parties who did, in fact, include dollarized claims on the proofs of claim, and our client was one of them. And they did that, not as the debtors would portray it as a customer's estimate. They did a very simple calculation which comports with what doesn't require estimation, which is something that could be determined with precision

by a pure mathematical computation. And what they used here was an input, with two inputs. The number of tokens they have, that multiplied by a publicly available trustworthy source for what the price was on the petition date. They used coin market cap, which is the same source that is acknowledged in Professor Howell's report as a source to which she went when coin metrics

could not provide the source. You provide pricing data for that date. And it's also a source that she cites 51 times in her report for other reasons. So again, a reliable source, quoting a price applicable on the petition date, multiplied by the number of tokens that no one of disputes that would help by our clients on that day. That sounds to me like more than a customer's estimate and suggest that the claim is in fact liquidated.

The fact that the debtors want to dispute it doesn't change the fact that it's liquidated. It simply means they're going to dispute it as they would any other type of purportedly liquidated claim. There's also no undue delay that would be caused here by turning us into a full-fledged 502AB allowance scenario because we think we'd be effectively somewhere where we are already. We're now, even though the debtors wanted to do this in about three weeks, we're now talking about doing in about two to three months with flexibility. Again, because I think we would have an entitlement, we have every right to argue as to this subset of creditors

that this should have been teed up as an allowance process. Going forward with what we have on the table as modified to accommodate everyone who's now part of the next year, should be something that, again, if we need to come back to the court, we will come back to the court to talk about whether that needs to be modified. As currently memorialized, it is not actually an order. I think what we probably need to do is to build that schedule into some kind of order that will permit modification if issues arise. Don't proceed with the moment, but if issues arise, we may need to come back to the court to address them. Thank you. Anyone else?

wish to be heard. Good afternoon, Your Honor, for the record, Steve McNeill from Fire Engine and Karun, here on behalf of the Layers ERO group. Your Honor, unlike the others, I bring good news, Your Honor, during the course of the hearing, I was able to resolve the remaining aspects of my client's objection with the debtors. We, just for background, we had asserted, my client holds potential 502 claims related to an avoidance action that's been filed against them. We asserted that 502 claims were different and should be excluded from the process. The debtors had added some language to the proposed order carving out those claims. We had some additional tweaks.

That is in, I believe it's paragraph, paragraph eight of the proposed order that was filed this morning. I just wanted to note for the record that we have a couple of additional, a little bit of modified language to that paragraph, Your Honor. And specifically, paragraph 8, subsection B, right after the B we are adding have any precedential value or before the word prejudice that's there currently and right below that treatment of any claims asserted in we are adding or arising from before any action your honor and with those changes my clients objection is resolved I would ask council for that

to confirm that on the record but that is the resolution we have agreed to you Thank you. Anyone else in the courtroom? Mr. Lusk, I see you have raised your hand. Do you want to say something? Yes, Your Honor. Can you give me a co-hosting, right? Mr. Lusk? Yes, Your Honor. Can you turn on your camera please? Are you able to... You need to turn on your camera, please, so I can see you. I cannot start video because the host has stopped it. Could someone please report that problem?

Mr. Lusk, we need to give him video back. Once you disconnect him from video, You can't turn it back out again unless you give permission. There you go. Go ahead, Mr. Leske. Okay. Great. Thank you. So I would like to raise an objection to the motion in terms of the generality of the language envisaged in the second paragraph.

The debtors refer generally to authorization to determine the value of claims-based digital assets and in my view this is far to general in my particular case I hold I held at the petition date or had deposited on the FTX comm exchange digital assets and I received afterwards a schedule in which I saw that the had supported to mischaracterise my claims as general unsecured claim in an inter-terminaled count. However, they did correctly specify the precise amount of crypto assets I held on the exchange. So I filed a proof of claim in which I objected against the mischaracterisation of the nature of my claim, and stated very clearly that my claim is in fact a claim for resuscutions of the particular crypto assets which are specified in the claim.

