American court hearing recordings and interviews - Season 2. Episode 3. June 8, 2023. 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: June 9, 2023

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Please receive. Good morning, Your Honor. May it please the Court. Adam Landis from Landis Rath and Cobb here on behalf of FTX Trading Limited and its affiliated debtors. Your Honor, parties are mindful of the limited time we have in court today. I understand, Your Honor, needs to look at you two. No later than two. No later than two.

I'm going to just push through. Well, it'll be no lunch break. I'll just push through until we get to sometime between 1.30 and 2. Terrific. whatever is a convenient break. And we aim to use the time as efficiently as possible. Based on parties' travel plans, a lot of people have come a long way for this hearing today, the parties have determined to go forward first with Your Honor's permission,

item number eight, which is the JPL's motion for a declaration regarding the automatic stay or in the alternative lifting the stay, and we would move everything else to the back of the agenda. Those items that need to go to the back of the agenda are items number seven and nine, which are sealing motions. We also have on the agenda item four and ten. Item four is the keep, which had no objections and we filed a request to have the order signed. But we also have item ten, which is the keep sealing order. Objections would do with the hearing in connection with that. We have not heard about any objections that were going to be raised.

So we wanted to see a bet. Those matters could be dispatched before we got going, but if not, we're content to have them move to the back of the agenda. And we can deal with the keep. It was submitted under COC, so that order will be entered. Is there any objection to the ceiling? Thereing no objection, I'll enter that order as well. Okay, and with that, Your Honor, I will cede the podium to Councils of JPLs.

I will note that we did submit a pretrial order yesterday, a proposed pretrial order, that would govern the conduct of this hearing. And again, it aimed towards efficiency and trying to get everything done to allow people to be here, witnesses to be on, and to get out dodged as it work. Okay. Thank you, Mr. Lund. Thank you, Your Honor. Good morning, Aaron. Good morning.

Jason Zaki of Whiteen case on behalf of the JPLs. As counsel indicated, we have conferred with counsel for the debtor, the committee, and the other parties and have a proposed process to go forth today with the court's permission, and I'd just like to lay that out for you. First, the parties have agreed to waive openings and proceed directly to the evidence. Okay. With respect to the evidence, the parties have agreed to 40, sorry, 54 joint exhibits, which were submitted along with the pretrial order, to which there were no objections, and with the court's permission, we would jointly offer those into evidence. Okay.

Are you any objection? They're admitted without objection. There were a handful of exhibits that the debtors had offered over which there were some objections by understanding from counsel to the debtors as those are withdrawn, so we don't need to address those. Okay. And then with regard to the witnesses, Your Honor, there are three, two from JPLs and one for the debtors. In an effort to keep this as efficient but yet as effective as possible, the agreement is, so we have two witnesses. One is one of JPL's, Mr. Peter Greaves, who will be subject to. to cross-examination.

We would propose to offer his declaration, but still do a brief direct, hitting a few points, but by offering the declaration, that direct can be truncated. And then we have a second witness who is our foreign law, Bahamian law expert, who I understand will not be subject to any cross-examination, although she's present, should the court have any questions, and we would propose to offer her, to do her testimony simply by the declaration unless the court has questions for her. The debtors have one witness, Mr. Mosley. Some of them, Mr. Greaves, he will be subject to cross,

and so I believe they intend to both offer the declaration and a direct, but by putting the declaration, that direct can be truncated. So if that works with the court, we would proceed to the JPL's first witness and call Mr. Peter Greaves. Okay, Mr. Greaves, come forward, please. Please take the stand and remain standing. Please raise your right hand. Please state your full name and spell your last name for the court record.

please. Do you affirm that you tell the truth, the whole truth, and nothing but the truth, to the best of your knowledge and abilities? Yes. You may be seated. Your Honor. Thank you, Your Honor. As I indicated, Mr. Greaves submitted a declaration. It could be found at docket number 1194 in support of the JPL's motion, and we would offer that declaration into evidence of this time. Any objection? Is it admitted without objection? Thank you, I. Mr. Greaves, good morning. Good morning. Could you please introduce yourself to the court and tell us what you do for a living, sir? Yes, good morning, Your Honor. My name is Peter James Greaves.

I am a partner in PricewaterhouseCupers based in Hong Kong, and my role there is to lead PWC's insolvency and restructuring practice across Asia Pacific. And roughly, how large is the group that you lead in Pricewater HouseCupers? Across Asia, it's several hundred. partners and staff. And how long have you worked as a restructuring professional? I think I'm in year 33. And do you have any special licenses that you use in the course of your job as a restructuring professional? I'm licensed as an insolvency practitioner to take formal appointments such as liquidations, administrations, receiverships, etc.

licenses in the UK. Now, could you describe for us, please, sir, the types of jurisdictions and the various jurisdictions in which you've worked over the course of your career? Yes, I've worked on cases in a large number of jurisdictions, maybe 20 or more, but in a smaller number of countries I've taken appointments, and they tend to be jurisdictions that follow, common law or have their insolvency law based on UK law in order that there's commonality with those systems now over the course of your career could you just describe for the court the experience you've had with liquidations or

provisional liquidations under the English system yes as mentioned I can involve in number of different formal appointments varying slightly by jurisdiction but liquidations I think I would have been involved in you know perhaps a hundred or more over my career support and could you describe for us please sir under the English system what the duties of a liquidator are yes at its simplest it's to investigate and establish the assets of the estate and on the other side of the if a Lenovo gaming computer is on your holiday list don't shop around, just go directly to the source, Lenovo.com. You'll find exclusive deals on the gaming PCs

you want, like the Lenovo Legion Tower 5 Gen 10 gaming desktop and Lenovo Lock Gaming laptop. So avoid all that shopping chaos and price comparing, and just go directly to the source, Lenovo.com, where PCs are up to 50% off. That's Lenovo.com. Now, is prior to your work on the FTX digital markets case, had you ever served as a liquidator in any case in the Bahamas? I have not. And could you please describe for me what the requirements are or qualifications for a liquidator or a provisional liquidator to serve in the Bahamas?

Yes. To present one sub to the court as being able to to take such an appointment. The practitioner needs to be locally based and locally experienced or have a qualification or a license recognized by the Supreme Court at the Bahamas. And the UK license that I hold qualifies. I think there are maybe two more, maybe Canada and Australia as well, allow one to take appointments in the Bahamas. Now, I'd like to shift a little bit to talk about this particular engagement. Who appointed you to your role as a joint provisional liquidator for the estate of FTF's digital markets?

The appointment was made by the Supreme Court of the Bahamas. And when did that occur? I was appointed on Monday the 14th of November 22. Prior to your appointment as a joint provisional liquidator for FTX digital markets, did you have any connection or involvement with FTCS or any of its affiliates? No, no more so. Prior to your appointment as a joint provisional liquidator, did you have any connection or involvement with any of the founders of FTCS?

No, I did not. Could you please describe for the court, generally, what, if any, fiduciary duties you have in your role as a joint provisional liquidator and who those duties may run to? Yes, the provisional liquidators are supervised by the appointing court. The primary fiduciary duty is to the creditors of the company or creditors of the company. Now, as a joint provisional liquidator for FTS digital markets, what is it, what is your goal? What is it that you're trying to accomplish? At the risk of repeating slightly an earlier question, I would summarize as trying to establish the nature and quantum of assets caught within the perimeter of the estate as at the date of insolvency.

And to establish and make contact with the creditors of the estate. Now, what brings us here today is an application that the JPLs would like to file in the Supreme Court of the Bahamas. Could you describe for the court what that application is? Again, it relates to the two main points that I've just mentioned, but we are looking for guidance from the Bahamas Court on how we may proceed. The provisional liquidators are very much expected to make their own decisions as far as possible if it's within the duties accorded to them by the law and the order appointing them. But if the liquidators reach a stage where they need to take directions, then we're obliged to do that by referring to the Barmer's Court.

And that's what this application relates to. It's seeking directions on a number of points critical to the execution of our roles. I think you said two of the things that you try to identify as a joint provisional liquidator are assets and liabilities of the estate. Could you give the court an example of a specific matter related to the assets of FTX digital markets from which you require direction from the Bahamian court? Yes, without necessarily going through all of them, the assets that from the records we have appear to be in the estate or likely in the estate at the outset were cash in bank accounts, potentially digital assets. And then there's some real property and other chattel assets I'd describe them as. there are questions around who those assets belong to and if I take the example of cash the cash that was in the name of FTX Digital at the outset of the insolvency were principally in two types of accounts either accounts that appeared to be operated for general expenses and were either marked as such or not marked in any particular way at all

And there are other accounts that we took over that are marked for the benefit of, not necessarily stating who they were held for the benefit of, but the assumption is that they may be held in trust for the benefit of customers. And until we can establish, A, that those cash assets, for example, sit within the perimeter of the estate, and it appears that they do, they're in accounts in the name of the entity. and until we can establish on what basis they're held, whether they're held as a general asset of the estate or on trust for the beneficiaries, which appear may be the customers or customers, then we can't proceed. Now, shifting to the other side of the ledger, could you give the court an example of an issue with respect to the liabilities of the XTX digital markets estate from which you would like to see? or need to seek guidance from the Bahamian Court. Yes, I suppose the principal challenge that we're facing

or the collective estates are facing is that it's unclear from the evidence we have available to us to what extent customer relationships transferred or migrated to FTCDigital. from FTX trading. We see evidence that strongly suggests to us that that is likely to have happened, but again, in order to proceed, we need guidance from our court and to get some input to them.

Now, in the 33 years that you have worked with a restructuring professional and then a hundred cases in which you've been involved as a liquidator, have you ever before sought permission from a foreign court in order to go to the appointing court to seek direction? I have not needed to. I don't recall a time and I've had to do that.

So did you explain why you're doing that here? We, the JPLs prepared this application for the reasons I've explained. And... You've finally broken loose from work. Three friends, one tea time, and then the text. 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. Shared that.

Firstly, an adversary proceeding was filed in this court. Secondly, we'll put on notice that the debtors believe that we would be willfully breaching the stake if we proceeded with that application. So certainly speaking for myself, but I think I speak for all three JPLs, I was motivated not to full foul of such a breach. Now, could you explain to Judge Dorsey,

what if any consequences would follow for the JPLs and for the provisional liquidation in the Bahamas if the JPLs are not able to file the application for which you're seeking permission? From a very practical perspective, we can't do our jobs and to describe them another way, we can't fulfill our duties. We're unable to do the two basic things I described at the outset,

which is having clarity around the assets within the estate, I'm who they might belong to. Now, I just want to make sure I understand a little more about the duties that you have as a provisional liquidary as you understand them. Let's say you woke up this morning and decided you wanted to make your life a lot easier and save us all a lot of time. Do you as a JPL have the power or the authority to just give up and close the provisional liquidation? No. No, I do. Do you as a JPL have the authority to just give up on the effort to identify customers and agree that to the extent any customers migrated to FTX digital markets, you would send it back to FTX trading or some other entity?

No such discretion without the permission of the court or the agreement of the court, of the Barmer's Court to do so. And, you know, we're here in Delaware. It's a lovely city. Judge Dorsey is an excellent judge. Do you have the authority as a JPL to just agree that you are going to take your directions from a US court rather than the Bahamian court on any of these issues? I do not, no. The duties we have are set out in statute and supplemented in the order appointing us and there is no such discretion or power. And under the Bahamian law, you are required to take direction from which court?

The Supreme Court of the Bahamas. Thank you. Your Honor, at this point, we would rest on his declaration for the rest of his direct testimony, and I have known for the questions. Thank you. Thank you, Your Honor. Good morning. Good morning, Mr. Greaves. Good morning.

For the record, Brian Gluckstein of Sullivan and Conwell on behalf of the F.TX, Chapter 11 Denners before this Court. Mr. Greaves, you are not a lawyer, correct? I'm not a lawyer. That is correct, yes. And you're not offering any legal opinion. in any part of your testimony, either in your declaration or in your testimony this morning. I, myself, I'm not. No.

Mr. Greaves, you, Mr. Sims, and Mr. Cambridge are charged to act jointly as provisional liquidators with respect to FTX digital markets, correct? Yes, that's correct. In terms of day-to-day work, you personally are more involved in the financial analysis and digital asset issues, issues or aspects of the assignment, correct? That is correct. Not to the exclusion of any other area, but I would say that they're the areas that I spent more time in than others. And Mr. Reeves, with respect to, as you sit here today, the current unrestricted cash position

of FTX digital markets is approximately $1,000 or so, is that correct? That's correct. And the other cash that's currently controlled by the JPLs is the import benefit of accounts. Is that correct? Yes, that's right, or accounts where we can see that the activity that went on in the account looks like it may have been for the benefit of customers. And FDX digital markets has unpaid approved expenses that have been incurred in connection with the work that you and their team are doing that exceeds the $1 million that you have on hand,

correct? That is correct, yes. And in fact, you estimate that amount somewhere in the currently in the $5 to $10 million range of unpaid expenses, correct? Yes, that is correct. And Mr. Greaves, the only cryptocurrency that the JPL is currently controlled is an estimated $200,000 or so of the liquid coins that are in a single wallet, correct? That's correct, yes. And the only basis to believe that those cryptocurrency assets actually belong to FTX digital markets is that an employee, gave you the keys to those assets and stated as much, correct?

That is correct, yes. And you have not been able to independently verify that those assets belong to FDX digital market. Otherwise, the JPLs control minimal other liquid assets today, correct? That's right. Other assets within our estate are no longer or not currently within our control. Mr. Greaves, you testified this morning that the JPLs would, the consequences of the bankruptcy stay remaining in place would be that the JBLs, including yourself, would not be able to do your jobs, as you put it, correct? Yes, that's correct.

With respect to, you also testified this morning that you don't have the power to take, in your view, take directions from this court with respect to questions of assets of the FTX. group of states, correct? Yes, that's correct. Would you agree with me, sir, that this court is capable of considering and answering the same questions with respect to ownership of assets and liabilities that are raised in your proposed application? I have no doubt of the ability or capability of the court to do that.

My point is just that I'm not allowed to seek that guidance. But if the court, if the court, if the court, if the court, if the court, if the court, you know, the court, If this court were to deny the motion today and the automatic state stays in place, and this court were to provide answers to the questions, you would in fact have answers to the questions as to who owns which assets and liabilities, right? I'd still be obliged to go to the Bahamas court to seek directions and get guidance on the position, whatever this court found. And you would be able to do that at a later date, armed with

the findings of this court as to those assets, same assets and liabilities, which of those of which have been determined to be assets of the chapter 11 times, correct? I disagree with that. We're already hamstrung in this case for various reasons. 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. I've been able to achieve as much in the first seven months as I certainly would have expected or what I think is commensurate with our duties. So to exceed to further delay whilst another court comes to a decision, when I do not have the power to make that decision, I don't think is a tenable position for the JPLs. The question was a little bit different, Mr. Greaves,

notwithstanding your stated need to move forward now, if this court were to make determinations with respect to property of the state, as between the Chapter 11 debtors, and FTF Digital Markets, you would then be able to go with permission of this court to the Bahamas court and seek directions at that point, couldn't you? In theory I could, but I don't believe that that is in keeping with the GTs that I've been charged with. Have you made any request to the court in the Bahamas to permit this court to decide the issues that are presented in the Chapter 11 debtors' adornment? I have not for fear of the consequences that I mentioned earlier because we were put on notice by the debtors. And I think you testified in your statements this morning, Mr. Grease, but you are familiar with the adversary proceeding complaint that was filed by the Chapter 11 debtors before this court, right?

I've read it, yes. And in fact, the FTX debtors have asked this court to address the issues that JPL's raised in the adversary proceeding complaint with respect. to assets and liabilities of both the states, correct? Yeah, I understand that the adversary proceeding will need to be heard in due course if it's not dealt with otherwise, and I believe from reading it that it deals with similar or issues that cross over. My point is a different one, but that's a separate proceeding here, and I still have to deal with my own court in the Bahamas and report to it

and seek directions from the Bahamas Court. And as your understanding, Mr. Greaves, that irrespective of what happens with respect to the motion pending today, the FTCS debtor's adversary proceeding will proceed before this court, correct? I assume that it will, yes. And you have no objection to that adversary proceeding, any issues contained there and proceeding before this court, correct? I'm not asking whether I'm not asking for the process itself we call the motion to dismiss

I don't know we do have a motion to expect I'm not asking him to opine on the legal issues Your Honor I'm simply asking whether from a process standpoint whether Mr. Greaves as a JPL has any objection to proceedings continuing before your honor

you can answer in best you can Thank you. From a non-legal perspective, Mr. Glexteim, just going back to how you originally phrased the question, I don't agree with what's asserted in the, personally, in my capacity as a JPL, do not agree with what is asserted in the adversary proceeding, but my non-lawily understanding of that proceeding is that it will be dealt with in this court unless it is dealt with in some other way, unless it is either dismissed or there's some other way of it being dealt with. I understand that to be the case. One of the other things you testified about this morning,

Mr. Greaves, and in your declaration concerns what you refer to as the liability side and contacting customers. Do you call that? Yes. The JPLs have actually said two notices to approximately 2.3 million FtX.com customers requesting those customers provide contact details to use your website, correct? Yes, the intention of sending that note was to reach out to FTX digital customers for the purpose of letting them know that the provisional liquidation is in train and requesting them to submit contact details. It's true and I disagree is correct that the JPLs use contact information for the 2.3 million customers obtained from a file that was pulled from an employee

commuter computer in the JPL's possession that is correct yes the JPLs did not do anything to vet that list as to whether those names on it were customers at FTX digital markets before reaching out to those 2.3 million people in January of 2023 correct the vetting that we carried out was to look at the file. It was marked as a list of customers. It was on the machine of an FDX digital employee. And in discussions with employees, remaining employees, it seemed to us that it was the best record that we have or had, but I believe it's still the best record that we have of potential creditors of FTX Digital. And the duty that we have is to reach out to

potential creditors and in all circumstances being starved of other data which I firmly believe belongs to the estate of FDX Digital we did indeed take the decision to proceed to reach out per our GTs to contact potential creditors but in fact Mr. Reeves you don't have information to know one way or the other whether any employee from whose that file was extracted was an employee solely of FDX digital markets or is an employee of FTCS digital markets and other entities in the FTX group, correct? I have some idea. There are certain employees I'm aware of who were double or triple hatted. They had roles with one or more entity. There were other employees who, from the payroll

records, I can see, were only ever employed by FTX digital. And I suppose the largest category of the latter would be those hired into the group for the first time after the creation of digital, of FTX Digital, in the Bahamas. I personally think it would be very unlikely that they would have been previously employed by other FTX group companies and highly unlikely that they were also employees of other group companies. Did you, from whose computer was this list of game? I don't recall sitting here which, which of the employees it was on. Do you know whether you did an analysis to determine definitively

whether the employee's machine from whose that file was extracted was an employee of FTXB to the market? Yes, I think the way we looked at, from memory the way we looked at the machines in our possession. And just by way of background, there are a number of laptops and desktops in the office site when we took over. We were careful to divide them up in between employees of FTCS Digital and, as far as we were aware, non-employees. And there were indeed computers for employees of other group companies in, to use the terminology of these proceedings, in different silos, not actually in the FTX.com silo. As you sit here today, Mr. Greaves, you do not know whether anyone of the 2.3 million people

on the list to whom you sent creditors is in fact a creditor, that you sent notices, is in fact a creditor of FDX digital markets, correct? And that's precisely one of the questions. I want to ask the Bahamas court. I need help to understand that. I have reason to believe that they are likely to be FTX digital creditors, but I need help in deciding that. Okay, but before getting that answer, you have put two mailings out to 2.3 million people suggesting that they might be creditors of FTX digital markets, correct?

