American court hearing recordings and interviews - Season 2. Episode 7. October 24, 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: October 24, 2023

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Please receive. Good morning, Your Honor. And may it please the court, Adam Landis from Landis, Rath, and Cobb, on behalf of FTAX Trading Limited and its affiliated debtors. We are here on what started out as a rather extensive agenda,

but now has been narrowed down to just two matters going forward. We appreciate Your Honor's entry of orders in connection with items, numbers 7, 8, 9, and 10. So those matters need not go forward. We only have two matters that will proceed today. The first is item number 11, which is the second joint motion of the debtors and the committee of unsecured creditors for an order authorizing the redaction or withholding of certain confidential information.

That will be handled by Mr. Gluckstein, that's all about Cromwell. The second is item number 12, which is the debtor's motion for entry of an order granting leave from Local Rule 307-1F in connection with substance. of claim objections. That will be handled by Liz Brown of my office. But before we get to those matters, Mr. Dieter, if Sullivan and Cromwell, has an update for the court. So I'll yield the podium to him.

Deidre? Thank you, Mr. Landis. Good morning, Your Honor. Your Honor, we, believe it or not, are approaching the first anniversary of the case. In the jury. Exactly. Exactly. It's been a very long but productive.

year. I'd like to take a moment, if I could, to put in perspective briefly what this court's protection has meant to creditors. On the eve of our filing, if you go back in time, the November 10th, global creditors face the possibility, the real possibility of a near total loss. This was not a simple bank run. Banks keep records and know where their assets are. This was different. Regulators were seizing assets. Insolvency filings had started in the Bahamas and Australia, the founders of the company were facing criminal prosecution, the general counsel couldn't be found, companies in the group had no books and records of significance, and many had never had board meetings. What digital assets remained have been left with little

protection against theft or hacks. And what changed everything was the filing for bankruptcy in this court. There was no other choice at the time. There was nowhere else to go. The automatic stay in the U.S. bankruptcy system and its openness to foreign debtors made this result possible. We're asked constantly if we can project creditor recoveries. We cannot yet, not with certainty. But I will say this. They could easily have been pennies. Had FDX been subject to separate liquidations, fire sales, government seizures, and hacks all over the world. There could have been nothing wrong. Now, the central actor in this rescue is John Ray, who made the call to file over 100 companies for bankruptcy after three hours on the job.

But he has not been alone. We have a very active board of directors with whom we spent several hours a week on FTX matters for over a year. And we have an extremely engaged official committee of predators, one of the most engaged I've experienced in my career. The individual members have devoted countless hours to this case, countless people, personal time, many of them without compensation. And we have an active and passionate customer groups. Your Honor may note that many of them sued us near the beginning of the case, filed

adversary proceedings and customer property issues. Well, our solution to that, our invitation, which they accepted, was to come in the kitchen of this case and help us formulate a plan, and the result has been a better plan and a better process. So today, Your Honor, I'm very pleased to speak for the debtors to say we appreciate all the work by so many parties, that have created this, that have taken this very, very complicated case and resulted in, although still substantial time in demands from Your Honor, a relatively small amount of court time compared to the amount of time that has been spent by the professionals out of court.

And I think that's a testament to everybody's attitude in all of the meetings and negotiations that we've had over this year. I was surprised by that myself, how much, how little there's been litigation so far. but I feel that might be coming down the road. I do not want to jinx anything by saying it will continue, and we should always be ready to, let's it, you know, prepare for the worst, but hope for the best. We've certainly prepared a lot more litigation than your honor to see.

So where do we stand? Well, there's a couple things, I think, to bring to the court's attention. First, we have a proposed architecture now for a plan of the organization, and that architecture, I'm pleased to say, is supported by every constituency with whom we consulted about the plan structure. The plan is the result of public solicitation of comments from stakeholders, an unusual step that we took given the complexity of the case and its public significance. Your Honor will note that we circulated a draft plan, filed a draft plan publicly on July 31st, and solicited public comments on a number of study questions for the group.

Well, we have answers in dialogues and conversations on each of those questions, and we think they've been fairly resolved. We have a proposed settlement now of customer property issues in the case. The settlement has two key components. One is in the plan, and the other is an offer to settle preferences, because the customer property issues, of course, relate to both what we're doing in the plan of reorganization and a defense customers might assert to preferences. Neither of those settlements is being proposed to the court today, but given their significance, spend just a moment on them.

The plan settlement follows the architecture and the draft plan. The plan creates three pools of value, one for the dot-com customers, one for the US customers, and a general pool. And I'm excluding from this, Your Honor, certain pools of value for separate subsidiaries that have their own logic to them. But in the main case, there's three of these pools of value. Each customer pool includes the assets that were segregated and a

identifiably segregated for customers at the commencement of the case. But there's a shortfall in each pool. The assets that are still there are less than the customer entitlements against those assets. So also in each customer's pool is what we call a shortfall claim. And the shortfall claim is a claim against the general pool for the return of the missing money. That shortfall claim has been the crux of the negotiation we've had with customers over the last months. Because there's a question.

How should it rank? Is it a general unsecured claim side by side with other customers? Or is the nature of the facts of our case such that the shortfall claim really should be seen as a constructive trust claim or a floating charge imposed for equitable reasons on the rest of the estate? And there's strong arguments on both sides. There's also tracing questions that are raised. You've finally broken loose from work. Three friends, one T-T-Times.

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.

Negotiation was hard fought, record for it. participating in it were not just representatives of customers in both of the pools, but also the debtors, the Creditors Committee. Preference settlement, Your Honor, is a general offer that the debtors have agreed to make in the plan of reorganization. That offer is an offer to customers that are defined as eligible customers, and we'll get to that in a moment. Eligible customers are given the opportunity to accept a preference offer settlement from the debtors, which is calculated in a particular negotiation.

And that calculation focuses on the change in trading activity that happened nine days before the petition date was filed and identifies a nine-day period where there's a kind of a modified preference look-back period. And the preference settlement is an offer for 15% of the net exposure entering that period of time. And customers are permitted to settle that preference exposure. in their ballot, which will be identified. They'll be identified both the amount of their claim and the amount of their preference exposure. They're permitted to voluntarily elect

to settle that preference exposure, either by credit against their claim or by payment of cash. Customers don't have to take that offer, Your Honor. They can say no, in which case it'll be resolved in the ordinary course. Now, there's a large number of customers that may not be eligible for that settlement.