These claims are held in accordance with the terms of service in trust under English law as specified therein and I requested relief in the form of immediate return of my crypto assets because these assets are my property, they are not the property of the debtors. They cannot possibly be part of the debtor's bankruptcy estate, and therefore they cannot be a subject of any estimation that Your Honor may make, which can only relate to the debtors' debtors. bankruptcy estate. The language which has set forth in the proposed motion is far too broad, and it doesn't resolve the issue that the debtors have issued Chezzlers in which claims are mischaracterised. It does not take into account that there are on the docket objections, including objections at the

proof of claim stage to their miscarat characterization of such claims. I have filed not only an objection at the proof of claim stage on the 29th of September, 2003, but I also have objected on the 9th of January of this year to the debtor's motion to estimate claims. And on the same basis that they have miscaraturize the nature of my claim. I claim immediate restitution in species of my personal assets. because these are not assets of the debtors. They are my assets, as is specified in the firms of the service. The debtors have not disputed that at any subject.

Despite what Mr. Grookstein has said for the debtors, at no stage have the debtors responded in any way to either of my objections. Much time has passed. It must therefore be understood that the debtors have nothing to contain contrary to what I stated in objection, appropriately. claim stage and in the present month and therefore I would request not only that the language be suitably amended in the proposed order to carve out the case of my claim and that of the further FPS customers in my position but also that there is no reason whatever

why the debt is should not now be ordered with immediate to restore. Return my crypto assets to the addresses that I've specified in my most recent objection dated the 9th of January and filed on the 12th of January. It is document 5-684 on the docket. Mr. Lusk. I'll let Mr. Glucking respond to you in more detail, but as was discussed at the beginning of the hearing or the opening statement. by Mr. Glockstein. The issue of whether or not any particular claimant

has titled to the crypto that is being held by the debtor is an open issue, and they have included in their order language to make clear that that issue is not being decided by the estimation process, and it is something that can be raised at a later date. So that's something that will be resolved later on. For today's purposes, I'm being asked to estimate the claims so that the debtors can file their disclosure statement in order to solicit votes on the proposed plan that they are putting forward for resolving the bankruptcy case. Allowance of claims or disallowance of claims happens at a later time.

What I'm doing today in an estimation process is not allowing or disallowing any particular claim. It's only estimating the claims for purposes of allowing the debtors to move the case forward. Did I make that clear? Does that understandable? The language which appears in the document referred to in the agenda, which is document 5202, filed on the 47th of December, 2003, states in the proposed order at item 2,

the debtors are authorized to determine, your claim based on digital assets and fee of currency for the purposes of any plan in the Chapter 11 cases, based on the W-Sept court from the digital assets conversion paper attached to a 2 to and 7. It is this language which I say is true for all. Well, that language is in the motion, and the only thing that's going to govern here is the order that I enter. And the order that the debtors have put forward says that the issue of ownership is still an open issue and is not being decided to that. So it's my order that governs how the process goes, not what the debtors may or may not have put in their motion seeking the estimation process. Or I'm federal and speaking against the motion.

Right. But as I said, the debtors went back later and added additional language to resolve this issue because it had been raised by other claimants that there was a question about who owns the crypto. and the debtors have resolved that by including language in the form of order that says that's still an open issue it's not being decided today okay we have priority on the point okay thank you all thank you mr. Klexney the response yes your honor Brian Gluckstein for the debtors happy to I'd like to make just a few points in rebuttal on what we've heard here from the projectors starting with Mr. Lusk point there. Your Honor obviously hit the issue on the head, but I'm hearing him

articulates effectively a property argument. We have added what's in paragraph four now of the proposed global order of clear reservation of rights on the issue as I discussed earlier. Obviously the debtors reserve all of their rights as well with respect to those arguments, but they're not before the court's death. With respect to the other objectors, What we heard from Oroz about the process, we're here, Your Honor. We're having an evidentiary hearing today. They could have served discovery on us. They could have sought to take discovery of our experts.

They didn't do so. The reference with respect to the way this was done in some other cases is a reference to Celsius by counsel where we just tack some sketch. on you know our our view was this process is actually providing the process we are not unilaterally deciding what is a complex question which I'll come to in a moment this idea that some delay is fine it's just fine well the debtors don't believe it's fine we don't believe our creditors maybe all of us thinks it's fine but we've certainly heard from the creditors committee and we've

heard from many of our creditors directly they want their money back and as if We've been talking about all day, the debtor's job here is to maximize the value of these estates and to return that value to our credit. And we're working hard to do that. And this process is a key part of that effort. This idea that was raised by the maps and oxy holders, well, let's just carve them out.