That's right, in accordance with my duties. And to date there have been approximately 46,000 individuals who have registered on your website, is that correct? That might be slightly out of date, but yes, I think 40, 45, 50,000 so far. I testified this morning and in your declaration that, in your view, it is likely, I believe is the term you lose this morning, that there were cash digital assets, essentially other assets in the estate of FTX digital markets, correct? That's correct. You also testified that you believe that customers have moved or migrated prior to filing for liquidation

from FTX trading to FTX digital markets, correct? That's right. And you've reached that conclusion based on five-page document, called a migration plan that was attached to your declaration interviews with a handful of employees and publicly available announcements, correct?

There's certainly three of the pieces of evidence or factors that helped me form the view that you set up a little while ago. Okay, so other than those three pieces have, what other pieces of evidence have you identified and reviewed? that allow you to testify that it is likely that customers move to digital?

I, this may not be exhaustive, but let me try and try to keep it brief. If I perhaps use as a crutch, the chronology, F-TIC Digital was set up in July of 2021. It began to both hire new employees and tech transfers of, existing group employees onto its payroll based in the Bahamas. In September 2021 it was licensed by the Securities Commission of the Bahamas and I understand the purpose of the license was allowed to allow it to provide services and operate the international exchange. I understand that the migration plan was part of

that application looking at the date of it. I'll come back to the migration plan in in a moment. By November 2021, bank accounts were opened in the name of FTX Digital. That continued through till, I think, January. There are a number of accounts, both in the US and overseas, in a number of denominations. And the piece of hard evidence that we do have, we're denuded of full details of the platform, but we do have, we put together the pieces of the puzzle to look at bank for the accounts that I've just spoken to. And they indicate payment flows from customers, many, many, many transactions,

perhaps millions of transactions in the period from January, certainly the intense period January, 22 through to November when FTX Digital failed. And in aggregate, those customer flows, receipts and payments look to be in the order of 13 billion of 13 billion US dollars. So bank statement evidence I would include as well. Mr Glutstein referred to conversations with employees. Again many of the employees had left by the time we were appointed but some fairly key ones remained. The then co-CEO CEO and COO was

still available to us, I'm not referring to Mr. Banking Fried, and she was able to give a view on migration, migration of customers between FTC trading and FTX digital. And also to point out that a KYC exercise, know your customer exercise, was carried out per the migration plan. as Mr Gluckstein says, the migration plan is a fairly short document, five pages, but it refers to a gap analysis of the KIC requirements needed to comply with the license granted in the Bahamas. And I understand that there was a lot of activity during 2022 to contact customers, let them know of the intention to migrate their contracts from trading to digital and for the purposes of that to seek additional evidence from a KYC perspective. The reason for that

is that the prior requirements were less onerous. So before the Bahamian licence, FTC, was required to have evidence on file for institutional customers of the details of ultimate beneficial ownership for 25% and above. The requirement for the Bahamas licence was 10% and above. So there was a telephone campaign, I believe with messages as well, but we don't have access to those, to reach out to customers, to achieve that and put the, the, the, the, the, the, the supplemental KYC information on file. I fear that I've perhaps not exhausted the signposts

that lead me to believe that there's a question to be answered on migration. But I will stop, I'm just mentioning one more, which is I'm not a lawyer, but the terms of service dated 13 May 2022 also make it very clear to a layman's reading and understanding, that the majority of the services were to be provided by FTC's digital from that date. And it's our understanding, not least from evidence provided by the debtors, that those terms of service were posted on the website and would have been publicly available

to customers and the world at large. And indeed, when customers, after the new terms of service, the new terms of service wired funds to the platform, the international platform. It's my understanding that they saw a pop-up on their screen that let them know that they were no longer sending money to an Alameda affiliate that would actually be sending funds to an account in the name of FDX Digital. And to my mind, all of those things lead me to think I need to go and get some help from the court, perhaps other experts to determine what that all means. Mr. Greaves, you, everything you just walked through, you don't have documentation showing a customer ever saw pop up when you depository money, correct?

I have some evidence of that, but the place where I want to look for it, the debtors have denied us access. You have not, you are not aware as contemplated by the migration plan of FTX digital markets reporting to the Securities Commission of the Bahamas any number of customers that have been migrated from FTX trading to FTCS official, correct? I do not have confirmation of that. As you sit here today, you do not know whether any customer actually migrated from FTX trading to FDX digital markets, correct? As I sit here today, my strong personal and professional view is that there's a body of evidence that suggests they did. I'd like if it's possible to see more evidence, and if that isn't possible to seek directions from the Bahamas Court on where the migration happened.

And if this Court answers the questions posed in the adversary proceeding with respect to which customers, if any, are customers of FTX of the ex-debtors or FTCS debtors, or FTX did their markets, you will have that answer, correct? I'm not asking this court to do anything or not do anything, and I'm not trying to prevent the debtors from making any application in this court. We're represented here, we're in the Chapter 15 proceedings. All I'm saying is, unless the Bahamas Court instructs me otherwise, otherwise I do not have discretion to not go to the Bahamas court.

If this court misogrees leaves the automatic stay in place, you will have fulfilled your duties because you asked to go to the Bahamas court, right? I believe my duty is to go to the Bahamas court. And as I say, whilst we're supervised and undercourt guidance, in my experience, courts, including the Bahamas courts, will explain. affect office holders to use their tenacity and their professional experience to get as far as they can. I think that's the situation we're in, and I personally would like comfort from the court that appointed me, that I'm not falling foul of any of my duties.

If this court were to rule that it was going to determine the issue set forth in the adversary proceeding prior to, to any modification of this day, you will have done your job in discharge of your dues, correct? That may be very helpful if that happened, but I'd still have to go to the Bahamas Court. I'm personally just failing to see how I can not seek directions from the Bahamas Court, and that's the question I'm trying to ask. Thank you. No further questions, Your Honor. Any other cross? Yes, Your Honor.

and Pasqualee from Paul Hastings for the official creditors committee. Good morning, Mr. Gris. Good morning, Mr. Pasquale. Ms. DeGreis, you've said a number of different times in your testimony so far that you are, the application is to seek direction from the Bahamas court, correct? Correct. And that there are certain questions you want to raise with the Bahamas court, correct? Yes, that's right.

But isn't it correct that what you really want to do in the Bahamas court is to commence litigation to answer those questions? Isn't that right? I wouldn't agree with that characterization. No. That could potentially be a consequence of the application, but I don't know. And certainly of the, perhaps even those in the building, I'm the least qualified from a legal perspective to form a view on that. Doesn't the application itself raise? If you would, you have it as part of your declaration. Make sure I reference to right exhibit. Exhibit A1 to your declaration. There is a section of the proposed application that speaks to appointment of representative creditors.

Are you aware of that? Oh, I assume you had one. Okay, yeah, let's do that. Thank you. I believe I recall it, but I'm sorry, Mr. Greta. No, no, no. I think it would be prudent for me to re-familiarize myself. Apology, German.

Happy to look at your copy if it helps. Mine is marked up. Sir, is this also exhibit 8 in the joint exhibit? I don't think it is, Your Honor. I think that's just the summons. It is your honor. It looks like it's joint exhibit 8. Okay, thank you.

Thank you, Your Honor. I just get it. Mr. Grease, I'm looking at your declaration just to be consistent. It's exhibit A1. Is that the application that you proposed to submit to the Bahamian Court? Um, Mr. Pasquale, I apologize. I in the bundle I've got the yes I apologize it is I have it a one is the application you do have apologies and let me ask you to page 27 of that application okay so it's not

joint exhibit eight because there's no it is not your own joint to the age just has a summons so I believe that was my confusion your honor is am I referring to page 27 of this the the the affidavit supporting the summons? Correct. Thank you. I'm almost there. So, Your Honor, to be clear, I don't know if you have it in front of you.

There's Exhibit A2 is the fifth affidavit in support of application. Exhibit A2 to Mr. Green's declaration. Your Honor, not to complicate matters further here, if I may, though. That document is attached to Mr. Greene's declaration, but that opposed affidavit is not in evidence of this hearing so which because it's it's not a better energy value and there's no dispute about that so I think that is why you only have the summons which states full states the the claims to be brought that was moved into evidence this morning as part of the joint exhibit list but that affidavit is not in evidence of his hearing

I assume it's being used for impeachment purpose it is your honor okay I'm trying to ask a couple of questions. I am not seeking to put the document into evidence. Thank you, Mr. Gluckson. Thank you, Your Honor. So I think we're together, Mr. Grease. You're on page 27, Section 16. I am.

It says appointment of representative creditors. Yes. Does that section propose various litigation to answer certain of the questions that you propose to raise with the Bahamian Court? I'll just read it again as you remind myself. Mr. Pasquale. I've read down to the end of 1114.

My understanding of this section is that it's describing potential steps once the application is made to the Bahamas Court. And as has been established, I shouldn't talk to how particularly proceedings run in the Bahamas Corp. It's not my area of specialism, but I understand that it's likely that such matters would be – the Bahamas Court would be assisted in its understanding of these matters and in giving directions by seeking to hear the position of creditors or customers. That's my understanding of this section.

And those creditors have not yet appeared in the Behavian case? Not in the sense that I understand it. I don't believe that creditors, I can't be certain, but my recollection is that creditors have not appeared in the Palmer's case. And you understand, do you understand, Mr. Greer, is that my client, the official committee of unsecured creditors in these debtors Chapter 11 cases, represent the interests of among others all of the customers of the international exchange? I do understand that to be the position of the UCC.

Thank you. No further questions. Thank you. Good morning, Mr. Greaves. I'm Jeff Sabin from the Venable LLP who represents a group of ad hoc international customers who filed a statement in partial support of your motion, and I'll be very brief because I have three questions. First, do you believe it is within your duties to negotiate a protocol for other arrangements for the Bahamas Court and or this court to decide the non-U.S. law customer issues as you define them in your draft application? My understanding or belief is that that would be a matter for the courts, the court or courts. I could certainly imagine. that that would require input from the JPLs.

If this court were to decide to order or to suggest a procedure for a joint hearing of this court and the Bahamas court to adjudicate those non-US customer issues, would you be in favor? I would be guided by the court that appointed me. But if I take the spirit of the question, take the spirit of the question, I'm interested in finding the answers. So I would like to make the application to the Bahamas Court. And I don't think I then get to influence how the two courts

decide to work together. Finally, would, if that were to happen, in suggestion of a joint here, would that meet your duties, as you understand that? If the Bahamas Court were able to to confirm that that met our duties or satisfied the threshold for us to carry out our duties then we could live with that thank you sir anyone else with the cross before I go back or redirect okay read your right thank you honor just just briefly mr. Greaves mr. Gluckstein asked you some questions concerning a communication that the JPL sent to the 2.3 million customers identified on the customer list. Could you tell us what was the purpose of that

communication? Yes, simply to do our best with the tools we had available to satisfy the duty of identifying and contacting our creditors. It was the only list we had available at the time, as was mentioned, that the two letters that have gone. far, explain the nature of our appointment, explained what we were not appointed over, are you making it very clear of the existence of the 134 debtor proceedings before this court, and inviting those who may believe that they're creditors of FDX Digital, and I've had people reaching out to meet, you know, customers reaching out, asserting that they are, So the purpose was to invite them to log their basic contact details on our case website.

I believe at the moment it's name address and email. And that was the purpose of the contact. Are communications such as this unusual steps for you to take in your role as a liquidator? No. It's primary duty 101. If I was looking after an entity with four or five creditors, I might not put up a website. In this case, the evidence suggests that the number is far, far greater than that. So reaching out electronically and having a basic claims website with information and frequently asked questions would be very normal.

Have the JPLs ever represented to anyone that they have. any authority to act on behalf of the US Chapter 11 debt? I certainly have not and I'm not aware that any of the JPS have. And in the communications that you sent to customers, have you taken any steps to explain that you do not have authority to act and are not acting on behalf of any of the US Chapter 11? Yes, we have. I believe that we've made that as clear as possible and where counterparties creditors or even debtors have reached out to us. I mean debtors with a small D and it's clear or reasonably clear to me that they should be reaching out for the debtors. I've passed on the contact details and explained why I can't deal with their with their query.

Now shifting topics, Mr. Glaxstein asked you about the unrestricted cash position of the JPS. Do you remember that? I remember, yes. Okay, and I think you told him that with regard to cash that wasn't held for the benefit of customers or arguably held for the benefit of customers, your current balance was less than $1 million? Yes, I don't know the exact number,

but I think that would be, you know, a few hundred thousand dollars left. Will it be possible for the JPLs to take any steps to fund their efforts on behalf of the administration, the provisional liquidation, given that cash situation? Only with permission of the Bahamas court. And what would you need permission for the Bahamas court to do in order to accomplish that? I can think of two scenarios.

The order appointing us and the statutory duties and powers laid out in the Act in the Bahamas, basically divides up powers that the JPLs have between those that they can carry out themselves and those for which they need leave or sanction or approval of the court. And in that latter bucket, I can think of within the power of the JPLs to make such an application would be to seek permission to borrow funds. That would be permissible with sanction of the Bahamas court. And it would also, excuse me, it would also be possible to my mind to make an application to the Bahamas Court for a determination on whether the funds fought possibly or likely to be held

in trust for customers were indeed trust funds or otherwise were generally available to carry out the estate. And I would say that second one is a core plank of the application that we're actually making. And if you were prevented from the automatic stay from making that application, what, if any consequences would there be for the joint provisional liquidation? I'm not going to stop trying to do my job and fielding queries, which we still receive hundreds each month. But in terms of substantively moving this forward, we would not be able to carry out our duties and not be able to, never mind complete the provision of liquidation, we wouldn't mean be able to do our basic roles.

So if you were to follow the course that Mr. Gluckstein suggested and not make any applications to the Bahamian court while you litigate with the debtors for however long, what would be the impact on the JPL's cash position as that occurred? Well, we've already committed expenditure beyond the funds that we have, so we'd be in an impossible situation. Thank you. No other questions. Thank you. Thank you, Mr. Cruz. You may step down.

Your Honor. Our next witness is our foreign law expert, Mehta McMillan Hughes, KC. She submitted the declaration at docket number 1193. understanding from the debtors is they do not intend to cross her. Therefore, we were not going to do a direct and would stand on the declaration. She is in court and available to answer any questions that the court or any other party may have. But unless you have any questions, I would just offer her declaration this time. Any objection?

No objection. No objection, no. Decorations admitted without objection. I don't have any questions. Does anyone else wish to ask for witness any questions? Thank you, Arndt. So that completes the evidentiary portion of the JPL's case, and so at this time, we would rest thank you morning again your honor Brian Glockstein and Solomon for the

debtors as mr. Zagia preview this morning the debtors have one witness this morning and we'd like to call mr. Edward Mosley because that moseley please come forward take the stand or remain standing please raise your right hand please state your full name and spell your last name for the court record please Edgar William Mosley the second M-OS L-E Do you affirm that you tell the truth, the whole truth, nothing but the truth to best your knowledge and abilities? I do. You may be seated. Your Honor?

Your Honor, may I, first the witness who hand him a copy of his declaration. Yes. Does Your Honor need to copy? No. Is it? Were these included in the joint exhibit? They were numbered as number of honor. It's numbered as joint exhibit number 39.

Okay. I have them. Thank you. Good morning, Mr. Mosley. Good morning. Is the declaration that's a secretary. front of you marked as a joint exhibit number 39 the declaration we submitted to this court in connection with your testimony this morning yes it is your honor mr.

Mosley's declaration was filed at docket 1411 and we would ask that it be moved into evidence objection no objection submit it without objection mr. Mosley can you give the court a brief background of your experience as a restructuring profession? Sure. I have over 20 years of experience doing restructuring's corporate side, mostly on the company side. Most of the time they're in Chapter 11 proceedings of some sort, but I do do some out of court.

I've worked at Alvarez and Marcell, since 2008 and in general do some of our larger, more complex cases. Can you please describe for the court your current responsibilities at Alvarez and Marcel with respect to the Chapter 11 debtors? Sure. I oversee a team of professionals who I organize into various work streams. Those work streams are wide. We do cash.