We've excluded from that settlement, not just obvious categories of affiliates and insight insiders, but in the public disclosure and the papers we'll file as a categorization of other excluded customers, which includes, importantly, customers against whom the estate has some other cause of action unrelated to preferences, or customers for whom the facts of the circumstance suggest to the debtors that the settlement would not be fair to the estate. So that process will unfold, we'll have papers for it. The other thing I would say, Your Honor, just to be clear, to get the terms right, we have

the minimis concept in the preference settlement so that customers with less than $250,000 of preference exposure are excluded. But customers are caution not to rely on my statements today about this, but to read the language that is now public in the term sheet that we circulated with the plan support agreement. The next item, Your Honor, is the plan support agreement. We have one. This is also not something we'll be seeking court approval of. debtors not bound by it, but it is an important step forward because we have planned support

commitments from the customers that had filed the adversary proceedings, as well as support from the official committee of creditors. So that's a great milestone for us. The plan support agreement does have some milestones, but the milestones won't surprise your honor that the same milestones we've been using in this case from the beginning in terms of our plan timetable, which involves to simplify a plan and disclosure statement that we intend December 16th, a disclosure statement hearing in March, and confirmation of the plan really as soon as we can, but probably in the middle or near the end of the second quarter. We also, Your Honor, are trying

and have, I think, are also making progress on some of the other items that we've identified as matters that would otherwise result in difficult or complicated plan. mitigation. And I want to run through those briefly as well. The first is our dispute with the JPLs in the Bahamas. Well, I'm pleased to say we are also, under the guidance of Judge Fitzgerald, having constructive dialogue with the Bahamas. And we hope to have good news on that front sometime later in November. We're also building an approach to another issue that has worried us from the beginning of the case, and we know is near and dear to many of our customers. How do we value digital assets for the purposes of our plan.

In November, we'll be filing a motion to estimate digital asset values for purposes of plan treatment. The motion is being prepared, like everything we're doing, in consultation with the official committee and the ad hoc customer committees so that issues and disputes are avoided wherever possible before we get to court. But that's an important milestone for us as well, Your Honor, because although many digital assets are relatively straightforward to value. Other ones have circumstances that will raise disputes if we don't call those out and try to resolve those now. So rather than wait and embed

those issues in confirmation litigation next year, we're going to try to bring those forward and resolve those by omnibus estimation soon. We also, Your Honor, have broken a logjam with our official committee on the monetization of our assets. The debtor's general, you know, generally have sought to monetize assets promptly. Sometimes our official committee has been more inclined to hold assets in the hopes for future appreciation. This is a legitimate business discussion and I'm pleased to say we have consensus

on what we will be selling immediately and what we are holding for a little while longer given market dynamics. Your Honor knows we have a merits settlement with Genesis and we have procedural settlements with Voyager and Blockbought. The S&C team of the is very happy to see these settlements because they avoid what are some of the most difficult issues we face in the case that relate to the venue questions when two debtors collide.

But I think we have navigated all of that so we know that even though we have disputes with some of these other debtors that remain to be resolved, we have an understanding of where those disputes will be resolved and in what kind of a process. Finally, Your Honor, we've done this work while assisting with regulatory and criminal investigations around the world, including the prosecution of San Bain and Freed, whose trial continues in front of Judge Kaplan in New York. We've done so cooperating with the government authorities, not just because it's the right thing to do.

We've done so because it's in the economic interest of our creditors. Cooperation with the governments around the world has implications for our plan. Since customers and other creditors, as well as the corporate entities, were, in our view, The plan subordinates government fines and penalties around the world to creditor recovers. We are asking government creditors to join this class voluntarily. And as an example, You've finally broken loose from work. Three friends, one tea time, and then the text.

Honey, there's water in the basement. Not exactly how you pictured your Saturday. That's when you call us, Cincinnati Insurance. We always answer the call because real protection means showing up, even when things are in the rough. Cincinnati Insurance. Let us make your bad day better. Find an agent at CINFIN.com. The CFTC in the U.S. submitted. So, Your Honor, we're going to continue at pace. We intend to make progress prior to effectiveness and not to wait for effectiveness. on many of the things cases do after effectiveness. We will continue to resolve the material claims,

so you'll see claim objections from us over the next months, especially on our larger claims. We will continue to sell material assets, and you'll see asset disposition motions. And we'll continue to pursue material outbound litigation. This is not a case where we're going to wait for the formation of a litigation trust some way, someday, and see how it does. But the material pieces of litigation we intend to commence during this case.

case. Our goal is not merely to confirm a plan and then go home. Our goal is to make distributions to customers as promptly as we can. And to do that, we know it takes a lot of work now. So as we walk into confirmation and effectiveness, we don't have the large reserves for disputed items that have delayed distributions in other large cases, sometimes for many many years. So that's our status and a little bit of our philosophy on how to conduct this, and I'm happy to take any questions, Your Honor. No, I don't have any questions at this time. Thank you. Thank you. Anyone else wish to be part of my own? Yes, thank you. Ken Pascuali from Paul Hastings for the official committee. Let me start, Your Honor. I very much

appreciate Mr. Dietrich's acknowledgement of the committee's hard work in getting us with debtors with the ad hoc group and the other stakeholders to where we are today. As Mr. Dietrich said, our members have been very actively involved. As you know, they are residents all over the globe, came to New York for a series of meetings and those meetings and the negotiations that Your Honor knows we were pushing to have as soon as possible resulted in the plan support agreement and the structure that Mr. Dietrich outlined. There's a lot of work to do.

We're looking forward to doing it with the other stakeholders as we proceed. And I think I just, the only other thing I'd like to say is picking up on Mr. Dietrich's last comment. The milestones are what they are. We would like to see and we will be doing our best, as I know the debtors will, and the other stakeholders, to move as fast as we can and do better than those milestones. Because the goal here is to get recoveries to the creditors, to the customers at the earliest possible date and obviously maximize those recover. Thank you. Thank you.