It's fine. We can get the relief from everybody else today. And we can just carve them out and do something different. That's precisely the problem. We need a comprehensive process where we're estimating the value of these assets for all holders. There are other holders,

maps and oxytocons. We need their claims value. There's nothing special about the fact that these holders stepped forward with counsel and said, I don't want to be part of a 50C, the pre-C estimation. I want a claims objection process.

Other people presumably might want that as well, But as we've been talking about all day, it's simply not practical for the purposes we're talking about this, which is to be able to advance these cases through confirmation and through distributions. We need to set the value of the digital assets. We need to do it in a comprehensive way, and in a way that is transparent, and that is fair to everybody on a aggregate basis. And we think we've done that. Certain of these holders have come forward, these claimants have come forward,

and said they needed some additional time for expert discovery. They intended to bring forward a competing expert on the valuation of these few tokens. And we understood and said, okay, let's work on a process with the understanding that we have to get to an estimation outcome decided by your honor that is consistent with the case timeline in the process we've been talking. And that schedule was agreed to. Now, I'm hearing maybe a little bit of backtracking from that this afternoon, so we will get that schedule in front of the honor.

But we've been proceeding on that schedule, and we have been constructively moving that process forward, that will get an answer not just for the movements here, but on evaluation of those tokens so that Mr. Mosley and the debtor's team can do the necessary calculations to advance the disclosure statement, to advance ultimately confirmation and distributions out to creditors, if and when we hope, you know, a little later later, this year a plan is confirmed.

Let me ask you a question. Yep. You indicated that the debtors are planning on issuing or sending out their disclosure statement in February. But I'm not going to have hearings on these other estimation motions until March. How is that going to affect the process? What we have said, Your Honor, is that we will file an updated plan and disclosure statement. Our case timeline contemplates that we will have a decision from your honor on these issues before we begin the solicitation process.

And we asked your honor to enter the solicitation order. So effectively prior to our disclosure statement period. So that at the time, and our solicitation motion expressly contemplates using these values. So at the time your honor is asked to approve our disclosure statement for solicitation, we anticipate having the carved out issue. that have been put off here today decided by Iran. That's consistent with the overall schedule that we can work in through with the committee and others. Okay, thank you.

The other argument we heard, which I want to address, is we heard from these objectors that, well, maybe our claims are different because we purport it to write down an amount of value-back claims. And it's a very simple calculation. We looked at a pricing source, and we wrote a thing. And that is the heart of the issue. The assets that we're talking about, Your Honor, are not simply black and white valuations.

We heard today from Mr. Liu, the process that he went through to come up with Petition Day pricing. We heard the process that Dr. Howell went through to look at not only the third-party market pricing, but what are the facts and circumstances of this case to value these claims? This is not a situation where, just because a amount was written down that that liquidates the claim.

And we knew that this issue could arise, and we wrote in our bar date notice. We made very clear that because of this issue, parties should come forward with their quantities of digital assets, and that we would be seeking relief from your honor to actually set the value of those claims. and that we considered any number that somebody wrote down to be an estimate because by definition it is. There is no answer.

And this goes back to the cases that we cite. The question is, is this readily ascertainable? Is this easy to calculate? And so, yes, once you have the conversion rate, it is correct that it is a simple mathematical calculation to take the number of tokens you have and multiply it by the conversion. The question is, what is the conversion? and our submission here and has been for many months is that there is not a liquidated claim

on these digital assets until this court fixes. And that's what we're here today to do. And so we believe that all of the creditors should be subject to this process. Yes, there's going to be a secondary hearing. That's in recognition of certain of the arguments that those creditors have stepped forward and said they want to make, we recognize that some more time was appropriate for that discovery

and expert process, primarily because they would bring forward, according to bring forward a competing expert. We need to take discovery of their expert and everything as well. But it's all within the framework of 502C, and we submit that the evidence before your honor between Mr. Mosley and our experts with respect to process establishes not only that estimation is necessary and appropriate here, which brings us to the rubric of 502C, that the first the methodology and the process that we have put before the court the evidence that's undisputed for purposes of today's hearing there's been no competing evidence presented is fair

and reasonable for the credit bodies of the whole and we would ask your honor to overrule the remaining objections and enter the order we do have as alluded to by council one of the council just stood up for layer zero a slightly revised further form of order that based on a few tweets to some of these reservation rights paragraphs that we've continued to discuss over the course of today with the jury. So we, in the event that Your Honor were to approve the motion, we would submit a slightly updated version of the order, but the substance of the assumptions. Okay. Thank you. Thank you. All right, let me take a recess here.