So part of the job there is to not only secure, but also to project cash balances for the various debtors. In addition, we have a crypto team who are charged with identifying and securing the crypto and digital assets of the estate. That's more complicated than it seems because as part of the debtors' operations pre-petition, there were balances held at third-party exchanges, so we're in the midst of trying to get all those digital assets back. In addition, there's a claims process that I oversee,

where we are setting up a claims portal. and working with the claims agent to on a process of how we will take and and use the information as part of the bar date for the claims of the various entities another big work stream for us right now is that the plan formation structure and the financial analysis around various plan structures there are there are have a multitude of of work streams but those are the big ones that I think are relevant to the question and are you the lead professional at Avarez and Marcel on all of those work streams for the chapter 11 donors correct I've led the entire team mr.

Mosley if you could just briefly look at your declarations in front of you at paragraph 20 I'm there you have a statement there with respect to that states quote the debtors are not aware of any customers of FTXDM or not also creditors of FTX trading or other debtors. I do. And then that's your testimony as said forth in your declaration of Havre 20, correct? Correct. Okay. Mr. Mosley, could you please explain for the court in a bit more detail on what you are saying

in that statement and tending in that statement? No problem. In the case of the international or dot com exchange, that set of customer claims is the one in question. And the JPL have said that some portion of that exchange is their customer, with the remainder being with the debtors at FTX trading. In fulfilling our duties when we think about if one or more customers of the dot-com exchange were indeed digital markets customers,

I don't think that the US debtors would be able to say that a migration of that customer did not allow that customer to make a claim with trading. I say that because, you know, first and foremost, the terms of service, the counterparty is FTX trading, which is a debtor. And further, I do believe that all of the customers have or will have the ability to make, to make a fraud claim against the debtors. And that claim would go against FTCS trading. I don't think that somehow migrating a customer to digital markets

would absolve the debtors of that claim. So thus, in my opinion, any claims brought by customers against digital markets, those same customers would have a claim against our debtors? Mr. Moseley, you could, terms paragraph 21 of your debtors. declaration? I'm there. You discussed in paragraph 21 of your declaration prejudice to the debtors if the proceedings in the Bahamas court were to proceed. Is that right? Yes. What types of prejudices do you believe the debtors will suffer if the stay is lifted and the application is

filed in the Bahamas court? I think of the types of prejudices in sort of three buckets there's the additional costs that would be incurred by the estate for having a duplicative litigation on the same topics I think of the confusion to our claims process and and our overall plan process that would be that that would occur and the final would be a potential delay in our case. I think there's potential to have, you know, our process delayed in some way. In respect to the cost aspect of the prejudice to the debtors, can you elaborate some for the court on what you mean in the types of increased costs, you know, if not the thing?

So the process of having a litigation in the Bahamas on the same sort of issues that are in the adversarial proceedings would require or could require the debtors to get additional legal counsel down in the Bahamas and for whatever sort of local law and rules that are there. All of the professionals that are currently in our case would need to come up to speed on how to what their duties are and how they would conduct themselves in the in

those Bahamian proceedings so all of that additional work would need to happen there would be duplicative cases there be more hearings that folks would have to travel for and just in general there would be additional expert testimony required I don't know if the requirements there are different, but I'm told that there are additional expert witnesses needed. And that isn't just for the debtors. All of the stakeholders would need to be present. UCC, ad hoc committee, any other stakeholders could be required to go down there and make sure that they're properly heard in that case. You mentioned a creditor confusion as prejudice. Can you explain to the court a little bit more about what you have in mind in your opinion with credit confusion?

Sure. Some portion of the creditors that are involved in our case will be confused as to which case they need to appear, place a claim in, participate in. Some may decide to appear to appear in both. Some may choose one or the other and may be incorrect in which one they need to be involved in. Having two claims portals up at the same time for the same population. of creditors, the ones in question being anyone in the dot-com exchange of FTCX.com is clearly

confusing for someone who is not doing this for a living. There will be a set of customers who have no problem with that, but I'm sure there's a set of customers who will be confused in some way. With respect to, I think the third thing you mentioned Mr. Mosley was potential delay what is in your opinion the potential delay caused by duplicative proceeding in bombs it's a potential I'm not saying that it's you know required delay but there could be a delay in our plan process if we need to wait until the Bahamian court hears the litigation on that issue and then you'd have to put it in front of your honor as well And every delay, though, in this case, is expensive.

There's a lot of professionals involved, and the longer the process takes, the more costs. And so the debtors are very focused on trying to shorten the amount of time. Any potential delay is one that we take seriously. Mr. Mosley, looking again at paragraph 21 of your declaration, there are some bullet points there, including the first bullet point that has a description of attempts to cloud title with respect to assets. Can you give the court an example of what you're referring to in that first bullet point in paragraph 21 of your declaration? Certainly. This 7.7 billion that's been referenced by the JPL in a few places, most notably,

in its interim report. In my opinion is misleading. I'm not saying that the number is incorrect. I'm saying it is choosing to only show one side of the ledger. In this case, these are amounts transferred from digital markets to a debtor. It ignores the fact that there are corresponding amounts from debtors to digital markets. It's just taking a gross number and not giving the reader the benefit of the net amount.

In fact, it's my opinion that if you totaled up the customers' amounts that were transferred out, the amounts to FTCS trading and the amounts to Alameda and you compared that to the amounts coming in to digital markets. There was a net inflow into digital markets. But at the very least, the amounts

sent out, the 7.7 billion are dwarfed by the amounts required for the customer withdrawals that the JPL purported. are, you know, their customers. So amounts sent out to Alameda or trading that were then sent on to customers,

I don't view that as amounts due to digital markets. And in the interim report where this number sits, it sits in the receivable section. You know, it intimates that digital markets digital markets is owed $7.7 billion from the debtors. And I feel that's misleading. And they've used that number in lots of places. Once again, I don't think that it's incorrect.

I see those transfers. I think it's incomplete and purposely incomplete. So that's what I'm talking about when I say clouding title to the assets. They're saying that somehow digital markets is entitled to the assets of the debtors. Thank you, Mr. Mosley. No further questions. Thank you. Anyone else want to question and support? No, you're on the thank you.

Cross. Mr. Mosley, good morning. Good morning. My name's Jason Zakem, one of lawyers from JPLs. I'm going to ask you a couple questions if that's okay. Yes, sir. So first of all, I'd like to talk to you about the terms of service that you have heard to on your direct examination.

There were various different terms of service posted to the FTX.com website at various times. Is that correct? Yes, sir. So the first ones that we are aware of what I believe you referred to as the 2019 terms of service. Yes, sir. And when were those posted to the FTX.com website? In 2019. And by whom were those terms of service posted to the FTX.com If you're saying who the counterparty is, who posted it, I mean it's FTX trading, that's the counterparty. If you're asking whether or not it's, you know, who's the actual person who mechanically put it onto the website, I don't know who it was.

Okay, so if I understand correctly, someone acting on behalf of FTX, but the records of the company don't indicate which individual posted the 2019 terms of service. to the 2019 website, or it's right, to the FTX.com website of 2019, right? Correct. There's just a record of it being put onto the website. And at the time that that happened, the CEO of FTX was San Bacon felt free? Correct.

Okay. And other than the posting to the website, the records of the company don't indicate any separate step or separate notice was given to customers of the 2019 terms of service, correct? Correct. Now, at some point, the 2019 terms of service were replaced by later terms of service conveniently referred to as the 2020 terms of service.

Is that correct? Correct. Okay, and those were posted to the FtX.com website in 2020. Correct. And the records of the company are not sufficient for you to be able to know which individual posted the 2020 terms of service the FtX.com website, right? Correct. At the time that that happened in 2020, the CEO of FTX was Sam Bankman-free, right?

Correct. Now, it's your understanding that when the 2020 terms of service, were posted to the 2000, sorry, to the FTX.com website, those terms of service replaced the 2019 terms of service. Yes. And so the relationship between FTX and its customers was governed by the 2019 terms of service from the time that was posted until the 2020 terms of service were posted, right? I'm not a lawyer, but yes, from a business person's perspective, yes.

Okay. And you talk about this in your declaration, right? Yes, sir. And in fact, in paragraph 10 of your declaration, you say the relationship between the customers and FDX.com trading platform, we're governed by the 2019 and 2020 terms of service, right? Correct. I think paragraph 10 speaks for so. Okay.

And you've described for us the process by which those two terms of service were posted to the website and disclosed to customers. Right? Yes. Now, I'd like to ask about the 2022 terms of service. Do you, the 2022 terms of service are Joint Exhibit 11. you don't have a copy of that would you do sir no I do not but I'm familiar with the 22 terms of service okay may I purchase the witness round sir I've handed you what's been marked and admitted as joint exhibit of 11 is that the 2020 terms of

service it appears to be yes and these terms of service are dated May 13th 2022 at the top of page one they are And is that, to the date, on or about, which these terms of service were posted to the FTX.com website? Honor about, yes. And am I correct, but just like with the 2019 and 2020 terms of service, the records of the company are not sufficient for you to be able to determine which individual posted those terms of service to the website?

Correct. Now, in paris, and you address this in paragraph 13 of your declaration, right? Yes, I'm referring to Exhibit H, but that's the 22 terms of service in my declaration. Correct. Okay, and what you say in paragraph 13 of your declaration is, in May 22, the records indicate that Mr. Bankland Free and or others acting in this direction introduce new terms of service for the FtX.com customers by posting them to the FtX.com website. Do you see that? Yes. Okay. And again, I think you just told me you don't actually know which person FFTX posted these to the website. Yeah, I'm referring to Mr. Bankerfrey because he's

the CEO of FTX. Okay, so the basis for your statement in paragraph 13 of your declaration with regard to the 2022's terms of service were that at the time, Mr. Bancel. Bankman-Free was the CEO of F-TX and so whoever did it must have been working in your view at his direction. I'm saying that I'm using Mr. Bankman-Fried in that sentence because in his capacity as CEO he directed, you know, the operations of FTX. So he, it's his decision to put that on the website. Oh, just as he was the CEO directing the operations of F-TX. with respect to the 2019 and the 2020 terms of services, sorry, at the times that those were posted to the website.

Correct. And in fact, sir, as far as the records of the company indicate, and as far as you are aware, the process, the mechanical process by which the 2019, 2020 and 2020 terms of service were loaded to the website is the same. Mechanically, I think it's the same. And with respect to the notice given to customers or the lack of sense, the lack of service, separate notice given to customers of the posting of the terms of service. That's the same with regard to the 2019, 2020, and 2022 terms of service, right?

No difference. I don't know. I think it's a legal determination what's required for... I wasn't asking you about what was required. I was just asking whatever was given was the same for all three. Yeah, I wasn't finished, sorry. I'm saying I don't know that, I'm not a lawyer, so I don't have the legal determination of what's required.

but I think that mechanically the same notice was given for all three. Now, I'd like to ask you a couple of questions about Joint Exhibit 11, which is the 2002 Terms of Service. I think you told us on your direct testimony that FTX trading was the counterparty with the customers with respect to the terms of services. Did I hear you correctly? Yes, in paragraph 1, FTCS trading is the counterparty to the customer. Okay, and you're referring to paragraph 1 of joint Exhibit 11, which says, the following terms and condition of service, together with any documents expressly incorporated herein, constitute an agreement between you and FTX trading, a company incorporated and registered in Antigua and Barbudo,

or a service provider in respect of a specified service. That's what you're referring to? Yes. Okay. So this is a agreement between customers and either FTX trading or a service provider to the extent there are service providers that will be providing specified services, right? Correct. FDX trading is the only name in that, though.

But I agree. It does say or service provider. Right. And you're not a lawyer and I'm not asking you for any legal opinions as to the legal impact of that, but that's what this provision says. Yes. Okay. And if we look on the next page, Section 1.3 of the 2022 terms of service, which is hopefully bolded with the words important, that provision says you acknowledge and agree that any specified service referred to in a service schedule shall be provided to you.

you by the service provider specified in that service schedule. In such case, the specified service shall be provided to you on and subject to the terms with reference in these general terms to FTX trading being read as a reference to the service provider. Is that correct? That's what it says, yes. Okay. And am I correct, sir, that in the service schedules which are attached to the service schedules

to the 2022 terms of service, which are Joint Exhibit 11, FTX digital markets, is a specified service provider. They're one of the service providers, yes. So for example, if we look at Schedule 2, service schedule, which is the page 32 of 63 on the court file copy, do you have that, sir? Yep.

F.TX Digital Markets Limited is identified as a service provider in Schedule 2? I see that, yes. Okay, and in Schedule 3, which is on the court file page 33 of 63, in that service schedule, FTS Digital Markets is identified as a service provider, right? I see that, yes. And if we look at Schedule 4, which is page 35 of 63, FTS Digital Markets is identified as a service provider. See that? Yes.

And if we look at Schedule 5, which is, well, they're on order, so I'm sure we're final one. FTX Digital Markets Limited is identified as a service provider, right? Yes. And if we look at Schedule 6, FTX Digital Markets is identified as a service provider. Correct. And if we look at Schedule 7, FTX Digital Markets is identified as a service provider. I see that? Yes.

Okay. So at least with respect to... to the 2022 terms of service with respect to the specified services identified by each of the, sorry, with respect to the services addressed by each of the schedules that we just reviewed that provide that FTX digital markets will be the service provider. These terms of service are an agreement between the customer and FTX digital markets, right? I don't, that's a legal determination. I think there's more that goes into it.

I'm not a lawyer, though, so I can't really tell you what the legal determination is. I am happy to agree with you when you point to the document and say that schedule 1 through 6 or 7, say, digital markets. But I don't. I think on our side of the House, when we say whether or not who's the counterparty, we have not. made the legal determination that FTX Digital Markets is the counterparty of a subpoena. Fair enough. And you're not offering any legal opinion, and I didn't mean to ask you for one. Would it be fair to say that from your perspective, that's a legal question that you'd

like to have the answer to? That's a legal question for sure. And it would, the determination of that question affects a lot of parts of the case. So it's a question that some court will want. need to answer yes sir okay and if we look last question about this exhibit it's section 38.11 of joint exhibit 11 which is the section 38.111 of the documents on page 28 28 of 63 I see it okay the governing law of the 2022 terms of service is English law correct that's what it says yes now

In your declaration in section B of your declaration paragraphs 14 to 18, you make, you offer some testimony concerning the efforts by the Securities Commission of the Bahamas to secure digital assets at the time around the bankruptcy filing. Yes, sir. I just want to be clear, sir. other than the fact that one of the JPLs, Mr. Brian Sims, was copied on one email which you referred to as Exhibit, I believe, L, of your declaration, you don't have any personal knowledge about what, if any, involvement the JPLs had or didn't have in anything that the Securities Commission did with regard to the securing of the digital assets, right? there's more than one

set of communications but as attachments to my declaration we only put the one in there so if you're referring to the attachments I agree there's only that one attachment that and that's the one

which Brian Sims was you know ced the communication from official communication from the commission to Mr. Sam back and free okay and you you weren't but you don't have any other than got things that you've seen in documents which the court will consider whatever evidence was admitted but other than that you don't have any personal knowledge of

anything mr. Sims or anybody else did or didn't do with regard to the security of those digital assets right correct I don't have any personal knowledge of I'd like to talk to you a little bit about prejudice which is some of the testimony that you offered on direct examination and response to Mr. Clarkstein's question. One of the things I think you said was the debtors were prejudiced by the decision of the JPLs to establish a claims portal. So what I said in my direct was one of the ways that the debtors could be prejudiced. and then inside here there are examples of actions of the JPL that have already affected the debtors

one of those being the claims portal okay and the claims portal exists today right yes sir okay the filing of the application which is the subject of this motion isn't going to create or destroy the claims portal right I don't know what their plans are for the okay but it exists independent of the application which the JPL are seeking from the automatic statement perspective yeah i don't know what they're going to do based on the decision in front of the court today okay and um with respect to well is it your understanding that part of the the issues issue of this hearing is we're asking judge dorsey to order the debtors to sorry order the jpils take down the playing portal no in front of today is just the lift of stay

motion i don't know okay i'm gonna um i'm gonna direct your attention to joint exhibit 54 and I'll hand you a copy yeah joint exhibit 54 is the communication which the JPL sent to customers which you referred to on your direct examination is that correct yeah give me one second I'm looking for which exhibit it is the exhibit number is on the bottom right hand court that's the joint exhibit number I'm looking for the exhibit to my oh okay okay okay yes if we turn please sir to the second page of joint exhibit 54 interaction with the chapter 11 proceedings as communication states the provisional liquidation process for

ftx digital is running independently of but in parallel with the ongoing Chapter 11 proceedings in the U.S. customers of FtX.com who have submitted claims against the entities covered by the U.S. Chapter 11 proceedings are not prevented from registering their details via FTX digital claims portal and vice versa. Do you see that? I see that. Now, one of the other areas of prejudice that I believe you identified during your direct examination was cost. Yes.

You haven't completed, you haven't quantified any estimate of cost of what it would cost the Chapter 11 debtors to litigate the applications in the Bahamas heavy. I'm referring to

that there are clearly a set of additional costs that all of the stakeholders inside of our Chapter 11 would occur to have duplicative process in the Bahamas. I don't usually put together professional fee forecasts for other professionals, but I put together many budgets on professional fees in various cases.

So I have an understanding of sort of quantum of those and what we would, what would the other impacted professionals that would have to go down there. So no, I haven't prepared a specific schedule, but I've got to, I have enough knowledge of how professional fee forecasts work to say it's a number. Okay, but my question is, have you done anything to quantify what that number is? Other than think through what the mechanics would be, no. I haven't put down on paper a forecast. Okay.