Good morning, Your Honor, and may it please the court, Matthew Harvey from Morris Nichols-Arston Tunnel on behalf of the ad hoc committee of non-usfpx.com customers. Again, Your Honor, I want to echo Mr. Pasquale's comments, Mr. Guter's comments, and thank them for acknowledging the hard work that the ad hoc committee put into this. Your Honor, it It really took months of hard-bought negotiations, but we were pleased that the settlement that was ultimately reached of the customer property issues gave appropriate account to the customer property arguments that we have been advancing since the beginning of the case and

also resulted in what we believe is a favorable framework for preference settlements. And Mr. Dietrich mentioned, excuse me, customers are not required to take that settlement. We do think it's a favorable framework for customers to settle into should they so desire. buyer and again your honor we're pleased with the outcome here and it's not stated directly in the document file with the corporate in the accompanying press release from the debtors the debtors noted correctly did they expect that this will result in approximately 90% of distributable value in the states globally going to customers again the ad-out committee was pleased with the cooperation of

parties in the outcome here thank you thank you anyone else okay your honor any here just one one point and it's not at all A contradiction, thank you and thank you. I just wanted to say one more time because there's been a little bit of confusion among some of the press on the 90% number, and I want to underscore what that is and what that is not. We do not know what the level of customer recovery

in the case is going to be. We're hoping it's a nice recovery, but we don't know. In the press release, there's some factors that we listed for people to consider about what will drive actual recoverers, including the size of the claims pool in this case, which is also an open question. The 90% number is a number that we use simply to demonstrate the following,

which is based upon our current assumptions about assets and liabilities and the size of the claims pool. We estimate that 90% of global value, whatever global value there is, will ultimately go to customers in the case. It could be a 20% case or a 20 cent case or a 40 cent case or an 80 cent case or 100 cent case. right we don't not know the answer to that yet but we are projecting at this time is a substantial majority the lion's share of value that we have to distribute is going to go to customers internationally or customers in the United States i just wanted to clarify that i understood that

i think i think for the press the idea is the 90% is what's expected to be distributed based on whatever the recovery ultimately turns out to be we don't know what that recovery is at this point Okay. All right. Good morning, Your Honor. For the record, Brian Bluxte and Sullivan, Cromwell for the debtors. The first item going forward on this morning's agenda is item 11, which is the second joint motion of the debtors in the committee, seeking an order pursuant to section 107B, bankruptcy

code to extend for another 90 days, the period by which all customers' names and addresses are redacted from the public record. Your Honor, in support of that motion, we have in the courtroom this morning, Mr. Kevin Koski, Perilla Weinberg, partners, who is, we'd like to call as a witness to make the evidentiary record we need in support of this motion. Okay. Come forward. Please take the stand and remain standing for the oath. Please raise your right hand. Please take your full name and spell your last name for the court record, please.

Kevin Michael Kofsky C-O-F-S-K-Y Do you affirm that you tell the truth, the whole truth, and know that the truth to the best of your knowledge and abilities? I do. You may be seated, Your Honor. You're ready, Mr. Kovsky. Thank you, Your Honor.

Good morning, Mr. Kovsky. Good morning. Mr. Kovsky, you have testified for the court twice previously in support of... 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. My career is an analyst in financial restructuring at Hulham. attended the University of Pennsylvania Law School and the fellow center of government. I was a Chief Justice Porz in the New Jersey Supreme Court, McAvast, Wayne and Moore. And then I joined Evercore

Partners, ultimately as a managing director, and I left Evercore to join a predecessor firm to Porella Weinberg Partners in 2006. And I've been with Porella since that time, focusing most of my career in restructuring and liability management. Mr. Tukowski, can you please remind the court as to the scope of work to which you and your colleagues at Perilla Weinberg partners have been retained to assist the debtors with in these cases? Yes, we've been retained as the investment banker

for the debtors, and to that end, we have been asked to monetize a number of assets to evaluate various ways in which to maximize the debtor's assets. And does that work include any work with respect to monetization of the debtor's legacy exchanges? Yes, we've spent considerable time evaluating the potential to either reorganize the legacy exchange assets or to partner with others or to sell those assets.

And you're personally involved in that work? Yes, I am. Mr. Kowski, have you become aware of information since you've been aware of information, your prior testimony in June of 2023, that changes any of your prior opinions as to the need to keep the debtors customer information confidential? No. In fact, my experience since my last testimony only serves to enhance my view that the value of those customer identities to the estate is high and very important. Mr. Kovsky, are the customer lists, the name, addresses information of the customers a source of value in your opinion to the

debtors if they were to sell the exchange assets yes how about if the debtor were to reorganize the FTX exchanges in some way would they be a source of value to the debtors yes they would and how about do you have an opinion as to whether the debtors customer information names and addresses have value to the debtors on a standalone basis if they were to be monetized simply as information? Yes. And can you elaborate just a little bit as to your views

as to the potential sources of that value? Sure. As I testified previously, actually I don't recall if it was in my declaration or my prior testimony, but we have been engaging in an outreach process with a number of interested parties to either acquire the legacy exchange assets and or to partner with the debtors in connection with the relaunch of the exchange. We've been evaluating that process relative to the potential to reorganize the assets

on a standalone basis. As I testified previously, that process has been quite robust. and we, on the basis of my discussions with those counterparties, it has become very clear that they place significant value on the identities of those customers and the potential to have those customers continue to utilize the new platform, whether that's a reorganized platform, a partnered platform, or a sale to this potential investor. and the exclusive access to those customer lists is very important and has been a critical element of our conversations. And where are you in that process today? Take us from June through today as far as what you've been doing in terms of the process to monetize the test? Sure. We initially had very broad outreach, number of inbound, over 70 parties that were contacted or contacted us.