I'll come back and give you my decision. Let's recess until 3.30. Come back. Thank you. With my morning. It has been recognized that either the code nor the federal rules of bankruptcy procedure provide any procedures or guidance for estimation. And bankruptcy court and a bankruptcy court is a wide discretion in accomplishing in a murder court. 448 BR 635, that's 648 bankruptcy, Southern District of New York, 2011.

In estimating a claim, the bankruptcy court should use whatever method is best suited to the circumstances. In Ray Bittner v. Born Chemical Company, Inc. 691, F. 2nd, 134, F. 135, Third Circuit, 1982. It is conceivable that in rare and unusual cases, arbitration or even a jury trial on all or some of the issues may be necessary to obtain a reasonably accurate evaluation of the claims. This is Inray Bittner. Such methods, however, usually will run counter to the efficient administration of the bankruptcy estate and where there is sufficient evidence on which to base a reasonable estimate of the claim, the bankruptcy judge should determine the value. determine in this case that there is sufficient basis for me to determine the value. Courts may employ a wide variety of means including a summary trial, a full-grown evidentiary hearing,

or review of pleadings and briefs followed by oral organ of counsel. In re AMR court case number 11-15463 SLH, 2021 Westlaw 29545448. 954824 for bankruptcy, Southern District of New York, 2021, and have specifically recognized that it is often inappropriate to hold time-consuming proceedings, which would defeat the very purpose of Section 502C1, to avoid undue delay. Thus, a truncated process under Section 502C

has been found to be consistent with the dictates of due process of law. Debtors here seek to estimate the 2 million claims arising from certain digital assets, including specifically digital tokens. There were a number of objections, many by pro se litigants. I've already ruled on the objection based on debtor's use of the petition date and overruled that objection because the code specifically provides that I have to value them as of the petition date in the U.S. dollars.

The letter presented the testimony of three witnesses, including two experts who provided a reasonable basis for the estimation of the claims as of the petition date. That testimony was unrebutted, and I concluded that the testimony was credible and presented a fair and reasonable basis for the termination of the estimated value of the digital assets. Several objectors argued that estimation was unnecessary under 502C because the value of the claims could be determined through the claim allowance process without undue delay. I disagree. The assets at issue are unique, an evaluation and conversion to U.S. dollars using an allowance

process would take an inordinate amount of time in a case where the fees and costs already exceed $300 million. This is evidenced by the three objectors asking for a claims allowance process. asserts that they need discovery and each asserts that they intend to call their own experts at a future hearing to estimate their individual claims. It undercuts their argument that it's a quick process. One objector claimed that it is not, that their claim is not contingent or unliquidated. Again, I disagree. The fact that we have to have experts come in to give me an evaluation shows that it is not a liquidated claim. It's not a contingent claim, but it's a

unliquidated. One objector asserted that the estimation process violates their due process rights because they didn't have sufficient time to review and object to the debtor's motion. That party, however, did not seek a continuance. And as previously noted, courts included the Third Circuit have found that the truncated process provided for in the code does, in fact, comport with due process. Other objectors, including Mr. Lustk, who argued before me today, said that the estimation will determine the question of who owns the digital assets, and it's his contention that he owns them. The debtors, however, revise the former order, reserving that issue for a later date,

and nothing I do today will affect the rights of the claimants to contest the ownership or the debtor's right to contest that ownership. Based on the evidence presented and the arguments provided in the papers and at the hearing, I find that estimation is appropriate and the debtor's methodology for estimating the claims is fair and reasonable and all objections to the motion are over-moved. Any questions? Anything further from the debtors for today? No, Your Honor. Thank you very much. We will submit the further updated form of order to chambers and I think that is it for today.

Okay. Thank you. We are here. Thank you.