And if you haven't quantified what that number, that number is, I assume you haven't compared whatever that number is to the total amount of administrative expenses that have been incurred by state professionals in the course of this Chapter 11 case. The purpose of me saying that it's prejudice is that it would be additional costs from my process for a duplicative set of matters that would need to be decisive. by judge so this would be on top of whatever I have in my forecast so that's why I've said it's additional cost I don't compare it to what the administrative

burn for the whole case is I compare it to what would it be versus my base case which is the chapter 11 and so it's clearly on top of because it's the same matters in our adversarial proceeding being heard somewhere else in which I have to do additional things could you just give me what if you know what are the total professional fees incurred by the debtors today in connection with Chapter 11 cases I don't have that offhand it's part of you know the record though there all of the fee applications are on file you could go and add all those together fair to say whatever the incremental cost

of the Bahamian proceedings would be fairly small in comparison to the total amount of costs incurred by these estates for professionals so far any amounts that would be in addition would come right out of the creditors pocket. So maybe it's small in comparison to the total professional fees, but it clearly would mean something to the creditors. And you don't have any experience in legal proceedings in the Bahamas, right? No, I've never appeared in the Bahamas. And I think we established you're not a legal expert offering any legal opinions, right?

I'm not a lawyer now. So you're certainly not offering any opinions concerning the Bahamian legal process. I am not. And one of the things you talked about, which I assume is related to cost is also a delay. Yes, sir. Okay. You don't have any basis to know or opine on how long the Bahamian court would take to dispose of the issues raised in the application, right? Yeah, I referenced potential delay.

I don't know how long or if. And you don't know how long. it might take this court to deal with any of the overlapping issues in the Chapter 11 cases? Correct. It's required, and so it's built into our timeline. And since you don't know how long it would take in the Bahamas and you don't know how long we've taken Delaware, I assume it's fair to say you are not in any position to compare the speed with which the two different courts could address these issues, right? I am not in a position to compare the speed between the two courts, no. One of the things you address, sir, in paragraph 24 of your declaration deals with an April 27 letter

from the Bar Council in the Bahamas to the debtors Bahamian Council. it's exhibit n to your decoration and is joint exhibit 50 that correct exhibit yes do you have a copy of that up there with you no okay may approach your honor yes thank you so join exhibit 50 which is exhibit n to your declaration who is Peter Maynard Maynard is an attorney at Bay and Devereaux streets, I guess. Okay. Is he, sorry, didn't mean any wrong. Don Doe.

Is he the debtors Bahamian Council? Yes. And Jason Maynard, is that a lawyer at Mr. Peter Maynard's firm who also represents the Chapter 11 debtors in the Bahamas? I think so. Okay. And this letter was received. was received by the Bahamian bars, sorry, by the debtors Bahamian lawyers from the Bahamian Bar Association

on April 27, 2023? Correct. And it concerns the application to have Mr. David William Allison K.C. specially admitted to appear as counsel record for the Chapter 11 debtors in the Bahamian proceedings, right? Correct as sort of an expert in Florida Kings Council type of thing, English law.

Right. And this application was to have him appear as a lawyer in the Bahamian proceedings. I'm not familiar with what exactly the application did or didn't require. Okay. So you don't know what the application filed by the debtors asked for to which this was a response? All I know is that we were not allowed under that application to have Mr. David William Allison appear in the Bahamas for us

for what we viewed as English law requirements that we needed. and that this says that I'll let it speak for itself this document. Okay. So you knew that the Bahamian proceedings concerning issues of English law, and Mr. William Allison is a lawyer based in the United Kingdom? I think so, yes. Okay. And the debtors wanted him to appear in some capacity in the Bahamian proceedings.

Correct. And this is the response from the Bahamian bar with regard to that application. Right? I think so, yes. Okay. And it says, if we look at the bottom of the first paragraph, I advise that a usual requirement for special calls is canvancy all other local Kings Council to ascertain their expertise and availability to be retained for the necessary application.

Do you see that? I do. Do you know what a special call is? I don't know what it's capitalized, yeah. Okay. Do you know what the canvassing requirements are that are referred to here? I don't know what the canvassing requirements are, no. Do you know whether the debtors comply with the canvassing requirements specified in this letter prior to making the application?

All I know is if the council is not minded at this juncture to approve my firm's application for a special call. Well, you also know that they invited you to provide dates of availability to appear to make oral representations as to why he should. should be admitted. Do you know if the debtors ever took up the Bahamian bars invitation to have that meeting? I don't know what's become of this or how far we pushed it after this. So you don't know whether the debtors complied with the legal requirements to have Mr. Allison admitted, right? Don't know whether that happened one way or the other. Correct. And you don't know whether they took up the commission on its invitation to meet to discuss the issue, right? Correct. And as of today, you don't know whether Mr. Allison has or has not been admitted as of today, right?

Correct. I don't know that. And just to be clear, if, well, let's look at your declaration. You say in paragraph 23 that you understood that this application to be similar to a pro hoc viche motion in the United States. What is a pro hoc beach motion in the United States? It's just a request to appear. in front of a court. Do you know whether in the United States, in this court,

a English lawyer could file a pro-hachmiche motion to appear as counsel record for the Chapter 11 debtors? Not a lawyer, no, I don't know. Don't know about that one way or the other, right? Nope, I don't know now. Sir, you gave some testimony concerning whether the possibility. the possibility that customers may or may not have migrated from FTX trading to FTX digital markets, right? Please ask the question again?

Sure. Do you recall during your direct examination speaking that one of the issues that is in dispute in this case is whether customers may or may not have migrated from FTX trading to FTX digital markets? Correct. Okay. I want to be clear. you have not, in your capacity as the financial advisor for the debtors, undertaken any effort to search the business records of the debtors for documents that would speak to whether or not that occurred, right?

No, we've not undertaken an effort to look for documents that may or may not point to completion of a migration plan. Have one second, Your Honor? Sure. Thank you. I have no further questions. Thank you. Are you right?

Sorry, I didn't know if there's any other questioning of Mr. Mosley, but I'm happy to be direct. Mr. Mosley, Mr. Zakea showed you what's marked as exhibit, joint exhibit 54, the letter from the Joint Commission on Litigators, still have that in front of you? I do. Have you reviewed this document in its entirety prior to the testimony? Yes. In your opinion as a restructuring professional would creditors receiving this type of letter

cause confusion as to with whom they should logically? Objection and speculation. Is this name? That's great opinion. Sistine. Mr. Mosley. Mr. Zakeh showed you exhibit joining in 11, which was the 20, 22 terms of service to still have that. I do.

Mr. Mo, uh, Mr. Zakiya, um, took you through certain schedules, uh, annex to, uh, the 2020 terms of service, uh, where FTX digital markets, uh, is referenced. Do you call that? I do. Do you have an understanding as to whether, um, custody of cash is a specified service under the, uh, 2020 terms of service? I don't think it's a separate service that's governed by one of the schedules.

I think that's sort of core to the customer relationship and what FTX is doing with as customers. So I think it's, it definitely does not say that FTX digital markets is the service provider for cash custody, if that's the question. It is. And how about with respect to custody of digital assets to cryptocurrency? Are you aware of anything in that document that identifies that being a specified service or being provided by FTCS digital markets? It does not say it's provided by FTX digital markets.

Go further questions, Your Honor. Thank you. Thank you. Thank you, Mr. Mosul. Your Honor. Sorry, could we have one second before you speak with this? I don't allow recross. Okay.

Thank you, ma'am. You may step down. Let's take a short recess here. We'll come back and we'll finish up. Try to plow through the rest of the day. So let's take 15-minute recess. We'll come back at 11.15. Good morning, Your Honor.

Chris Shore from Whigant case on behalf of the JPLs. There's been a lot of papers, exhibits, and testimony filed on this motion. So it's hard to know what the court sees right now is the key issues to be addressed. So feel free to interrupt me and focus me. I'm happy to do so, but I want to start by highlighting three overarching points. Well, I do have, here's my thinking at this point. From a practical standpoint, if I allow the JPLs to go to the Bahamas and proceed there, what could possibly happen?

Because regardless of what the Bahamas court does, I still have to make the same determination, and I have to do it on my own. And the assets that we are talking about are all under the interim jurisdiction of this court. So regardless of what Bahamas decides, they decide, yeah, it all goes to digital. It doesn't go to digital until I say it goes to digital. So what are we gaining from a practical standpoint by allowing a proceeding to go forward in two different courts on the same exact issue? Okay, I wanted this is why I wanted to emphasize this point on the narrow scope of the relief and what we're actually seeking,

because we're not seeking to have dual proceedings. We're not seeking you to cede your jurisdiction to the other court with respect to any of these issues unless you deem it appropriate to do so. What we are asking today, and the one thing that has to get done to start that process, is to file the application, in the Bahamas Court. That leads to another process that will require this court signing off on it and the Bahamas Court signing off on it.

It's either going to come in the form of one, a consensual protocol by effective parties to say, we agree the following issue should be decided by the Bahamian Court. The Bahamian Court should tell Mr. Greeds whether the cash he has on hand over which He, well, the Bahamas court has jurisdiction, not you, because it's not property of the debtors, it's property the Bahamian court, can proceed in the Bahamas. The issue of whether or not the terms of service should be voided as a fraudulent conveyance

will occur in this court. We'll work out a consensual process, and Your Honor will either agree with it or not and say, okay, we get it. This goes here, this goes here, here are the procedures. That's one way of handling. Another way of handling it is to just have the two two courts talk to each other, and that has happened in the past.

We have a basket of issues. The parties can't seem to get out of their own way to discuss whether any of this should occur anywhere else. And we're going to tell you, I, the Chapter 11 court, am going to decide all issues relating to Chapter 5. I'm going to deal with all issues relating to the terms of service as they apply to the accounts of the debtors, etc. We could do it that way. We can do a hybrid where the parties get as far as possible along the lines of a protocol that allows these two courts to exercise their jurisdiction without running a foul

at each other's day, and then come to the court with a set of procedures and say, we can't decide these four issues. The debtors take this position. The JPLs take this position. The UCC takes that position, and it's going to need to be sorted out. or we get to a set of courts digging in. You say, I am going to handle all issues with respect to all cash around the world,

and the Bahamian courts stand down, and the Bahamian court would in a normal setting where we've seen this happen between courts, say, what are you talking about? I'm going to tell my debtor what to do, and we get into a jurisdictional mess. That's a bad day for everybody. You heard these issues that are framed by the application is this property in a state, or are these assets held in trust? Were the customers who would have rights under either US law or Bahamian law with respect

to those assets, customers of a US debtor or foreign debtor. They have to be resolved, and both courts have jurisdiction over it. It's been no secret that if you allow us to do that. Just file the application, get the parties to talk. If the parties can't talk, the courts will sort it out rather than go into a jurisdictional war. It gets worked out. Our position is going to be. The Bahamian courts, the best court to deal with Bahamian law, the English law, Barbudan law, Antiguan law, because it's all under the Commonwealth.

And this court is best charged with dealing with the Chapter 5 issues. Wait, are all these things void? Right? Can they be avoided as a fraud? Things like that can be sorted out, and we have never said this court can't decide any issues. We've been sitting by the phone waiting for the debtors to engage and say there is in fact something that can go on in the Bahamian court, whereas their position has been zero can ever happen there. Well, I'm not inclined to agree with you that this court should be restricted. to deciding the Chapter 5 issues.

No, I did not mean to say that. I gave that as an example of we would certainly not argue that the Bahamian court should be the one addressing the application of Chapter 5. There are a number of issues that will have to get addressed. What I'm saying is this court has to decide whether or not these assets belong to this debtor or do they belong to the Bahamian debtor?

Well, that issue involves a question of English law as we've laid out in the papers and this court is authorized to abstain in favor of the Bahamian court to have the Bahamian court resolve certain issues and the Bahamian court is authorized to abstain and say your honor can do it or your both authorized to say we'll hold joint hearings we'll hear all the evidence together and then we will decide amongst ourselves how the issues are going to be decided But the fundamental starting point. How does that work practice?

I know we did that in Nortel, and I was involved in the Nortel case. But what do we do? I mean, a joint hearing, and the Bahamian court and I disagree. Mm-hmm. So then what happens? Now I've got in rem jurisdiction over the assets. Yeah. So my decision controls.

Your decision would control with respect to the debtor's property in the United States, over which it has. accounts and your jurisdiction would not extend to what Mr. Greeds told you are the assets of DM which are under DM's control which are those accounts. Very limited assets, yes. But it's not, it's not, well, I'm going to get to the practical implication of this, but at the end of the day, if you're going to disagree and we're going to lead to a jurisdictional squabble, which we're, I think we should all work.

as hard as we can to avoid. That's not a good day for anybody. Wouldn't we rather deal with it up front than do what Judge Peck did in Lehman, which has allowed people to litigate these issues and then say, well, I'm just not recognizing what the English court said. Sorry, you wasted your time doing it. That seems to me to be an inefficient process. Well, that's what I'm trying to avoid as well. Right. So, so it seems to me that starting out at the beginning saying, of course there are issues that need to be done. out with the Bahamian court. Mr. Greaves can make an application to say,

can I use the money that's on deposit on the basis not a trust asset? Why can't he do that? The debtors are saying, absolutely not. You are restricted to the unrestricted cash right now, and you're going to litigate with me for a year or years over the adversary proceeding with a million dollars in cash. Well, if the Bahamian court has interim jurisdiction

over assets, then they're in the same position. with regard to those assets, that I am with regard to all the other assets. Correct, but the debtors aren't agreeing with that. The debtors are saying it is a stay violation for the Bahamian court to exercise its in-rem jurisdiction to decide issues. And this is what the debtors are really concerned about. We're going to go through the terms of service with the Bahamian court. What's going on here?

It says here, this is this, this, and the Bahamian court's going to render a ruling under English law. The only, normally that would not be a problem, but I think the debtors are reticent of, well, I've appeared in that proceeding and somebody's going to argue that's race judicata against me when we talk about it in my own case with respect to the ownership of the funds. We can solve that in a protocol. That can all be addressed to make sure that we're not running into that problem. But you can't say, I don't.

I don't want the Bahamian court to issue any ruling with respect to what it believes English law means with respect to the cash that is in the debtor's hands because that might affect my negotiating position in this case or might affect you. Well, it's not, you're telling me loud and clear, it's not going to affect you. At the end of the day, you're going to have to come to that decision. And it may be that the English court under English law determines that they're not trust assets. And it may be that you determine under English law with the reference to experts and listening to the experts, you determine they are trust assets, the cash the debtors have, are trust

assets. One of the benefits is under English law is written in English. So I can read it for myself and understand what it says, as opposed to, I've had cases involving laws of Mexico where there's dispute over what the translation of that law is, but I don't have that problem. It may be when we negotiate a protocol that that is the result that people come to. I do think, having been through it with Bahamian Council, there are going to be some specific issues with respect to English trust law and whether the language in the document is sufficient to, under English law, confer trust obligations. There are going to be issues with respect to novation under English law,

and whether English common law provides for the terms of service, as you saw in the testimony today, to be novaded such that the customers who access the portal without the pop-up became customers according to those terms. So I think- Those are all things I can decide under English law. With the use of expert testimony, and I can read the, if there's case law, I can read the case law,

if there's statutes, I can read the statutes, I can understand it. I'm not saying you can't. I'm also saying that it may be that if what ends up happening is we run a proceeding in the Bahamas and there's an evidentiary record created and there's a reasoned decision created by the English or the Bahamian court applying the English law, you might or might not find it persuasive. Nobody is asking you today to agree to cede any of your jurisdiction or supervisory powers over anything. The only thing we are asking you today is let us invoke

the jurisdiction of the Bahamian court and give us some guidance as to what you want us to do with respect to a protocol. It can't be that Mr. Greaves is limited to $1 million in cash because he can't go talk to his own court about his own cash. Or he can't go out and seek to have customers file proofs of playing based on the determination. under English law from the perspective of the DM estate, these are or are not customers and creditors of your estate. The second thing I want to highlight coming out at the beginning is the notion that,

and I'm hearing a little in your honors questioning here, effectively the debtor's position, and your honor's position, and your honor's position is what your position is. But the debtor's position as articulated in their papers is that the only court that can ever touch these issues, issues of who the customers are, where they map to, and what is the obligation under the terms of service with respect to the cash on hand, can only ever

be decided by this court. And the Bahamian court should never be able to issue a decision, much less hold a hearing, with the court, with respect to that issue without violating the stay. And look, in reading between the lines, 90% of the opposition to what we're doing here is based on a disappointment or regret of the existence of the Bahamian proceeding.

And effectively asked this court to ignore the fact that there is a proceeding with respect to a non-lawful, on U.S. debtor proceeding in a recognized foreign main proceeding undertaken by recognized foreign representatives to determine issues. And I think they're trying to tell you that FTX, and this has been their campaign, I think since the beginning of the case, FTX trading is a nullity. It was just put there to engage in further fraud.

If they really wanted to treat the proceeding as a nullity, They shouldn't have consented to jurisdiction. We have an order that nobody's seeking to vacate or re-argue that says that FTXDM is a debtor in a foreign main proceeding being supervised by foreign representatives who are authorized to come into court like I am today. So wishing away the proceeding isn't an option here. We have to deal with the fact that there is a proceeding pending in another court with respect to a debtor who is not. under the general supervisory jurisdiction of this court, but rather is sitting in its Chapter 15 capacity. And for all the debtor's rhetoric about this court

has an unflagging obligation to grab jurisdiction, protect its jurisdiction, assert precedence over all other courts on all other places, that's just not the law. This is not someone coming in and saying, I've got a court case pending in state court, and I want you to let me liquidate my claim there. This is three proceedings, a 11, a 15, and a Bahamian proceeding.