We have narrowed that significantly based on our evaluation of the indications of interest. We are now engaging in robust discussions with a handful of parties. We are engaging in, they are engaging in diligence, we are engaging in diligence, and we are having very detailed conversations on a regular member. basis regarding the terms and the structure of the potential transaction. Mr. Kossacki, do you have a view as the timing for the debtors to potentially conclude the process and enter into a transaction? I don't have a specific date. These are very complicated transactions, given the regulatory

framework and the complicated nature of these cases. I am optimistic that we will be in a position to have either a stalking horse bid or will have made a determination with respect to a reorganized exchange on or prior to the date that Mr. Diderick referred to earlier, which is the December 16th milestone. Mr. Kossacki, do you have a view of the debtor's investment banker today whether the immediate disclosure of customer names and information, names, addresses, and other identifiable information would jeopardize the ability to maximize that value? I do.

As I stated earlier, the exclusive access to the identities of those customers and the potential to bring those customers onto a reconstituted or new exchange is a critical element of the discussions that we're having with these counterparties. So I think it's clear to me that disclosure of those customer lists and those names would significantly impact our ability to consummate a sale and maximize pay. Thank you. No further questions, Your Honor. Thank you.

Thank you. Thank you. Good morning, Your Honor. Good morning, Mr. Kofsky. Katie Townsend on behalf of the Newt, New York, Bloomberg, the Wall Street Journal, and the Financial Times. Mr. Kofsky, you recall we met each other back in June. I believe your testimony was that since that time in June,

Your view of the potential value of the names of debtors, creditors, customers has not changed in any way. Is that accurate? I'm not sure that characterizes what I said. Okay. Then let me ask it this way. Since June, has your view of the potential value of the names of debtors, customers, creditors to the estate changed in any way? It has my view. If you don't mind, I want to make sure I'm clear.

When I was answering Mr. Glaxstein's question, my view that the customers, the identities and the customers have value, hasn't changed. My view of the quantum of value has changed as I've engaged in discussions with these counterparties. The value is even greater than I had previously expected. How many counter parties have you been in discussions with that have changed the view as the quantum of value? I don't want to give a specific number because we have, as I indicated, we've narrowed the field from a large number to a smaller number in what we're calling our second round. It's a handful of parties.

How many? Object, Your Honor. We have an ongoing sale process. I think Mr. Kovsky's testimony is about his relative view that there is value. I'm not sure getting into specific numbers and information about bidders is appropriate or necessary. If I may, Your Honor, Mr. Kovsky's a fact witness. He's provided effectively at this point to hearsay testimony about discussions he's had with counterparties. He's not even going to tell us the number, I assume, although I'll ask him. He's not going to tell us the number, I assume, although I'll ask him. He's not going to tell us. identities of those counterparties I think that's relevant to his certainly his testimony but our ability to cross him I think you can answer the number but not identify the individual parties there are three if I ask you and I don't want to confuse you but in light of the courts instruction that you not name those parties you in your mind assign each of them a letter so a B

C party number one Let's call it counter party a The second one counter party B The third one counter party C can you do that and keep them kind of clear in your mind as a is one B is one and C is one? Does that make sense? I'll try to do that Do that? Okay How many conversations have you had with representatives of counter party a where you discussed the potential value of the names only the names? of FTX customer creditors?

I can't say specifically, but certainly over 10. Every conversation that we have, with all these parties, we have been negotiating term sheets and engaging in significant diligence. And so the question of the value of their proposals, is obviously relevant to all of our conversations and a significant element of their term sheet revolves around the extent to which they will have access

to those customers. So certainly over 10 for each of those parties in terms of conversations we've had regarding the value and the value of the customers. During, and let's take any of them, A, B, or C, any of those three third parties, In any of those conversations you've had, has there been a specific monetary amount attached to the names, names alone of FTCS customers? There has been, I want to be clear, the bids are holistic.

There's a specific quantum of consideration being provided. there isn't, by the nature of these proposals, there are not, values not allocated into one group versus another group versus another group of the assets. However, it's clear from the structure of the proposals and the bids in our negotiations that a significant portion of the value is attributable to the identities of those customers. And we're talking about a, to put this in context, we're talking about a digital asset exchange. And so the revenue that is generated from an exchange

is a function of the customers on that exchange and the extent to which those customers transact. And so the customers historically of FTX demonstrated by their historical participation on the exchange that they transacted quite frequently. And so the counterparties are very interested in having that level of customer engagement and future transactions on a platform where they can benefit economically from that. So when you say holistic, the bids are holistic, you mean therefore the exchanges as a whole, which would include customer base. Is that fair to say? Well the proposals are each of the proposals is

different in structure and type but each of the proposals is for an entire transaction so there isn't a proposal for one asset and another proposal for another asset and another proposal for another asset so each while each proposal is different in character each of them includes the purchase and exclusive use of the customers, the historical customers of FDX, and it's been clear as we've engaged in dialogue over price and terms and structure,

that that element is a very significant element of what the counter parties are seeking to acquire. You say it's clear, how is it clear? It's clear based on my conversations and based on the term sheets. What in any conversation that you've had with any of these counterpart parties makes clear that strike that? Let me, so just to be clear, none of the bids or term sheets that you've reviewed with respect to any of these counterpart parties includes as an independent or values as an independent asset, the names of just the names of FTCS customers.

Is that accurate? I'm actually, I don't think that is accurate. Again, these are complicated structures. We're talking about the names, identities, and the potential engagement of these customers on a future exchange. And so the extent to which those customers might engage on the future exchange is a critical element of the value that would be provided to the estate. So the parties have made it clear that to the extent that, let me rephrase, a critical element of the proposals is ensuring that the identities of the customers does not become available to other parties. So, for example, the diligence process has been very complicated because none of the parties who are engaging with want the other parties who are engaging with the debtors to see the identities of those customers. They've made it very clear that they are highly focused on ensuring that they have the exclusive access to the list and the identities.

so that they can contact those parties and they can maximize the potential for those customers to transact on an exchange going forward. And so it's created some interesting logistical obstacles for the debtor to overcome as we have been spending a lot of time with these parties. They've made it clear that they are highly focused on being able to utilize those customers going forward,

but yet they obviously don't want other parties who they're competing with to see those names. So we've been managing through that. So that, to give you a sense of why I have confidence that the counter parties place significant value on the customers, they're telling me that they do. And has any counterparty told you that they assign a specific monetary value,

a specific monetary value to the names alone of those customers? Or is it as, I think I understand your testimony to say it's part of the whole package. Is that fair to say? You've asked two questions. One, no party has told us that they are ascribing X value specifically to the name. Some of the proposals have various components to them, and portions of the consideration that would be provided to the estate

are a function of the extent to which existing customers transact on the future exchange going forward. And so by virtue of that construct, the conversation has been quite clear that the exclusive access to these customers is of critical importance. So we have had specific conversations about that and about the extent to which the value that would be provided to the estate would be conditioned on the extent to which customers transact on the future exchange, or are accessible to others and therefore are not available to that counterparty. Since June, have you done any work to determine how many of FTCS as customer creditors are in fact exclusive or exclusively traded on FDX exchanges? We actually are in the process of undertaking that. in connection, excuse me, in connection with the diligence process that I just alluded to,

there's a complicated undertaking by a third party that will have access to the counterparties lists on a confidential basis and the debtor's lists, and I don't believe they actually look at the list, but they're able to evaluate the extent to which the customers are unique to FDX or the counter party or there's overlap. When will that process be completed? I actually don't know. I was just reviewing emails on this process this morning. So

it's currently ongoing. But as you sit here today, you can't say whether or not let's take counter party A as an example, there's 100% overlap between FTCS's current customer list or names of customers and

counter party A's is that is that accurate I would be shocked if all of our customers were on another exchange but I can't say for certain because I have not reviewed their list and so when you say exclusive when you refer to exclusive access to the names of FTX customers that the counterparties are interested in you mean exclusive in the sense that other counterparties don't have access to that during this big process. Is that accurate? Can you restate that? I want to make sure I answer the right question. You testified that the counterparties you've been speaking to have an interest in exclusive access to the names of FTX's record or customers. When you use the word exclusive in that context,

you mean vis-a-vis other counter parties during the bid process. Is that accurate? Or do you mean something else? No. No, that's not what I mean. It's not a question. There are two elements to that. One, it's not versus only the counterparties to the bid process.

It's to the rest of the world. Because if other parties who would, are competitors, of FTX historically and or sought to compete in this bid process or for whatever he didn't, had access to these customer lists. The bidders in our process would be a significant element of the value that they would be providing would no longer be relevant if they viewed their ability to access these customers somewhere else or if other parties already had access to the identities of those customers and could contact, them and solicit them. So it's not limited to these parties. It's just that these are the parties

who are left in the process because they have provided the most compelling structure in terms to the debtors for the acquisition of these assets or to partner with the debtors. But you don't mean exclusivity in the sense of they're exclusive, necessarily, customers of FTX. You're talking about access to the list of names of FTCS customers. Is that fair to say? I want to make sure I'm answering clearly. The customers are free to transact on multiple exchanges, but the fact that they are customers historically of FTX and that they have been transacting on our exchange is unique to FTX.

And so the counter parties would not have exclusive rights to contact these parties. anyone's free to take out an ad in a newspaper and try to contact as many customers as they would like. But that's different than the fact that this customer list and these specific customers had transacted on FTCS. So I hope I'm answering your question. Since June, have you or anyone at Perala Weinberg partners taken any steps to determine how many FTCS customers, FTX customer creditors would be interested in continuing to trade on the exchange following our sale or reorganization? I don't know how we would do that without contacting those customers.

We have evaluated the historical trading volumes of those customers and we provided that information on a no-name basis with the counterparties which is why they're very interested in engaging in this transaction. whether or not those customers ultimately end up continuing to trade on an FTCS platform, if it's reorganized or sold, remains to be seen because it's up to that customer, right? That's correct. And whether or not that customer's name becomes public may have no impact at all on whether that customer decides to continue to trade on an FTX platform, whether it's sold or reorganized, correct?

I think that's a correct statement, but I don't think that's the relevant question for whether the counterparties see value in being able to contact that customer specifically. Because there's the possibility that that customer will continue to trade on the FTX platform if it's reorganized or sold, right? You lost me. isn't the reason the counterparties see value in the names of the customers because they anticipate that those customers will continue to trade on FTS's platform if it's sold or reorganized. Is that accurate? I think that's accurate, yes. Since June, has any third party offered to purchase a list of the names, just the names,

of FTX's customer creditors on a standalone basis? We did have at least one proposal for that type of structure. Yes. How much did that party offer for just the list of customer names? No addresses, no anything else, just the customer names. I reject your honor. Again, this is an ongoing sale process. The bidders are clearly listening to this hearing.

The question here is an argument is about is there value, it's not the qualignment value. Sustained. Have you attached a monetary value? value to the names, a list of customer names of FTS? No. No further question to me. Thank you.

Anyone else wish to cross? Your Honor, for the record, Juliet Sarkesian, on behalf of the U.S. Trustee, just a few questions, Mr. Kossi. So when do you anticipate the sale process that you're currently conducting, when do you anticipate that that will be at completion? I don't have a definitive date for you. I wish I did. As I said, they're very complicated transactions

and we're engaging in multiple conversations with parties every day on the terms and the structure. I am optimistic that we will have either a plan for a reorganized exchange or a partnership agreement or a stalking horse for a sale. on or prior to the December 16th milestone date. So I think you've talked about three possibilities. One is an outright sale of the customer names

is either as standalone or perhaps as a wider deal. That's one. Reorganizing the exchanges with a partner or the debtor's number three. The debtor's just reorganizing the exchanges on the road. Is that, is that relevant? Sure. In all, are there any of those scenarios in which, let me, let's take it one piece of the time, the outright sale.

Let's say a sale takes place and as part of that sale, the customer names are sold. Would you anticipate that the buyer would ask as part of that transaction that the customer names remain sealed in the bankruptcy? I would expect that they would, yes. So let's take the second scenario where it's not a sale, but there is a reorganization where the debtors pair with a partner to reorganize the platforms. In that situation, would you anticipate that the debtor and the partner would want the customer names to remain sealed in the bankruptcy case?

I can't speak for them, but I would expect to be. but I would expect that they would, yes. And then in a situation where there's no partner, it's just the debt or they're reorganizing, they're going to do a second launch or whatever you wish to call it, of the platform, would you anticipate the debt would again want to continue to have the customer name sealed even after the effective date of the plan?