And there has to be a way to work out issues that can be decided in one case, but necessarily might have effects or might not have effects in the other proceeding. And far from advocating the debtors box out at all costs. This is what the federal judiciary says about what's supposed to happen in Chapter 15. And I emphasize it because the debtors have tried to write out entirely the notion of cooperation and the fact that we should at all cost be trying to avoid the loggerheads between two courts. This is from the U.S. Courtsgov website Bankruptcy Basics on Chapter 15. The purpose

of Chapter 15 and the model law on which it is based is to provide a, effective mechanisms for dealing with insolvency cases involving debtors, assets, claimants, and other parties of interest involving more than one country. This general purpose is realized through five objectives specified in the statute, and the first one is to promote cooperation between the United States courts and parties of interest and the courts and other competent authorities of foreign countries involved in cross-water and solvency cases. There has to be some cooperation.

And we're just not willing to accept the notion that where we should go here is what the debtors are advocating, zero cooperation. You take jurisdiction over all issues. Any other court that tries to exercise its jurisdiction over its own debtor takes a back seat. And if they do anything, it's a stay violation by the JPLs, anybody who argues the case, and by the court that issues

the ruling in that case. That is not cooperation. One final overarching point, there's a lot of insinuation and attack on the JPLs and how they've dealt with, how they have dealt with what Mr. Ray has described as the dumpster fire. Unless the court has questions, I don't intend to spend a lot of time defending the JPLs.

They are not, as the papers insinuate, meddling kids seeking to interfere with some master plan. As you saw with Mr. Greaves, they are experienced professionals trying to fulfill their fiduciary duties under difficult circumstances, like the absence of definitive records and answers with clear instructions, and they're proceeding as recognized foreign representatives in a recognized foreign-made proceeding. Two, I'm not going to defend the fees that were spent any more than ask the debtors

to defend their $225 million to date. This is an expensive process due to no fault of Mr. Ray or the JPLs. I'm not asking you to decide, nor do you need to decide on this motion. Who's breaching the cooperation agreement, if anybody? That's an issue for another day. For today, the evidentiary record is clear and uncontested that, one, the JPL's repeatedly tried to engage the debtors in good faith to discuss a protocol. Two, they gave the debtors advance notice of the filing where they threatened a stay

violation and then use that breathing space to file their own adversary proceeding. notion that we should proceed with this proceeding, because it's before you now, there's an issue that's going to have to be decided, among other things, as we pointed out in our motion to dismiss, it's a violation of the Chapter 15th day on their part to move forward with that adversary proceeding, because that one is clearly seeking to avoid the digital's interest in assets in the United States, the... Moonstone and Silver Data Counts. So the basis for saying, we're not going to lift the stay

and we're going to proceed here, because we have a first filed proceeding that has teed up the issue is one in dispute. Finally, with respect to the debtor's unclean hands argument, given Mr. Mosley's testimony on cross, it's hard to see how any actions by the JPLs to set up a claims portal or by the Bahamian court to ask that they refile a Prohoc was anything wrong,

much less rose to the extent that the JPLs have somehow forfeited their right to proceed on the list stay motion. On the contrary, I think the record is clear that the JPLs have assiduously complied with the stay. And I think it's clear that the debtors are using it offensively here. I don't see any explanation for the questions on how much the cash. the JPLs have other than a pointing out that the debtors can use the stay here to strangle

the JPL's case. I mean, it's clear. I mean, I think the point is, is that, just to be clear, we hold the automatic stay. If the judge enforces it, you're not going to be able to even fight. So on to the argument. In the papers, we defended our starting position that the state does not apply to the filing of the application, just the filing of the application, the invocation of the court's jurisdiction without deciding what issues are going to be decided there or this court and what are the procedures

on which they're going to be decided? Well, what control do the JPLs have once the application is filed and the Bahamian court says, well, this is what you got to do? I want to decide. The Bahamian judge says, I want to decide whether or not these assets that are located in the United States belong to the Bahamian entity? I have not, my motion has not sought leave for the Bahamian court to issue. I'm asking you what the Bahamian court could do on its own.

Well, the Bahamian court can do on its own, what your honor can do on your own without calling up the Bahamian court with respect to the adversary proceeding. You don't have to call them up and say, how am I going to decide this issue? But what I'm advocating here is there needs to be a process. set up. And if that means we have to go to the Bahamian court and say, we're filing the application, but for the next two weeks, we're going to try to, or one week or four days, going to try to hammer out a means of making sure that the courts aren't leading to conflicting results. And if not, you're going to have to pick up the phone and talk to Chief Justice Winder and

work it out. Otherwise, we are going down this process with conflicting results. And they're debtors, to be clear, the debtors don't get this on prejudice, the debtors always have to go to the Bahamas court. There's no question, even if they won the case, they convince your honor based on evidence from competent witnesses that all of the customers stayed with digital. That FTX DM was set up as a fraud, as a nullity,

and everything about it should be avoided. There's still property in the Bahamas, in the form of the real property and the cash and crypto, including the crypto being held by the Bahamian Securities Commission. They still have to go get that. Setting up a process in which one court says, I don't care what you think I'm going to decide this issue,

isn't going to foster comedy on the other side to say, OK, well, I'll not return these assets. So they're going to have to go there. anyway, we should just get out in front of it and come up with a means of solving your problem. If we can't solve the problem, you're going to have to solve it because both courts have jurisdiction over their debtors and have to decide issues with respect to the terms of service and the nature and extent of the interest in the cash. It has to happen. So, but leave aside that the state doesn't apply. We're here. We're giving you the evidentiary

record, let me argue that why the stay should be lifted again just to allow the application to be filed and work out a cooperation agreement either consensually or non-consensually with the courts. There are three elements, prejudice to the JPLs, prejudice to the debtors, and a determination that the dispute is not frivolous or useless. I'll take those in reverse order on the probability of prevailing on the merits. I know the debtors want to jump down the road on the merits of the underlying dispute.

And Your Honor has heard something on the merits of the underlying dispute. Actually, the issue is, will it advance the process to allow the JPLs to invoke the jurisdiction of their court, subject to the determination? Nothing's going to happen in that proceeding that's going to affect the US debtors without further order of this court.

just sets up the process. I think the debtor should be directed because they have an obligation both under the code and under the cooperation agreement to negotiate that in good faith. I think they do have to show up to a meeting and say, okay, I'll consider this, I'll consider that, not just fee audit in a different use of the word fiat.

But that's where we need to get. And we have a, Mr. Greaves made it clear. He can file an application. Bahamas Court can take the application And then the two courts can start to communicate. Otherwise, you're picking up the phone, talking to Chief Justice Wynder, and he's saying, I don't have anything in front of it.

Same thing you would respond if the debtors hadn't filed the adversary proceeding. Got to tee it up in both courts. But the record, with respect to the underlying merits, it really the issue to be addressed is, is this a live dispute, or is this just a waste of time? The record is clear on three points. One, this is a live dispute that's been around since day one.

and is now framed by the debtors in the adversary proceeding as a legit case or controversy. In other words, they think the dispute is live enough over whose customers or whose and what are the interests in the cash being held by the respective debtors is live enough to bring a declaratory judgment action before you. Two, the 222 terms of service exists just as they did in prior iterations, as Mr. Mosley made clear. and they made clear, I don't need to walk you through the document, they made clear that FTX Digital was in privity of contract with customers who used services.

And the important paragraph says where you read FTX digital as applying to, or talking about specific services with a service provider, cross out FTX trading and put in FTX digital. That is a live dispute. And then three, you heard from both Mr. Mosley and Mr. Greeds that the money flowed consistent with those terms. Mr. Greeds described it more fully in paragraph 17 of the declaration, how $13.4 billion of cash flowed through accounts in the name of FTX Digital. In other words, customers' money was held by FTX Digital,

in accounts owned by FTX digital. Again, whether or not that was set up as a fraud and can all be avoided is an issue that's way down the line and would have to be addressed in the context of, with respect to the debtor's cause of action under Chapter 5 to void all these things. That will proceed in the United States. OK.

I'm not going to argue otherwise. I don't think the Bahamian court has the ability to apply Chapter 5 law. and avoid a transaction. But it has to, as it keeps saying, it has to be worked out. But this is not what we're doing. The court does not need to decide to determine, to decide whether to lift the stay, whether or not

customers did or did not migrate. It's a question of whether the position that's been taken is frivolous or useless. I want to point out one thing on the budget. avoiding of all of this and the inconsistency debtors are taking. One of the provisions in the 2022 terms of service is 8.2.6, that's the provision that for the first time created the trust relationship between the party named FTX digital or FTX trading and the customers. When the DOJ talks about the fraud or Mr. Ray testifies

about the fraud. He stole money, customer money. That's the 2022 terms of service. So voiding that contract is something that a lot of people are going to have an interest in addressing. So we're going to have to deal with that in the context of the protocol. Again, all this leads to the end of the either a consensual sorting of issues or a non-consensual one imposed by the two courts that we're just trying to set up so that we don't litigate in multiple proceedings and then have the Bahamas court say too bad I'm not I'm not enforcing that in the Bahamas or this court saying too bad I'm not enforcing this in the United States that seems

me to be the waste of time that can be solved if experienced professionals sit down with the model rules in this court and the precedents out there and say these are the issues that need to be done. Here are the participants. The committee should be entitled to intervene in the Bahamas proceeding. Okay. The debtors shall be able to make a new application for Prohawk Vichet for their lawyer to appear. Okay. This has a has to be done in the Bahamas on the following schedule. This has to be done in the United States on the following schedule.

Present it to you. Present it to Chief Justice Weinder. Are you both OK with this? If we're not, if you at the end of the day say, under no circumstances, am I letting the Bahamas, am I ever abstaining to the Bahamas on this issue, then at least we know now, as opposed to running down the road and litigating this issue only to have the Bahamas court say,

I don't care what the US court says, or you say, I don't care what the Bahamas court says. The prejudice to the debtors, I want to focus on the concept of legally cognizable prejudice. The debtors may be insecure about having this court coordinate with the Bahamas court, but I don't understand the legally cognizable prejudice of having the two courts talk to each other.

That's not, your honor is not being asked to give up any jurisdiction, any supervisory power. You can have a conversation and say, we've got to get to the bottom of this terms of service, who's whose customer, how are these funds being held? How are my debtors' funds being held? How are your funds debtors being held? We've got to get to the bottom of it. We can do it as a joint proceeding. We can do it not as a joint proceeding.

You decide it all, the Bahamint Commission court may say, you know what, I don't want to deal with any of it. I don't want to deal with any of these issues. You may say there's no chance I'm going to be determining whether or not Mr. Greaves, under Bahamian law, can spend money that is in the account. I think there are going to be things where everybody's going to easily agree, and it may get difficult in the middle. But because it's difficult doesn't mean

we should push it down the road and deal with it later, particularly in a case where costs are big. So the legally cognizable prejudice. It just isn't there. All of this about how the proceedings might play out, we can't appear in the Bahamas, the committee can't have accredited representative, all that should be worked out and can be worked out

in the context of a cross-border protocol. No, you're not being asked to decide those issues today. And with respect to the debtor's notion, well, the Bahamas is obviously, because the Bahamas, because the Bahamas doesn't have nuclear weapons, they're not entitled to the same deference we would give to France. That's not, first of all, that's just not the case.

Chapter 15 applies to any debtor. But more importantly, this court has already recognized on a consensual order the Bahamas proceeding as the foreign main proceeding and the JPLs is authorized representatives in the United States. The issue of whether due process, can be fulfilled there, or expenses can be controlled,

or whether or not anything can go on in the Bahamas at all, is a question that's already been answered in a recognition order. Finally, prejudice to the JPLs. What happens if Mr. Greaves can't file the application? He can't invoke the jurisdiction of his court to get an answer. I got cash sitting here. Can I spend it?

or I've got an obligation, fiduciary obligation to determine who my customers are, track them down, and provide notice of my proceeding. What happens if you can't do that? The testimony, I think, is clear from today and in its declaration. One, the JPLs are appointed by the Bahamas Court with specific fiduciary and other duties and specific powers. They are a creature of the court. Two, one duty is to seek directions where the estate needs resolution of legal issues affecting the assets or liability. Got an obligation to go to the court and seek construction. Three, there are issues facing the digital estate with respect to what is its property, what of that property is held in trust, and who are the customers who are entitled to share in the assets

either specifically their assets held in trust or non-specifically as a general creditor. And they can't, as the questioning made clear, just ignore their duties. They can't close the case. I get it. The debtors, we all woke up tomorrow and the debtors were facing the situation. The SCB never acted. It never exercised its police powers to close down that business and start a provisional liquidation. and Mr. Ray had come in and it filed that entity here.

Okay, I guess that might be more efficient. It might not be more efficient. I don't know. But we can't wish it away. They have specific obligations to go to their court, and the debtors are saying they can't. The debtors are putting them in a fiduciary trap and asking Your Honor to order that trap,

where they have obligations to fulfill, and they can't get comfort from their court that listening to the United States or listening to Mr. Diedrich is a fulfillment of their fiduciary duty. They can't just say, you know what, let's remigrate all the customers back. They can't say, let's just send all our cash over.

They can't say, let's just release all of our claims for the return of the billions of dollars that flowed out of the digital accounts to the U.S. accounts. They can't. Practically speaking, in a proceeding that we can't wish away, there are processes that need to be filed,

and say it one last time. This court recognized that proceeding as the foreign main proceeding and legitimize the Bahamian Court and the proceeding as a proper use of Chapter 15. So, I'm going to say this one last time too. We are not. I have never asked the court, nor we are not. court, nor am I advocating now.

We didn't write it in the papers. We're not asking for it in the order granting the stay. Asked to do anything other than lift the stay to allow the filing of the application subject to the term that nothing's happening with respect to the debtor's property or the debtor's rights without further order of this court. And quite frankly, I do think we needed an order

directing the parties to work in good faith to take that first step. No one's asking you to walk the whole staircase and move down this process. But I think it is a valid use and probably an important use of the US debtors' assets right now and the JPL's assets. This isn't free to find out at the beginning.

Can we just avoid the position we nobody wants to put accord in? We don't want to put you in the position. We don't want to put the Bahamian court in the position of saying, you know what, I'm not buying into this. I am not ever going to enforce an order of the Bahamian court or the Bahamian court saying, I'm never going to enforce an order of the United States court that says that FTXDM was void from the start. So we've got to take a step. Parties should be asked to, on a near-term basis, negotiate in good faith.

to get to that protocol. And if we can't decide it to come back to your honor on some other basis and say, this is what we think the protocol should be. And then we can address the issues of, well, that's not really right. You're asking Judge Dorsey to give up his jurisdiction over an issue relating to the 2022 terms of service. Your honor, we don't think you should do it. And you may say I'm not approving that part of the protocol.

I think where we get is we're going to have to have joint hearings on the terms of service and the migration. We may have to have a joint hearing on whether FTX digital alone among the FTX enterprise was a specific instrument of fraud, but we should be able to work this out. We really should. And I wouldn't have come here and moved all this research. towards this issue if I didn't think that it was necessary to do it up front and we have an opportunity to do it and it should be done so that you're not put in a bad position at a later date so unless your honor has any questions I'd ask you to

grant the motion as specified in the order for the specific actions that we've laid out in the motion okay thank you your honor Jeff Sabin from Venable who who represent the ad hoc group who issued their statement and partial support, I want to answer your two questions that are vexing you. First, if it were to be quickly, because our clients, like others here, are international customers who are worried about one thing,

maximizing their recovery in a shorter period of time as possible. If there were to be, even perhaps before you were to make a decision here, a call with two judges, who certainly everyone in this room respects for what they do. To talk to each other and say, you know what? Yes, we can have joint hearings. We can focus the issues.

We can even decide amongst ourselves right now that if we were to disagree, maybe we'll have a discussion on appointing a third who would be effectively the final arbiter of those issues. Anything that we can do pragmatically, and I think you have the power to do this, that's what we are otherwise pushing for. And we're pushing forward for all the reasons that all parties seem to say,

which is we need to get to an understanding of the facts relevant to these key issues of law to move this case forward. Thank you, Your Honor. Thank you. And it also is to speak in support of the motion? Okay. I can almost say good afternoon, Your Honor. Andy Dietrich, Sullivan and Cromwell for the debtors.

Your Honor, we're six months into these cases, and the JPLs still do not accept the premise. that the cases are really indelible. This is not a motion for court-to-court communication. It's not a motion for portal call. It's not a motion to ask you to call the Bahamas judge. It's a motion to transfer venue on the central issues of this case to another court. It's not a motion to dismiss the cases, but it is, of granted, a motion to gut them.

And we know this because that's what they wrote down. The Commission seeks an order from your honor, granting permission to file the application. The application seeks a declaration from another court. The declaration is not advisory, it is not guidance, it is a binding declaration. The other court is asked to decide if FTX digital markets owns all rights and obligations related to user accounts at FtX.com. The other court would decide if FDX digital markets owns all digital assets. assets associated with FtX.com.

The other court would decide the nature of customer rights against FtX.com. The other court would decide if the JPLs are a trustee for customers empowered to collect $11 billion of missing customer entitlements. The other court would decide the scope of the powers of the JPL as trustee. The other court would decide how much property is in the trust that it's entrusted the JPL's with in response

to the application. The other court would decide if the tracing rules by which the trustee would claw back assets from all of the debtors and from all of the non-debtors and from any person to which the debtors have made any transfer this is the worst kind of slippery slope. An indication of its scope is the short statement filed by the JPL themselves relating

to the Voyager settlement. So this was done March 7th. after our cooperation agreement. Voyager received a preferential payment in our view from Alameda, from Alameda, you know, and not for an FDX trading. We agreed a procedural stipulation and asked the court and Judge Wiles to so order it.

The JPLs intervened with a short statement. It said that the JPLs may have an interest in the proceeds received by Voyager, and the JPLs reserved the right to claw that back into FDM. I'd like to read what that statement says if I may. This is on the docket 819. The joint provisional liquidators expressly reserved the right

to file and prosecute proofs of claim against the Voyager debtors, including claims related to payments made by any of the U.S. debtors to the Voyager debtors during the relevant preference periods with funds originating from the digital estate. And keep in mind, they think in the earlier paragraphs for this pleading that the money came from digital markets and went to Alameda so therefore they can chase the preference. The motion should not impact the rights of the joint provisional liquidators to seek to intervene in any mediation or litigation concerning the preference claims.