I would think that the value of the customers to the exchange would remain valuable, even after the conclusion of the case, yes. Do you see any situation in which the debtors would not be seeking to permanently have the customer names redacted? I can only speak from my perspective as the banker trying to maximize the value of the debtor's assets. I can't speak to the legal issues. From my perspective, the value of the identities that the customers will remain. And regardless of whether there's a reorganized exchange or a sale or a partnership,

the reorganized exchange, the new exchange in any shape or form would value, would place significant value on maintaining the confidential nature of their customers. No further questions. Thank you. Anyone else? Mr. Cross. Redirect? No redirect. No further questions. Thank you.

Thank you, Ms. Koski. You may step down. Thank you. Your Honor, if it may please the Court, I think we're prepared to proceed to argument. Let me see if any other parties have witnesses? No witnesses? Okay. Thank you, Your Honor.

Again, Brian Bloxstein, Sullivan and Cromwell for the debtors. By this motion, Your Honor, the debtors in the Committee are jointly seeking to further extend the period by which customer names and addresses, including both individual and institutional customer names and addresses. should be redacted from public filings in these cases, unless voluntarily disclosed by the customer pursuant to Section 107B1 of the Bankruptcy Code. As the Court is aware, it is determined it. Your Honor has determined at two prior hearings, based on uncontroverted evidence from Mr. Akowski, the debtor's investment banker leading the effort to monetize the debtor's exchange assets, that the debtor's customer lists have value and are entitled to protection or Section 107B1. We submit, Your Honor, that nothing has changed.

In fact, Mr. Kowski today again testified and reaffirmed his views that the customer lists have value. And he went further, explaining that the debtors are now in a position to hopefully actually realize that value. And detailed, in his view, the very significant elements of the bids that the debtors have in hand and have received rely on the fact that they get exclusive access to the customer lists, names, and information, and that that is of critical importance to the bidders. Mr. Kovsky testified the debtors are in a very advanced process, whereby they're attaining and evaluating these proposals, each one that includes the potential onboarding of the debtor's customers to another platform.

There is unquestionably, based on Mr. Coss's testimony, value that would qualify these customer lists, names, and addresses as confidentially sensitive information pursuant to Section 107. The value of these proposals could only be realized if the requested relief is granted, and the debtors are permitted to maintain the confidentiality of the entirety of the debtor's customer list. As a practical matter, the names and addresses of the debtor's individual customers are already permanently sealed in accordance with the court's order dated January, June 15, 2023, pursuant to Section 107C of the Bankruptcy Code. That order is being appealed. The sealing of all names and addresses, including those of institutional customers, is necessary to facilitate the transactions currently under discussion. As Mr. Kopsky testified, the potential purchasers will not pay the same value for customers who could be acquired on their own because competitors or the potential bidders could access the FTX customer lists independent of this transaction process. The conclusion of the testimony today, as before, is that a critical component of the strategy to monetize the debtor's assets is the continued confidentiality of the debtor's customer list. This view is now bolstered by the testimony that the debtors have live proposals that they're pursuing to confirm this fact.

Your Honor in previous rulings has determined that the FTX debtors' customer lists are protected by Section 107B as confidential commercial information and as a trade secret. Nothing has changed about the nature or confidentiality of the debtor's customer list since June when we were last year on this issue, and we submit they remain so for future. protected under the applicable legal standard. The debtors are now finally in a position to realize real value from the customer lists and exchange assets in significant part because the customer names and addresses have been kept confidential to date. The debtors should be permitted time to complete that process. It is not clear at this point, as Mr. Kopsky testified,

when and whether the disposition of the customer information will take place before or in connection with the plant process. As Mr. Kovsky also testified, the debtors do expect to have concluded at least the current sale process prior to the filing of the amended plan disclosure statement in December. Guided by the Court's prior rulings, the movements have only requested at this time to formally extend the protection of redacting all customer names for an additional three months for entry of this order with all rights reserved. And Ms. Harkasian and her questioning this morning raised the possibility, Mr. Kovsky acknowledged that if we actually, move forward with a transaction, we are likely to need to seek further relief from the court. But at this time, we do not know whether a transaction will be consummated or sought to be brought forward for approval. There are scenarios, such as a liquidation, a full liquidation of the debtor, where there is no continuing exchange,

where this issue might resolve itself. But what we stand today is in the middle of a sale process. And what we are asking from the court is the continued protection to allow the debtor to complete that process. Neither the U.S. trustee nor the media objectors have offered anything new in opposition to the relief requested under Section 107B. In their papers, both simply incorporate prior recycled arguments which have been disproved by Mr. Kowski's testimony.

The objectives continue to rely on the general principles of the right of public access to records and bankruptcy disclosure, But once again do not provide any evidence of specific harm that is being suffered that requires the disclosure of institutional names and addresses immediately. Nor do they recognize the court's role in modifying those requirements as appropriate for cause shown. As the court and parties in interest have been able to observe, the debtors have been able to efficiently and completely administer these Chapter 11 cases while continuing to redact customer names and preserving the integrity of the customer lists.

Notices have been sent, pleading serve, claims bar date procedures established, claims have been filed, the bar date has now passed, all within the parameters of the relief obtained in the court's prior orders, and subject to the type of relief that were requested to be extended today. As we addressed in our reply papers, any concerns that was raised in this round of briefing by the U.S. trustee with respect to claims objection notices we submit are unfounded since the debtors have proposed

to provide customized notices to any party who is the subject of a claims objection, either to an omnibus motion or otherwise. All creditors will continue to receive appropriate notices on all issues, including claims objection, like all matters, we have noticed the date in these cases. We submit, Your Honor, there's no basis for the court to carve out selective portions of the debtors' customers from the redaction order as suggested by certain of the arguments and objections. As Mr. Kopsi's testimony again was clear, it is the totality of the customer list, the names and the addresses, and the ability for a bidder and a purchaser who is offering to provide

value to the estate. The value that they see is the ability to have exclusive access to the customer list to be able to solicit those customers without worrying whether competitors have. access to that list and are doing the exact same thing that is a large portion as mr. Costa testified this morning of the value that's created here finally your honor I note that with the debtors reply brief that we filed a doctor 3311 we filed a revised form of order with respect to this motion which address comments received and the objections to the form of order that had been

interposed by the United States trustee so we understand at least as to the form of order those objections are resolved we submit your honor that the objections to the continued redaction of the customer names and addresses pursuant to section 107b should be overruled and the motion granted happy to answer any questions no questions thank you miss towns oh I'm sorry support can't Pasquale from Paul Hastings for the committee just just one minute as a co-movement with the debtors on this motion We obviously support all the arguments Mr. Gluckstein just made, but I did want to just add, Your Honor, the committee from the very start of these cases has been advocating for the process that Mr. Kopsky described. Mr. Kopsky made quite clear the value inherent in the debtor's customer lists, and we believe as the committee that there is a significant opportunity to maximize recoveries from the process that Mr.

Kovsky described. The process should not be jeopardized at this time, Your Honor. We're at a critical juncture and disclosure of the list, as you heard, would, in our view, jeopardize that process. So we would ask that the motion be granted. Thank you. Now, Mr. Thank you, Your Honor. I'll be brief. We're on, we're here today on debtor's motion so that the court can determine whether debtors have demonstrated that they're entitled to continue to retract the names of all of ethics. F.TX's customers creditors that are from all filings in this case for an additional 90 days pursuant to Section 107B. I know there's been some discussion about potential additional relief, but that's not an issue that's before the court today. Before I address that issue, I should, I think, note for the record, though it's already been alluded to that my client's media interveners have objected and continue to object to the courts, as is court well knows, to the redaction of the names of FTX's customer creditors under both Section 107B and 107C.

We have appealed the court's June 15th order authorizing redaction under those provisions on the showing that was made by the debtors and the official committee back in June. That is currently pending before the district court. So we understand well that this court previously ruled under Section 107B that the customer creditor names at issue constitute a trade secret. and can continue to be redacted while the debtors continue to seek how they're going to come out of these bankruptcies. We're not attempting to relitigate that issue or that conclusion today. It's currently up on appeal, but we would be remiss if we did not object to debtors request for further,

and the official committee's request for a further extension for another 90 days of the redaction deadline, really, as Mr. Gluckstein already referred to, for practical purposes, for the customers creditors that are entities only. So without waiving any of our objections or arguments with respect to the court's June 15th order, I will just limit my argument to that narrow issue, which is the only one currently before the court today. As the court knows, debtors bear the burden of demonstrating

with admissible evidence that the names of all of their customer creditors that are entities fall within the scope of Section 107B, which is a narrow statutory exception to public disclosure in bankruptcy proceedings. Debtors have offered the testimony of their fact witness, Mr. Kovsky, again as their sole evidentiary basis for seeking to extend the redaction period for an additional 90 days. As he did back in January and again in June, Mr. Kovsky has testified in effect that the debtors are still continuing to explore potential valuation of their assets and that the names of FTX customers in his view are a

source of of value or have value. We previously argued that I believe the term was quantum, the quantum of value is relevant, but to the extent it isn't relevant, I think I would note a couple of things. Mr. Kopsky testified today that the names I think it's fair to say the names of these entities are viewed by purchasers or potential purchasers or counterparties as having potential value because there is an existing customer base. So if they're looking to purchase the company as a whole, they're looking to potentially utilize that customer base moving forward. We don't know how many of these customers, and Mr. Kopsk couldn't tell us, how many of these, It's nine million total customers, some smaller subset of that that are entities.

How many of those are exclusive to FDX? That's an issue that came up back in June. We don't know if some of these customers are already parties of some of the, or already customers rather, of some of the counterparties that Mr. Kovsky has engaged in discussions with. We also don't know what specific value is being attributed to the customer names alone, as opposed to some larger part of, as opposed to the sort of exchanges as a whole. Mr. Kowski testified that he hasn't taken any staff to determine or value the customer list standing alone since June.

So we don't, the media interveners would take the position, Your Honor, that the motion to extend the redaction deadline should be denied. to the extent the court seeks to extend the redaction deadline, we would urge the court to extend it again only for 90 days. That's the relief that's been requested. It appears based on Mr. Kovsky's testimony that there may be less basis for redaction of those things to be forward, possibly after December, once a plan on how the debtors will come out of these bankruptcies has been agreed to. Thank you.

If there are no further questions. No question. Thank you, Your Honor. Good morning, Your Honor, for the record again, Julie, it's our occasion on behalf of the U.S. Trustee. Your Honor, I will be quite short. Certainly not going to repeat the arguments that we've made on this issue at the previous hearings.

The U.S. trustee is not taking the position that there is zero value for customer names, but that has to be balanced against the right of the public under both bankruptcy law and federal law generally to have, for the public to have access to bankruptcy court filings. And here, you know, there is no customer list that's on file. There's no document called a customer list that's been filed in these cases. I think when the debtors and others refer to customer list, what they mean is, well, we have the creditor matrix.

Well, the creditor matrix also has creditors on it that are not customers, and you can't tell when looking at it, who's who. necessarily but I believe the view of the debtors would be well the overall I think I've said this well the vast majority of our creditors are customers so effectively it's like a customer list and then similarly for you know the schedules the debtors schedule schedule F includes customers it also includes non-customers who were general insured creditors so that's what we're talking about and these are documents that are effectively I mean they're available to the

public but in highly redacted form. And we're talking again about extending this another 90 days. And obviously the United States Trustee is not advocating for this to be a permanent sealing, far from the case. We think it should not be sealed at all. However, I think we shouldn't kid ourselves. This, you know, based on Mr. Kovsky's testimony, he couldn't come up with a scenario where it would not be ultimately the debtor's request

or the request of a purchaser to have the names permanently sealed. If these names are gonna be sold, the purchaser's gonna ask for permanent sealing. If the debtor reorganizes, and they're gonna go ahead with the platform, Mr. Kopsky testified, you know, again, he says I'm not the debtor,

but he would anticipate that that would be the request. Mr. Bluxtene, I think the only scenario he came up with was well if there was a total liquidation there's no sale there's no reorganization we're just liquidating everything but potentially in that instance they would not ask for a permanent ceiling but that's the only situation which from everything I've heard doesn't sound like what's going to happen in this case and of course nobody wants going to happen in this case so this is we're doing it in nine good you could also have a scenario where all this the sale falls through none of these three

counterparties decide to buy it And the debtors decide not to restart the platform. That would be a, and I assume that would then be a liquidation. That's not necessarily a liquidation. They could reorganize without restarting the platform. Okay. I see the point you're on. Yes, if they were not going to restart the platform,

I'm not sure whether debtor's business would be otherwise, but sure, I guess there are some scenarios that based on what debtors counsel has said they believe is going to happen, it sounds likely that the scenario, will be one in which somebody will be asking for this to be a permanent sealing. But I understand that that's not the issue before your honor, and our honor is not being asked to permanently seal this, but our concern is, again, we are coming up on the one-year anniversary. So this information has been sealed for a year, well, with respect to the schedules from the time they were filed in March.