In short, if there is to be global peace with the Voyager debtors, that peace cannot likely be reached solely in the United States. What the JVLs are asking for is effectively, operationally, concurrent jurisdiction over all of the assets of our states. Luckily, they can't have it. And they can't have it because of the global automatic stay. The global automatic stay is why we filed in Delaware in the first place. This is one of the most complex insolvencies ever filed. It may be the most complex insolvency ever filed. But we have had one saving grace.

We know who calls balls and strikes. we have centralized jurisdiction. If you take centralized jurisdiction away from us, in light of the complexity of what we face as a debtor's team, we will not be here for years, we may be here for decades. So, there are two questions before the court. Does the stay apply? And if the stay applies, has the movement shown cause

to lift the stay to file the application. Now, Your Honor, there can be no serious question if you actually read the application. that the stay applies to it. The application seeks a determination of ownership of property of the estate. If this were an action initiated in a Bahamas civil court by a creditor, alleging the creditor owned all of the property of the debtor's estate, the action would be staked.

And there's no exception to the scope of the stay for a non-U.S. insolvency proceeding. So the only real question before the court is whether the movement has carried its burden of showing cause to lift the state. And the heart of that test, as Your Honor knows, is evidence presented as to the balance of harms. We would submit, Your Honor, that there is in the record obvious evidence of substantial harm to the debtors, their estates, and their creditors if the core issues of this case are moved to the bombs. Mr. Mosley testified about expense that cannot be dismissed. There would be new counsel, travel, additional hearings, not for some discrete contractual issue,

but for all of the issues that I mentioned would be raised by the application, including the tracing of assets, and if you read the filing they made in March, every single cause of action that we would bring on an outbound basis. Now, he may say today, Section 5 is reserved for Your Honor, but that has not been their position to date. And this is redundant. This expense is deadweight loss because the proceedings would be redundant. We would be back here litigating in front of your honor the same issues anyway. Now, there was reference to the Chapter 15 Recognition Order, and I think this is very important. We consented to Chapter 15 recognition after initially contesting it, and we did so because of one provision that we wrote in the recognition order.

And this is in the recognition order in the, of course, on the docket of the other case at 1.29. And it says, Nothing, paragraph 9, nothing in this order or any relief granted hereby, requires the court in the Chapter 11 cases to defer to any decision in the Bahamian liquidation proceeding with respect to, or alters the quotes de novo standard of review on any matter raised by the Chapter 11 debtors before the Court in the Chapter 11 cases,

with respect to property of the Chapter 11 debtors, including without limit, limitation, the scope of property of the estate or the application of the automatic stay. We bargained for that because we expected that this would happen. We recognize the JPLs because they need representation in the United States to vindicate their rights. But we did not by doing so seed the primacy of the Chapter 11 to determine what is property of this estate and all of the rights that come with that.

If there is something that is not property of our estate over which digital markets has custody, then there is a purpose for the Chapter 15, and we fully support that purpose. We also fully support the Chapter 15 to make sure that we know who can speak for the JPLs in federal court. But that's it. So it is redundant because I can virtually assure you that if we were simply to allow litigation to proceed in the Bahamas and a result of that. litigation were to come back here, I think it's highly unlikely the debtors would support

that judgment. We might. We don't know what it says, but I think it's highly unlikely. And not only that, but not only we would have to support it, but every other stakeholder would have to support it. Because that language benefits not only us, it benefits all of our stakeholders as well. So the cost is incremental cost. There's no cost savings. And as I said, this is not just about us. This is about every other party in the case that would also need to go. And we're go through the process that we ourselves have not yet completed to get a KC into the Bahamas Court to represent us. Everyone would have to go through. And Your Honor, unlike a lot of the state cases, these aren't sunk costs. The Bahamian proceeding on these issues is not even

at the starting line. We have no investment in the process there. Mr. Greaves testified he's not aware of a single creditor appearing in the Bahamian joint liquidation proceeding. Contrast that to what we've already accomplished in this case today. But something not in the evidence is equally prejudicial, and I want to speak to it as a lawyer. Because venue here is not simply about who decides, but it is about the law they use to decide the question. And we've been treating the law like it's a fixed thing,

but the important principles of law are not fixed at all. What is at issue? At issue is whether or not they need to be. to come through this court and ask to establish, with the burden of proof on them under Section 362, that they have an interest in property of the estate. Congress gave the debtor the benefit of the burden of proof on that question.

And the first thing that might happen if that question leaves this court is we lose the burden of proof. But that pales in comparison to the second issue, the question of constructive trust. We've talked a lot about customer property and trust. We've been working through the question of whether customers have a property interest in digital assets or fiat currency for months. It is a very, very advanced discussion with many different stakeholders. There's been two separate adversary proceedings filed in this court on that question,

and they're suspended to permit these discussions to continue. Now the question the customer property rights has two elements. The first is contractual. Is there a user agreement or another customer property rights? agreement or another contract that creates a trust or abailment under contractual law. We have user agreements under U.S. law, Australian law, Cypriot law, Japanese law, Swiss law, and English law. We've looked at the question each.

For FtX.com, the question is governed by English law. And the question, the English law question, is whether that contract creates an express trust. We believe the question is straightforward and the answer, after our work, is no. But the matter's not before the court. If it's ever litigated and if the question is even clear enough to be litigated, we believe, Your Honor will agree when you hear the evidence, and we clearly believe you're competent to do so. But that's not the interesting question.

The interesting question under virtually all of these arrangements is constructive trust, and as a federal court sitting in Delaware, Your Honor should apply Delaware conflict of law principles. Under Delaware law, constructive trust is a remedial doctrine, and the law of the forum applies. This means that the substantive law of constructive trust to be applied to all of our creditors who are before you will be Delaware law. For all customers and all creditors alleging a constructive trust or a similar equitable property interest. The ad hoc group of customers, I think they're represented here today, pled it this way in the papers before the court, and we agree. There's an English law express trust question for FTCS.com, and there's a Delaware constructive trust question.

Now the essence of constructive trust, of course, is unjust enrichment. And we're not talking about unjust enrichment of Sam Bainment Free, who will not see a penny from these cases. What we're talking about is potentially unjust enrichment of one customer at the expense of another customer, or customers as a group at the expense of other creditors, or creditors as a group at the expense of other customers.

And we are going to face these issues from potentially millions of people, or at least the representatives of millions of people. And it is essential to be fair to all creditors alleging a constructive trust that one set of rules apply and that everybody is treated fairly and equally. This is lost if we take one particular allegation of a constructive property interest

and send it to the Bahamas because we lose the burden of proofs effectively, which is supposed to benefit all of our creditors, and all of a sudden we have a constructive trust being alleged, under law of a different form than your honors. Now, this is important. If you look at docket joint exhibit seven, this is also on the docket at 1193, this is the declaration of Meta-Millin-Hughes,

which was admitted into evidence by the JPL without objection from us. And I just want to point to one quick provision, which is in paragraph six. And in paragraph six, she says, in addition, certain relevant regulatory and insolvency issues are governed by Bahamian law, blah, blah, blah, blah, blah, blah, blah. But then she says trust issues are also likely to be governed by Bahamian, English, or Antiguan law.

I think that's probably true. If the case goes, if venue goes to the Bahamas, those laws will govern trust. Constructive trust as well. If they stay here, Delaware law will govern these constructive trust. And if that's not enough prejudice, Your Honor, I want to talk about the plan process. And here I have one single slide. If we can put that up. The automatic stay exists for a purpose, and the purpose is allow us to prosecute a plan

and reorganization. We've been called ambitious for this timeline, but we intend to try our best to deliver on it. This is the work ahead, and we are well on our way. On the left-hand side is where we generally are today. Our general bar date is June 30th. We've set the general bar date at June 30th because we have some visibility into customer claims and less visibility into non-customer entitlement claims.

That bar date will give us that visibility. We have undertaken publicly to have a draft plan of reorganization, not the final, but a draft plan of reorganization filed publicly in July. We're in discussions, consensual plan discussions already with many stakeholders with respect of that plan of reorganization, including the committee. We have a customer bar date,

but importantly near the end of this year, we anticipate having an amended plan and disclosure statement that reflects the benefit of these consensual plan discussions resolve plan disputes and confirm a plan in the second quarter of 2024 your honor I have no objection to council talk with you about a plan but it's not part of the confirmation record sorry the lift stay motion record mr. moseley was here and would have testified to any of this they chose not to do it that way so i don't think it's it would be it would be as that talk of as he wants, but it shouldn't be part of the evidentiary record and we objected it.

Go ahead. The, are there, we also, Your Honor, have identified, and this is important. We have said in our pleadings that we do not require any relief from the Bahamas for the confirmation of our plan, and that is true. We do not need to go to the Bahamas. We would love to have a solution to the question of the property company in the Bahamas, which is a debtor, by the way. The only thing necessary for us to do

to sell all of our real estate in the Bahamas and pay 100% of the proceeds to customers and creditors is for the automatic stay to be respected with respect to that entity. That's it. Now, whether or not the automatic stay will be respected by the one creditor of the property company in the Bahamas,

which is digital markets, I don't know. But the only thing that's necessary for us to sell the approximately 250 million dollars of real estate we have in the Bahamas is for the stay to be respected so that we can do so because that company is a debtor. And the JPLs have a claim against the debtor, but it is an unsecured claim. The only other property in the Bahamas of which we're aware is a very small amount of operating cash and a little bit of customer FBO cash. Would we like to include that and distribute that to customers? Absolutely. But our business judgment is that we

would be nuts to link our estate and all of our value to the estate to a process that requires concurrent jurisdiction with the Bahamas simply because we're worried about a relatively modest amount of customer FBO cash. We do need to decide if customers have a property interest, but we need your honor to decide that. We don't need the Bahamas court to decide it. And there's nothing in this confirmation plan that involves it. The other important issue we have with digital markets is of course who owns the IP and the customer relationships and the goodwill of the business in case we'd like to sell or recapitalize FTX 2.0 in connection

with our plan of reorganization. Is that essential for confirmation? Probably not. Would we like to do it? Absolutely. Do we require any relief from the Bahamas to sell it free and clear under no circumstances? So our answer to this conundrum, we would have a different approach

you're on there if we had $5 billion here and $5 billion. there or a different approach if we had not already concluded that we have all of the assets in REM and owe those assets to all of the customers. Our job is to get assets to customers and creditors as quickly and expeditiously as possible, and we cannot, in our business judgment, decide the right way to do that is to invoke concurrent jurisdiction for no practical business purpose. So again, we would love to have a deal with

with respect to what happens to their FBO customer cash, which I understand to be less than $100 million, and we'd love to have a consensual resolution to the property in the Bahamas, but we do not need it to confirmation, and we're not going to put ourselves in a position where we need it for confirmation. Lastly, Your Honor, in terms of prejudice,

this issue is not confined to digital markets in the Bahamas. Digital markets is one of approximately 130 subsidiaries. About 100 debtors, about 130 subsidiaries. If the stay is listed, is lifted for one insolvency case, we can expect petitions to lift it for others. The court could decide each motion when it's filed on its merits, but the precedent has been set. And in this case, a precedent of global centralization is very, very important to the planned process that we want to conduct. Okay, that's us. On the other side of the scales, prejudice to the JPLs,

Well, there's virtually no evidence of this in the record. And Mr. Shore talked about legally cognizable prejudice. I want to focus on exactly that. In some of the papers, there was a reference that Bahamas proceeding might be quicker, so it could be cheaper. Well, again, our view is it's entirely redundant, so any cost is incremental and any cost is a deadweight loss. But if it's quicker, one has to ask ourselves, all right, well, if it's quicker, then that

has a relationship to whether or not that proceeding will then be respected by your honor, ourselves, and the other stakeholders in this process. And I would submit that the alleged defects of slowness in a federal court process that gives notice and opportunity to be heard to everybody as it musts is not legally cognizable harm in the federal court. Familiarity with the issue has been mentioned.

Well, as I said, we see the English law issue as a very discreet issue. Your Honor has already done a cryptocurrency case, unlike many judges around the world. Your Honor is familiar with the basic principles, thanks to that case and this case and everything else. We would argue Your Honor is equally capable if not working the Bahamian judge to deciding an English law question. But regardless, speculation about the relative familiarity sets of two judges is not cognizable prejudice that shows cause to, lift the stay. Mr. Greaves acknowledged today, acknowledged, understand today. This court can hear the issues that concern them. The court is competent to hear the issues that concern them.

And the issues raised in the application, what do they own and who are their creditors, are the same issues as what do we own and what are our creditors, and those are the same issues set forth in the adversary proceeding. So we are talking about a redundant proceeding. The harm in the record, and there was evidence of this harm, the harm of the record is harm to the JPLs as fiduciary. They won't be able to comply with their fiduciary duties. Now, I don't know if that's true or not. I would think that JPLs could ask their court to give them comfort that they're not violating the fiduciary duties in a manner that creates some kind of liability regardless of what your honor decided. But in any event,

The JPLs are not here in a personal capacity. The JPLs are not here to say, there's harm to me. The JPLs are agents, not principles. They represent an estate. They represent creditors. For harm to be cognizable, it can't be harm to the agent, it has to be harm to the principal. There is nothing in the record,

no evidence whatsoever of any harm to digital markets for litigating the question in front of you. Only to the JPLs. There's no record of harm to any creditor of litigating the matter in front of you. Because there can't be. Because again, we have the assets and we can give them to all of the creditors immediately without bypassing through the Bahamas. Zero evidence.

And I would submit that the fiduciary duties of the JPL may require them to come ask your court to transfer venue to their court. But the fiduciary duties of the JPL do not require you to grant the relief. Finally. And this is, I think, important enough, even if it's not express, but there's several references to this throughout the JPL's papers. Strongly imply. They contain many references to actions of the current Bahamian government, the Bahamian regulators, the Dar Act. And there is another interest here. The Bahamian government may have an interest in the outcome of these cases.

An interest in having matters heard in the Bahamas. You know, there was mention of comity, interest in the regulatory structure, attracting new crypto-intuitive. investments, maybe even being the host to FTX 2.0. I don't know which way that cuts you on it. But I do know, luckily, you don't need to consider those issues, because they're not part of the standard for stay religion. The Bahamian government is not here in front of the court today. The Bahamian judiciary, as judiciary, is not in front of the court today.

The JPLs are. And as they've reminded us many times, the JPLs do not speak for the Bahamian government. So, the case law, very, very briefly. Putting it together, it is really a three-prong test, as Mr. Shore mentions, but with one important caveat. And if you look at a case, for example, DBSD, Judge Walsh, phrased this very nicely, 407BR 159 at 166.

Three prongs. Is there great prejudice to the estate if the litigation is allowed to continue? That's an interesting phrase itself, because most of these cases are about something that's already been commenced. This, again, is here and not there. But I think we have put in sufficient evidence that there is indeed great harm if this case loses the benefit of the global automatic stay. So the next prong is, does the movement, is the hardship to the movement, sorry, does it the hardship considerably outweigh the hardship to the debtors?

considerably outweigh? Is there considerably more hardship to the JPL in having to ask this court to decide the day-o-in property of our estate than being able to get selective treatment and go to the Bahamas and do the same thing? And I think clearly the evidence today has shown that there is not caused

to live to stay on that basis. What's the probability of success on the merits? Well, for today, Nobody knows. Now, we clearly believe that this argument is a difficult one for the JPLs to make. Because as Mr. Mosley testified, there may be specified services provided by DM matching trades on an exchange. But custody of crypto, custody of cash, were not specified services. And so as Mr. Mosley said, and that reflects many conversations without on the debtor side,

There's no way we could tell any customer. I'm sorry, all this value we have collected. Not for you. You can go to the Bahamas. We're not in a position to do that. But the simple fact that we were the custodian of all of the crypto and all of the digital assets, our name is at the top of the agreement. Our name is at the top of the website.

We own the website. We own the intellectual property. And we are completely implicated by this. And so we've decided as a debtor that they're just, you know, we would love to get rid of some claims by sending them somewhere else. But it's just not fair to do. So, but there's a fourth kind of quasi-prong. And Walsh mentions that in his opinion.

And I think it's important. In fact, Mr. Schor mentioned it in an oblique way as well, which is, Judge Walsh writes, courts also place emphasis on whether lifting the automatic stay will impede the orderly administration of the case. And here it clearly will. Your Honor, unless you have questions, Your Honor, I would just close by reiterating

that we are confident as debtors that we can confirm a plan of reorganization for this case in the second quarter of 2024. No promises and no guarantees. But that is a path forward that we believe is viable, but only with the full protection of the global automatic state. The movements had not carried

their burden to show cause for relief from the stay at this time, and Your Honor, respectfully, the motion should be denied. Can you ask you one question? I address Mr. Schor's argument about the fact that if we proceed here, the JPLs are going to be put at a disadvantage because they don't have access to cash to be able to pay their lawyers and the JPLs to represent their interests here. How do I address that issue? Well, I think you have to ask the question.

We have many people who would like to be paid their fees in this case to represent interests of various clients. I think the question would be, this is a digital markets estate in rem have access to property sufficient to pay, or as they've said, I think the first implication they said if the state were listed, kind of applies if it's not lifted as well. Can they get litigation funding and can they get what we would call in the United States a dip? I don't have any other solutions for that. any other dollar that we pay them comes out of the creditor's pocket.

Well, he says you're objecting to them, even being able to go to the Bahamian court to ask for that relief, to ask for a debt, to ask for some kind of access to the cash that they do have in rem in the Bahamas. Well, Your Honor, if this were a completely different application, right, if the request were not to determine what's property to the estate, but to identify something that we agree is their property, and they were going to ask the court to access it, then that could we would obviously have no concern with that. The problem is the only assets to which they've pointed.

The only assets, if they had something else, they had operating cash, but it's been spent. The only other assets were familiar that they have is the unsecured claim against the property company, which is a debtor, is the little bit of operating cash they have and a little bit of crypto, and customer FBO cash. And so if the request is, let us go to our Bahamian

court and ask to use customer FBO cash to pay the expenses of the JPL, and they'd like to go to their court to ask that question, that does in fairness put us in a difficult spot. Because those customers are our customers, and it may be going to count in their name, but it was received by them as effectively an agent on some combination of our behalf of the customer's behalf, and having them spend that money on their own fees is, you know, as I said, come directly dollar for dollar out of customer recoveries. So open-minded. And believe me, we have spent a lot of time negotiating with APLs.

We didn't know we didn't, don't mean to give them the stiff arm. And we recognize we do have some Bahamian nexus to this case in terms of the FBO cash and the property company, and we're open-minded. One of the things we have said to them, for example, is that we've had an arrangement where we could jointly monetize the property. recognizing that it was in the Bahamas even though it's a debtor. We've had yet to be able to agree with them on a process that we believe passes Chapter 11 muster

for making sure the property can be disposed of a fair and transparent way that satisfies 3. As soon as we're able to do that, we have told the JPLs that they can pay their expenses of monetizing the property out of the proceeds of the same way of the property, for example. And there may be other solutions for other property in the Bahamas, and we are always happy to talk to them about that.

But this application, the application before the court today, is not that question, but something entirely different. Okay. Thank you. Afternoon, Your Honor. Kemposquale from Paul Hastings for the committee. I'm going to be very brief. Mrs. Dietrich really hit many, many of the points that I was planning to comment on. But let me start with the last, which was your Honor's question specifically about the loan,

but more broadly about the Bahamian application. And I agree with what Mr. Dietrich just said. The JPM just said, the JPLs can do what they need to do in the Bahamas subject to the state. That doesn't mean everything. They can take the assets they have. They can try to administer their estate with those assets. But when they ask, as they do in this motion, to raise and resolve issues that implicate property of the estate, that they can't do.

violates this day for all the reasons you've heard today and if there's any question about it if you look at joint exhibit eight that's the directions that they're asking for mr. Dietrich hit on this they're asking for determinations that's the property of the estate that as your honor properly mentioned earlier is this court's jurisdiction it almost is that simple on this application and there is no other application before the court as we stand here today for all of the talk from the JPL's council, Mr. Shore, about, well, we're really just want a joint protocol.

That's not the case. The application shows the contrary. And what is really being sought here, and again, Mr. Dietrich hit on all these points, is litigation over property of these estates. What the committee is most concerned about, Your Honor, and frankly, your first question hit is duplication of effort, lack of efficiency, and costs. Because the cost of these efforts come out of the creditors. And when I say creditors in the context of this dispute,

we're talking about the customers of the international exchange. And they're the same. It's the same people we're fighting about. And there's no benefit to any of those customers from all of what's gone on here this morning. This is a jurisdictional tug-of-war. And there's no reason for it. We are here, the committee, representing all of those creditors, those customers of the

international exchange, the debtors of course are here, all the assets of the estates are here, and the JPLs are here through their Chapter 15 process. There is no reason for any of the issues raised by this application to be heard in the Bahamas. So we would ask that the motion be denied. Thank you, Your Honor. Thank you. Mr. Schur?

And Chris Schor from White & Case on behalf of the JPS. Let me start with what Mr. Ms. Giswali just said about the customers. That's the, I wish they weren't their argument. This would be a lot easier for the customers if there weren't two courts and there was only one court with jurisdiction over issues. I didn't create the problem. The JPLs didn't create the problem. problem there are two jurisdictions right now with worldwide jurisdiction over

issues affecting their debtors of states so to say this isn't helping the customers I can't do anything about that it's just the process that has been put in place that mr. Greeds and the other JPLs are trying to exercise their duties on second I heard from both counsel the slippery slope argument of what they really want to do mr. Rosqually said it's it's file and prosecute the action we're not asking for that and I heard mr. Dietrich say well if they had just come to us and said we want access to this that wouldn't have been a problem that's contrary to the evidence the evidence was in the

declarations and in the testimony that the JPL said Could we have a discussion about what can go forward in the Bahamas and what can go forward in the United States? And the response was, no, we can't have a discussion about it. There is zero tolerance for having any issue decided in the Bahamas. And if you file anything there, it'll be a willful violation of the state.

So I'm just trying to find a way to allow that conversation to happen. And let's be clear about what this is. You keep referring to it and you're right, in rem jurisdiction. The Bahamian Court has in rem jurisdiction. over the following assets, the cash. Now, they keep saying it's just a modicum of cash.

From our perspective, it leads to the second asset. The debtors, from our perspective, trading, stole $6.9 billion of customer funds and sent it to Alameda, who then frittered it away. But the bankruptcy, or the Bahamas court has jurisdiction over that claim. He shares it with you. You both have world.

worldwide jurisdiction over resolving that issue. They have jurisdiction over the claim into properties. Those are all assets which are under control of the Bahamian court. This is what we want ultimately. If we file the application and we all have a discussion, I like the new found good faith efforts of the debtors to say, had they just asked us, we would have given them this, have a discussion about that.

What is the problem with us going in and asking the Bahamian court to determine whether or not the assets over which that court has in rem jurisdiction are held in trust under the law of that forum? The debtor's position, and I hope you heard the delay in Mr. Dietrich's voice in responding to you. your question on coming up with the right word. This is what they're worried about.

The Bahamian court looks at it and says, under English law, I'm looking at this, these assets are held in trust. And I'm looking at this contract, and these are your customers. What they're worried is that somehow affects their estate. It affects their negotiating position. It affects their standing in front of this court, that somehow this court is going to just blindly say, Well, the English board said that, so I'm going to do it.

That's your honors clearly not going to be doing that. But the mere fact that the debtors, the prejudice to the debtors, is that there will have been a court that spoke on the 2022 terms of service and said something about it is not a basis for denying the JPLs from moving forward. Now, we could fix it if we actually sat down and had a discussion over protocol. could put in a provision in the order that says, under no circumstances, will any determination made by the Bahamas court have any preclusive or any effect

whatsoever in the United States without further order of this court? OK. We could try to seal the proceedings so nobody knows what the English court ruled. I don't know. But the position that's been met with the debtors, contrary to their obligations under the cooperation

agreement, is those conversations are are dead. You are a dead weight loss. We don't want to deal with you. We wish we didn't have to deal with you. And now you can't do anything in your case. I'm just trying to avoid. Trying to avoid you having to write an order that says nothing

the Bahamas court does will have any effect in the United States without first having a conversation. Can we fix this somehow? But there is zero prejudice. to the debtors, legally cognizable presidents, by having the JPLs go to their court and say, you've got in rem cash. It is the FTX digital's cash.

I need some rulings about what I can do with that cash. Or I need some rulings as to whether you would consider these my customers or somebody else's customers. Zero prejudice to the United States debtors. If what we do is we put in a provision that says, Nothing that the Bahamas court does in all of this will have any effect in the United States. And if they don't want to appear, then fine.

I don't care. They don't have to appear there if that provision is in there. But what I don't want is what they're actually doing, which is starving my estate, so that they can do through you enforcing the stay what they weren't able to do in the normal processes, which is just wish it all away. We're going to get the litigation. If the debtor's defense in all of this is this property was never held in trust

under those terms of service because they weren't a service provider on the cash, it welcomed that litigation. We'll get to it. We'll get to it in some court. It's just the question of whether we have to put everything on the Bahamas on hold to satisfy the debtor's concern that they've really just articulated to you now. What is the prejudice by having them doing? Well, it's going to upset the plan process,

and it could possibly tell people that our view of the contracts is wrong. We could fix that. But what we can't do is have them use the stay as a sword to deprive us from doing anything on the idea that your honor is going to be instructing the JPLs how to treat the property over which you don't have jurisdiction, and the customer relationships that they have,

over which you don't have jurisdiction. So we're just asking, lift the stay to allow us to file the application. We're not prosecuting it. And if what we're talking about is putting a provision in the order that says, and pending further order of the court, the Bahamian court shall not take any action. And if it takes any action, that action will be void.

That gives us the opportunity to have a discussion and decide these issues, rather than have the debtors in the evidentiary record say, I'm not talking about it under any circumstances, and then come up in front of your honor and try to say, well, if we just discussed this, it all would have been worked out. We can work it out.

Not trying to tread on your jurisdiction. I'm not asking for your jurisdiction to be curtailed in any way, your supervisory powers to be curtailed in any way, just trying to solve this issue without leading to a diplomatic event between the United States and the Bahamas over two courts saying, I'm not listening to the other. Thank you, Your Honor.

All right. I'm going to think about this overnight. I'll give you my ruling tomorrow, but I will tell you now that under no circumstances would I ever defer a core jurisdictional issue to a foreign court. And the core jurisdictional issue here is whose assets are these? And there are assets over which I have in rem jurisdiction.

And that's something that has to be decided here. I understand the Behavi court may have concurrent jurisdiction, but as a practical matter, they don't have access to the assets. Only I have access. Only I have access to the assets. So I'm going to ask the parties to talk this evening, see if there's any way to resolve the issue based on the arguments that I've heard about what the limitations are, on what the JPLs are asking for. forward and I will think about how I'm going to ultimately rule and I'll do that tomorrow at the hearing okay thank you thank you your honor do we want anything else to go forward today or do we want to still have a little bit of time do we have enough time sure for the record Adam Landis on behalf of FX trading

we'd like to try to get as far as we can on an evidentiary basis on the ceiling motions if your honor is inclined to let us push through. Let's go. Thank you. Thank you, Your Honor. Again, and for the record,

Brian, Bucksie and Sullivan and Cromwell. The next motion, as Mr. Landis, indicated, is the joint motion of the debtors in the committee for an order authorizing redaction of certain confidential information of customers. And individuals, We do have the parties jointly have two witnesses with respect to this motion. Mr. Kovsky, the debtor who testified on these issues before the court previously and Mr. Sheridan.

We, as the debtors, would like to call Kevin Kossky to stand as a close with. All right. Mr. Koski. Mr. Gossack. Mr. I'm sorry, I have for the record, David Wender, with Eversheds, counsel for the ad hoc committee and because the motion to some roll the above the other than the end of the end of the same evidence and present supplemental argument which is the ad hoc for these motion as well yeah I'm sorry your honor I mean the ad hoc

motion is obviously related and so we did think it made sense to at least have the court consider the evidentiary basis and ordinance together that's fine thank you your honor if I may yeah campus well again Paul Hasten for the committee one thing just so your honor is aware of how we plan to split responsibilities on the joint motion. The debtors will be responsible for the 107B presentation and argument, and the committee will be handling the 107. Okay, thank you. Please raise your right hand.

Please state your full name and spell your last name for the court record, please. Kevin Michael C-O-F-S-K-Y. Do you affirm that you tell the truth, the whole truth, another but the truth to the best of you know and abilities I do you may be seated your honor good afternoon mr. Copsky can you please provide the court as a reminder with your background and experience please as you would yes I am I'm a partner at Perela Weinberg Partners I was I was an analyst at Hulahan Loki in the restructuring area for two years before I went to University of Pennsylvania Law School and University of Pennsylvania FFEL Center of Government.

I practiced law for several years, clerking as well as as a corporate lawyer, Krabats, Wayne & Moore, and then returned to banking and have been focused in a restructuring area since approximately 2001 and I've been a partner at Porella I've been at Porella since 2007 and I've been a partner since 2015 mr. Copsky can you please describe briefly for the court the scope of work yourself and your colleagues at Ferella and Weinberg partners have been doing pursuant to your attention in these chapter of my cases for the debtors yes Pearl and Lembered Partners is acting as the investment banker to the debtors in this matter.

A number of wide-ranging areas, including the exploration of the monetization of various assets, as well as working with the other professionals and the management team, the board, and the other stakeholders to evaluate a potential plan of reorganization and the ultimate exit of the Chapter 11 cases. Can you please describe briefly for the court of your experience in terms of monetization of businesses, including with respect to customer lists? Yes, I think we've dealt with this in my prior testimony,

my declaration. I have represented a number of companies and businesses with respect to 363, SETA, and plan of reorganization sales, a number of which involved customers. And as I testified previously and as was in my original declaration, my understanding and belief is that the customers have, in this case, material value to the estate, the identities and the lists of those customers and the ability of other competitors to gain knowledge of those customers would be detrimental to the estate.

Just speak up with your friend. Yeah, I'm sorry, I can do that. Is that better? Mr. Knoffsky, can you please elaborate a bit to explain to the court your view today, as you see it here today, as to whether you believe there is value in the FTX debtor's customer list? I do. As I indicated earlier, part of the work that Prol-Lymburg Partners is undertaking is an evaluation of the potential to monetize or reorganize the assets of the estate, including the exchange. The estate has approximately 9 million customers, and as we evaluate the potential for the treatment of that exchange going forward,

we believe that the existing customer base is extraordinarily valuable. Our understanding is based on our research and having looked at the costs incurred by other crypto companies, specifically to solicit customers. We have also already engaged in a significant outreach process with respect to solicitation of third-party interest in participating in a process to either acquire, invest into, or reorganize the FTX exchange. And based on those conversations, again, it's our understanding that the existing customers are extremely valuable and valued by folks who would be interested in investing into a reorganized business.

Mr. Kossi, do you have a view on whether the debtor's customer lists are potentially, source of value in a situation where the debtors reorganize versus sell the exchange? I think that the existing customers and that list is valuable in both contexts. To the extent that the business would be reorganized, those customers would likely be very interested if they're going to own a portion or a significant portion of the reorganized business, they would be very interested in trading on that exchange to generate incremental equity value, enterprise value, for their new holdings of that. Similarly, if the estate monetizes or seeks an investment from third parties into the exchange,

that same value would ultimately in order to the benefit of those customers. Do you view the debtor's customer list is potentially having value on the independent basis? I do. Again, as we have seen in... I'm going to restate the question. Mr. Kopsi, do you have a view as to whether you might be able as a debtor's investment banker to monetize the customer list itself and create value for the estate? Yes.

So I understand the question to be... You've asked me if I think that the identities of the customers and the customer list would be valuable to the business if it's reorganized and the business by third parties if it is sold or otherwise seeks a third party investment. I take this question to mean would the list be valuable if we were unable to sell or chose not to sell and or were unable or chose not to reorganize but simply to sell the customer list and I do believe that would be valuable. and the basis for that belief is the conversations we've had initially with third parties. You testified on these issues before this court back in January with respect to the same questions about sealing the customer list. Do you recall that? I recall that, yes. And do you recall at the time back in January you offered testimony to the court around the question of whether disclosure of the customer this would jeopardize

the debtor's ability to maximize value. Do you recall that? I do. As you sit here today, do you have a view today as to whether the immediate disclosure of the debtor's customer list would jeopardize the debtor's ability to maximize value? I do. I believe that releasing that information, that information is valuable, as I said, and I think that releasing that information would impair the debtor's ability to maximize the value that it currently possesses. Stikovsky, could you please provide information for the court as to what you and your team

have been doing since January in order to try to begin to realize the value from the customer? Yes, as I indicated, we have spent considerable time working with the debtors other professionals, the UCC professionals, to evaluate the... evaluate the potential for a reorganization of the exchange, the core exchange, as well as the potential to seek third-party investment into that or to sell that exchange. And as I indicated, we have reached out to a significant number of third parties and have begun the process of discussions with respect to that evaluation process with those third parties. And can you just clarify when you say the court exchange, what you're referring to there?

The international exchange, although we've also evaluated the U.S. exchange and the potential for that to be reorganized or not. In your view, is there still work remaining to be done with respect to realizing the future, if any, of the FTX.com exchange? Yes, there is still significant work to be done, as I indicated. We have been working hard to evaluate and seek to implement the potential to reorganize that exchange, but there's a lot of work that would need to be done in order to accomplish that. In addition, as I indicated earlier, we have begun the process of discussions with third parties, but we're in the early stages of that process, and that will take some time. Is you here today, do you have any sense as to generally how long it might take?

to complete that process? The process, it's a great question. I don't have specificity for you. The process is uncertain insofar as we're relying on third party participation to understand the interest in acquiring or investing into the rehabilitation of that core exchange. We are also potentially going to implement that we organization. through a 363 sale or through a plan of reorganization. So in many ways, the ultimate outcome may be tied to the outcome of this case,

and it's difficult to determine with specificity exactly when that might be. What is your view with respect to your ongoing process from the immediate disclosure of the debtor's customers, if any? Can you repeat that question? Sure. Let me rephrase the question. Do you have a view as to whether your current process would be impacted by the immediate disclosure of the debtors' customers? Yes, I think it would be negatively impacted, potentially significantly. Mr. Krofsky, in connection with your ongoing analysis,

has you and your team formed the view as to whether competitors would be able to locate, and contact debtors' customers if only their names were publicly disclosed? We have. I testified briefly on this, excuse me, in my last testimony. We've gone out and looked at the top 200 customers to validate what I had testified with respect to a smaller number of customers. And with that... I'm going to object based on his prior testimony. I understand. this was not personally done by the witness so maybe he could clarify to what extent he did this work personally establish a foundation mr. Kovsky let's back up a half step can you describe your involvement in the work that you're beginning to talk about with respect to the analysis of customer names in preparation of your

testimony yes I personally looked at the spreadsheet that included all of the names and I directed my team to do the research to determine the extent to which they would be able to identify customers on that list based solely on the customer names and I discussed it was an iterative process and we talked about the methodology to do that and we talked about what information was located and whether that ultimately could be deemed to be an identification or a highly likely identification or something else. I would object to any testimony based on what any other person told this witness and not what he himself.

If he did the research, it sounds like he did not. So I object to any testimony that's based upon information that was given to him by another person. Your Honor, I believe Mr. Kovsky should be able to testify with respect to work that was done in his direction, that he was involved with and reviewed as for the outputs of and has he's prepared to testify. A little overruled the objection. Thank you, Mr. Kovsky, we were talking. You said the further into the discussion that in the testimony you provided in January, you subsequent to that commissioned and participated in a analysis of the debtor's top 200 customers, correct?

That's correct. I'm sorry. Would you mind if I get some water please? Oh, sure, sure. Hold on. Thank you. Never saw such a flurry of activity? A lot of people standing at the ready, too. I thought the question repeated because I didn't hear how many customers it was. Mr. Kossacki, could you please explain for the court the scope of the analysis that you commissioned with your team on the topic of, whether revelation of customer names would be enough for competitors to locate those customers?

Yes, we looked at the top 200 customers, which I recognize is a subset of the 9 million potential customers based on the dollar amount of the claims at petition date that would represent approximately 2.4 billion of claims, which we thought was a reasonable set of customer names to review. And can you describe for the court both the analysis that you did and the findings of that analysis? Yes, we did an analysis by looking through Google, by looking through LinkedIn, and by looking through Twitter feeds. This is not our core area of expertise. I actually believe that a well-funded and persistent party might be able to gain more confidence, but we wanted to be reasonable with our time,

and the results were we thought were compelling. And the results were that with respect to, we looked at this from a, I can describe it on a percentage basis as well as a dollar number of claims, but the percent of the 200 customers that we were able to identify purely on the basis of names was approximately 46%. Um, 34% of those we deemed to be, um, highly likely that we had identified them. Um, the, uh, additional 12% we viewed as likely, um,

but not 100% certain. On a dollar basis, we were able to locate in excess of a billion dollars of those claims, which represented, I believe, I'm sorry, 42% of the 200, the total $2.4 billion. That's the greater than a billion dollars of located claims. Mr. Kossi, The debtors also have customers on their customer list who, as of the petition date, had a zero dollar balance. Correct? Yes.

Do you have a view as to whether customers who had a zero dollar balance on the petition date would still be valuable names if publicly revealed? Yes, I do. Our analysis did not go back to determine the extent to which those people. those customers withdrew significant funds prior to the filing. Our analysis and what I summarized related solely to the value of those claims at the petition date, obviously another work stream will be the determination of whether there are preference actions or not, but even beyond that, to the extent that there were customers who at one time or another had material balances and or traded significantly on the exchange and generated

material value for the exchange, those types of customers would be valuable, I believe, to the exchange going forward. And the customer list that we're talking about, I think, would be valuable to third parties if they were interested in acquiring that, because ultimately they're not focused on whether there's a balance at the time of the filing. They're focused on the extent to which those customers would trade and generate revenue for them going forward. Mr. Kovsky, how did the results of the analysis that you did inform your view, if at all,

as to whether or not disclosure of the customer names on their own would jeopardize the debtor's ability to maximize value? They reinforced that belief. They validated that belief that those customers could be identified with reasonable effort, and that to the extent that the names alone were not redacted and were released, customers would clients, other third parties that would otherwise need to expend resources in order to solicit those customers and or would need to compensate the debtor in order to acquire those identities, would no longer have an interest in doing so,

or would have a lesser, significantly lesser interest in doing so. And does your view as to value of individual, of customer names include both individual and institutional customers contained on the customers? Yes, that's correct. Go further questions, Your Honor. Thank you. Cross. Oh, go ahead. Thank you, Your Honor.

For the record, David Wender, with Ebersheds Sutherland, Counsel for the Adhock Committee of Non-U.S. customers. Good afternoon, Mr. Kosh. Just a few short questions because you spoke about disclosing the name and how that might impact the value. The disclosure of the names or customer information either by the debtor or other parties, that would similarly impact value. Is that you an understanding or belief? Yes. My belief is that disclosure of the names, regardless of who disclosed them, would degrade value. This might be a dumb question and I apologize. Are you familiar with bankruptcy rule 2019?

Not by the number. That's probably. It's a rule that requires when customers or creditors act in concert, they have to disclose names, address, and information relative to holdings. If a group of creditors had to disclose their names, their address, and holdings, would that be detrimental to the value of those people as well? And could that? My belief is that disclosure of any customer identity is.

would degree value. Good. Thank you. Now across it. Good afternoon, Sir Juliet Sarkesian on behalf of the U.S. custody. I do have a few questions for you. Now, some of your testimony related to the value of the customer names in a situation in which the debtor is reorganized, correct?

Correct. And based on either what you heard today or your familiarity with the debtors, do you have an understanding of approximately when the debtors believe they're likely to get a confirmed plan? Yes, I saw the work plan that was put on the screen earlier. It was second quarter, I believe, of next year. Is that correct? I believe that's correct, yes. And do you understand whether from the petition date the customer accounts have all been frozen? Is that right?

That's my understanding. And customers cannot get access to either their cryptocurrency or cash that they have in the accounts. Is that right? That's my understanding. And is it your understanding that that freeze would continue at least until a plan was confirmed and then when effective? I believe that would be the case.

That's my understanding. And so that would be more than a year with these accounts being frozen, correct? Correct? Unfortunately, yes, I think that's the map. Customers can't even get to the cash that they have in the accounts, right? I believe that's correct, yes. So with that in mind, does the fact that those accounts have been frozen for that long impact the value of the customer list?

You know what, I'm sorry, let me withdraw that question. I forgot we were talking about the organization. So if the debtors reorganize, is it your belief that despite having their accounts frozen for over a year that the debtors' customers will want to continue with the reorganized, continue to be customers with the reorganized debtors? I do. I'm also hopeful that we can accomplish an outcome in a shorter period of time. But yes, I believe that at the time at which a...

reconstituted exchange is able to be stood up and customers have the ability to trade on that. I believe that they will want to do so. Can I ask you why you think that? For somebody who's not been able to get the cash out of their accounts, let alone crypto, for over a year, that they're going to want to continue with the company that froze their accounts? Yes. It's a very good question. We believe that if an exchange is reorganized,

it will be done so in a manner which will be regulatory compliant. We'll ensure that the custody of the customer accounts going forward are unambiguously secure and will provide a trading platform that will be first class and given the opportunity from a number of respects to participate on that exchange as opposed to the exchanges that are are currently available to them, they would much prefer to trade on that form of a platform.

And significantly, at the moment, and I believe highly likely, the customers will be by far the largest creditors of this estate. And so if we reorganized the exchange going forward, those customers would be equity owners potentially of all or a significant portion of that reorganized exchange. And so having the ability to transact on the exchange where they are equity owners as opposed to transacting on another exchange where they're generating fees for another exchange that they don't own, I think would be an easy question for them. I think they would much prefer to transact on an exchange where the fees that they're paying

are ultimately benefiting their own equity holdings. Is the concept that you're talking about with the customers being equity holders? Well, first of all, what percentage of the equity do you think that the customers will actually hold? We're talking about 10%? Well, I think we're getting pretty far afield. And the extent we're talking about a plan is information. I'm not sure that's appropriate testimony at this stage. I don't know what the relevance would be at this point.

Well, Your Honor, his testimony was that these customers, these names or customers are valuable if we reorganize with the idea that they're going to stay with the exchange. And he said one of the reasons they're going to stay with the exchange is they're going to be equity owners. That's one of the possible outcomes. One of the possible, so I'm asking him about that possible outcome. What's the question, though?

The question is, when you're saying it's based on, when you're saying your testimony is based on the assumption that they're going to be equity owners, what percentage of the equity are you anticipating that they would own? I think that's speculation at this point. I would object it. I think Mr. Ortecate's question,

this does mistake the testimony, but I think this is all speculation at this point. Ms. Copsis simply testified as to one of the possible outcome. Sustained. Thank you. Let me ask a different question. Your testimony that these customers would remain, you believe that these customers would remain with the FTX platform in a reorganization and therefore their names are valuable.

Is that based on an understanding that they would be getting equity in lieu of getting their actual accounts back, the money that's in their actual accounts? I would hope that we can recover all of the value that people put on the platform, but that remains uncertain. And so to the extent that those customers do not receive 100% of their funds back for any reason, they will have incremental claims. And it's those claims that I'm referring to, which is the extent to which the estate will have assets to satisfy those claims. And I do want to be clear and also responsive to your question. Whether the exchange is reorganized or whether the exchange is sold or whether the exchange is part of a partnership or receives investment from third parties

for a portion of the equity, a significant portion of the value of that enterprise going forward, I believe will be the customers, their identity, and the extent to which they're going to trade on this platform or another platform. So the questions you ask are very good. It's just that, and I apologize for not being able to be more specific, but we're at the early stages of evaluating which one of those potential alternatives we think will maximize value. I understand there's a lot of suppositions in your testimony. I mean, I was just trying to test them, just make sure I fully understand what your testimony

was based on. So let me ask a different question. Do you testify that you also believe that the names of the customers would be valuable, or that they could be monetized either just in and of themselves, right, at customer list to be sold? Is that correct? Yes, I think that's one alternative. And then they also could be monetized as part of a 3603 sale, correct?

Is that also? Maybe I missed it. Yes, I think those may be the same thing, but selling the customer list solely or selling assets together with the customer list, whether those assets include an exchange or some other package of assets is one possibility, I would think. In connection with that, did you have an opportunity to review the declaration of Jeremy Sheridan that has been filed in support of this motion? I did not. Are you aware of whether Mr. Sheridan? Sorry.

Are you aware of whether the customers of FTX also use other platforms, other cryptocurrency platforms? I'm not aware either way. Now I want to go to your testimony about determining that you looked at your people you were supervising, you indicated looked at approximately 200 customers to see if just using their names, more information could be located, correct? Yes, we looked at 200 precisely. And we, the objective was to determine whether we could identify those individuals and locate them. So right, that was my question. What was the other, you were looking for, if you could find addresses, like street addresses or email addresses or both?

We wanted to determine using, again, limited resources, which was just Google, LinkedIn and Twitter, whether we could identify and locate those individuals and find a way to contact them. And so that was the objective, was to determine the extent to which solely the identities of those individuals would be valuable. And part of that value is finding a way to actually locate these people and solicit them if you're a competitor and want to get them to trade on your platform. And so that would be either a street address or an email address or both? Or another way to locate them, for example, on Twitter. Oh, okay.

Facebook, other social media platforms. Now, of those 200, do you know how many of them were individuals versus some type of corporate entity? I don't know offhand. That information was in the spreadsheet, but I don't recall offhand. Those are all the questions I have for this witness. Thank you. Good afternoon, Your Honor. Mr. Mayor.

David Finger, a finger on behalf of the immediate intervening. At this time, I'd like to introduce to the court Kate Townsend, the reporter's committee for the press, the attorney with them for admission prox each has been granted, and with the court's commission, she will present on behalf of the immediate intervener. Okay. Thank you. Good afternoon, Mr. Kossi. My name is Katie Townsend.

I'm one of the attorneys representing the media interveners in this matter. I'll try not to retread any ground that the Sarkesian just covered. But just to clarify, of the, you have no idea sitting here today how many of debtors, 9 million customers are already using a competitor platform. Is that correct? I do not know that sitting here today. That's correct. top 200 customers that you directed your team to take a look at?

You don't know how many of those 200 are already using a competitor platform, do you? I do not know that. Does it matter for purposes of the value that you ascribe to the customer-based, whether or not those individuals are using, or institutions, are already using? other platform? To the extent that they are using another platform for a longer period of time, that injects risk to that value. It would degrade that value over time.

It wouldn't eliminate that value, but sure, we will be competing for those customers. Just to be clear so I understand where the value here is coming from, the value of the customer base is their actual use of the platform, correct? It's not their name, it's whether or not they have an account on the platform. Is that accurate? I don't think that's accurate if I understand the question properly. But the customers are on the platform and occur on the list that I reviewed the 9 million customers because they traded on the platform. platform, they therefore are, because they've traded on the platform and generated revenues for the historical exchange, they therefore would more likely than not be folks who are interested in crypto and would trade on crypto on another exchange or on this exchange. And so the identities of these clients as being customers of

of FTX are valuable to competitors who are looking to attract additional customers to their platform. And it is much more efficient for them to solicit the customers of FTX directly to trade on their platform as an example, then it would be to just have a generalized marketing endeavor. But so long as those customers, even if they're trading on that other platform, continue to trade on the FTX platform, that doesn't affect the value of that customer to FTX, does it? Yes, it does. How so?

So to the extent that we are not currently trading, over time, the longer those customers are on another platform, the greater the risk is. It doesn't mean that they become worthless, but it means that to the extent that we are reorganizing the platform. and we're well aware of this, and time is a critical issue. And so to the extent that we are able to reorganize the platform in a shorter amount of time and get these customers an environment that is secure and regulatory compliant that they can trade on, the less we have to worry about a competing platform.

But like any business, to the extent that your customers are utilizing services at a competitor, they're less valuable to you. Let me ask it this way. If all of the 9 million customers who had accounts at the FTX platform stopped using that platform, the value of that asset, that customer base is zero.

Is that fair to say? No. What is the value of that asset if they're no longer using the platform? Well, those customers are no longer using the platform today because it doesn't exist. It doesn't mean that they don't want to use the platform and it doesn't mean that they have declared that they are never going to create crypto again.

I think quite to the contrary, as I said, with only 200 of the top customers, their claims as of the petition date were $2.4 billion. I think those would be highly valuable potential customers for any platform that people would pay a lot of money to know who those people are and try to get them to trade on their platform. Whether they're on one platform today, all of the other platforms, I'm sure, would like to pay to know who those people are. What's your basis for saying that you're sure that other platforms would pay to know who those people are? As was indicated in my original declaration, the other exchanges have programs in place.

they pay money for referral programs, they pay commissions to solicit customers. So those customers are valuable, and finding them is worth paying for. They've indicated that through their actions. And in our early stages of outreach with respect to the third-party process, we have received that input that the customer lists them. themselves are valuable to people. Have you done any kind of survey of customers to test their views on whether they intend to stay with the platform, whether it's reorganized or sold or continues in some other fashion?

We have not had a formalized outreach process, but we have had a long engagement and robust process. The process that I described for the potential reorganization and the third-party outreach is being done together with the Unsecured Creditors Committee that represents those customers, and we have regular conversations with the members of the committee themselves who are customers. But you didn't attempt to undertake any of the kind of survey or research in connection, specific research to ascertain that information? I want to make sure we haven't undertaken a broad market analysis but I want to make sure I'm answering your question. Is that what you're asking? You haven't attempted to specifically identify or do any kind of like I said survey to identify how many of the let's say top 200 customers would want to stay on the continue to trade on the platform, have you? I have not asked them now. You testified previously that part of the basis for your opinions were bids that you examined in the Celsius bankruptcy, is that right?

I don't think I said that. I believe you testified that on the January 12th, during the January 12th, second day hearing, that we also, and I'm just to refresh her recollection, we've also reviewed the bids that had been submitted in the Boy of Board of. major case and in the Celsius case and took note of the fact that not only were customer assets and this being acquired in and a value ascribed to the business itself, but that these were actually incremental elements of value which would be allocated to each customer that went on to the acquires platform. Do you recall that testimony? I do. I would prefer if you can put that in front of me, if that's possible if you're going to ask questions about that.

If it's helpful, I don't intend to ask questions about the testimony itself, but I did want to ask a little bit about the bids that you reviewed in the Celsius case. I don't know that I said bids. I would like to see what I said to make sure that I it was five months ago and I want to make sure that I let me strike that. Have you reviewed bids in the Celsius bankruptcy case? In the Celsius case, yes, I did. And there was recently a three-way auction in that bankruptcy case. Is that correct? That's correct. Okay. And that three-way auction involved Berenice, which was the Whitting Bitter, is that correct?

They have been selected as the highest and the best, but they have not, to my knowledge, been approved by the bankruptcy court yet. Okay. And did you review Berenheight's bid in the Celsius bankruptcy? I did. I'm not sure it's proper for me to be speaking about anything further about that in this matter, given the confidentiality agreements I have in that case, but yes, I did. Your Honor, I'm going to object at this point.

Ms. Kovsky has not testified at all today about anything in the record of this hearing with respect to Celsius. Counsel is now asking him about bids that are pending before another court that he may have reviewed outside of his engagement for FDX. So I don't see how this is either responsive to his direct testimony or performance. Oh, Your Honor. He previously testified that part of the basis for his opinions and the opinions that he's offering are bids that he reviewed in the Celsius bankruptcy matter and in the Voyager bankruptcy matter. There have been some developments in those cases that I think I'm entitled to ask him about, given that he is here to update his testimony on things that he has learned or what has proceeded since the January 11th hearing. Well, I think he testified that he didn't recall testifying that he had reviewed bids, and that's why he wanted to review the actual testimony itself, which he didn't show him,

so I'm not going to hold him to that. And if he has confidentiality agreements, he's representing somebody else in connection with the Celsius case. I'm not going to let him violate those confidentiality agreements. I'm happy to show him the testimony, Your Honor. He's already testified that in those bids that he reviewed, there was incremental value attached not only to the customer base as a whole but individual customer names that's the entire basis of his testimony so I would like to explore that to some extent I don't know it's the entire basis of his testimony but your honor it's certainly

has the entire basis and it's zero percent of his testimony today and the bid that counsel is asking him about now didn't exist in January she's asking about a bid that by her recitation of this was just put before the Celsius Bankruptcy Court so I renew my relevance of action I sustain it let's move on just one moment no further question thank you any other cross redirect no further questions John thank you thank you so now we have mr. Sheridan I'm anticipating he's gonna take more than 25 minutes yes and I hate to leave witnesses I hate to leave witnesses hanging overnight if it's not necessary.

Since we're coming back tomorrow morning, why don't we just pick up with Mr. Sheridan in the morning? Anything else we can do in the meantime before we recess for the day? Your Honor, just to clarify, what time would you like to resume tomorrow? Let's start at 9.30 tomorrow. Thank you very much, Your Honor. Any else before we recess? Not from the dentist, Your Honor. Thank you. Thank you. We'll recess till 930 tomorrow morning.

Thank you.