So, you know, I guess there's some slim possibility at some point that the redactions will no longer be requested. But, you know, the U.S. trustee's concern is it's been a very long time since they've been sealed and it looks likely that it's going to continue and potentially be permanent. So. But if a customer list has value and the debtors are trying to sell it and they do sell it. but still has value to the purchaser. So, of course, they're going to ask for a permanent ceiling of the customer.

Because they don't want to just buy it and then say, okay, here's everybody who's on the customer list. That doesn't do any good for the purchase. Right. And that's my understanding. I was just trying to make the point in cross-examining the witness that while this is being done in 90-day increments, there's a good likelihood that this is ultimately,

that someone is ultimately going to ask. that it be a permanent ceiling. And that may or may not be appropriate when that comes up. Yes, thank you, Your Honor. The only other thing I have to say is, with respect to the form of order that Mr. Glextein is correct, that the changes that they may do resolve the U.S. trustees' issues with the form of order.

Okay, thank you. Thank you. Mr. Gleckstein. Just very briefly, Your Honor, again, Brian Glockstein for the debtors. Council for the Media Objectors went through a few points about we don't know if these customers are exclusive to FDX or we don't know if they're going to stay with the exchange. Of course, from the estate's perspective, and Mr. Kovsky was clear on this, what matters to us is whether a buyer is willing to ascribe value to the opportunity to have exclusive access to that list such that they pay us for it. And if they are, from the estate's perspective, we realize the value of that asset.

Whether those customers ultimately do or don't stay on the reorganized exchange or on the acquirers exchange, that's all presumably being priced, the risk of that's being priced into the purchase price that Mr. Kovsky is negotiating with the potential bidders. So from the estate's perspective, we submit Your Honor, the question before the court is whether there are, this is confidentially sensitive information that, where there's such, there's value to the estate and the uncontrovert testimonies that there is. Mr. Kosky was also clear that there's certainly more value with these lists, you know, these customer names and addresses being available to the buyers than without.

In fact, I think his testimony was that it was a very significant element of the consideration of the bids that we received. With respect to the potential permanent ceiling, of course, we've taken this in incremental steps with guidance from your honor when we started this in the spring, to be sure that we were proceeding methodically. We have then trying to balance the need for public disclosure with the need to maximize the value of assets of our state. As Mr. Cajian acknowledges, we have filed non-customer information

publicly on the docket. We have, there's been a lot of effort to reconcile those efforts, again, with guidance from the court, and the debtor will continue to do that. If there is a transaction, yes, we are likely to be before your honor, needing further relief on this, as I acknowledge, nobody's hiding from that fact. But we have not come forward to ask for permanent sealing, and of course that's a different question, as your honor says, it may or may not be appropriate when that's before you. But the question today is there sufficient value, is this qualified for protection, continued

protection, the court has twice found that this information qualifies for protection. Have we carried our burden that we should be able to benefit from continued protection to allow the debtor to complete the ongoing sale process and to see if there is a transaction where value can be realized from this customer information in a way that we believe delivers additional value to creditors, maximizing the value of the estate, which of course we are trying to do. So we would ask, Your Honor, that the motion be granted and that the remaining objections will. Thank you. All right.

Well, I do recall at the beginning when this first came up, I suggested the 90 days because we didn't know whether I had value or not at that time. But once again, the uncontroverted evidence presented today is that it does have some value. And the evidence today was even stronger than it's been in the... the past two hearings. I now know that there are at least three parties who are interested in purchasing the asset, the platform, and just as a matter of common sense, a platform a platform without customers is nothing. So it has to have value. The customer list has to have value. And these customers have said we think there's value to it and we want to make sure that this remains sealed so that when we buy it, we have something to work with.

And that's uncontrovert. The objecting parties have still not brought forward any witness who can dispute what Mr. Kovsky has testified to. So I continue to find that 107B is appropriate, that the customer list constitutes confidential commercial information and trade secret, that it has value, that the debtors have a right to try to sell it, or to reorganize a round of the platform, and continue to operate that platform, and it needs to have value if it does, and if the customer list is disclosed, it would lose a lot of value, obviously. On the issue of the quantum of the value, that doesn't matter. Nothing in 107B says it has to have a certain level of value before you decide whether or not it should be protected. It just says if it's commercial, confidential information, or a trade secret, and it is, and it has value.

It doesn't matter at this point what that value is because it has value. So for those reasons, I'll overrule the objections. I will prove the order for an additional 90 days. With that said, is there some way to avoid another one of these hearings in 90 days where we don't have to go through and hear the same testimony again? Ms. Townsend, you did appeal to 107B issue, correct? And Ms. Sarkisian, have you also appealed that issue? Your Honor, our office did file a notice of appeal, but we withdrew it.

Okay. Well, that complicates. I was hoping that it was on appeal, and you could just reserve your rights in the future, unless some additional information comes open. You find a witness who can come in and testify, contrary. But let's see if you can, I'll let the parties talk it out, see if there's some way to resolve that issue. Mr. Glexton?

Yes, Your Honor. We certainly agree. We tried to do that in advance of this hearing. The parties wanted the ability to cross the – the objections wanted the ability to cross its down in Mr. Kovsky. But we certainly agree that we would welcome the opportunity to try to have parties reserve rights, but without needing to continue to have evidence your hearing in front of your honor. But we'll talk further with the objectives. Okay, thank you. All right. For that, I'll go to the next issue.

Yeah, I think for the last matter going forward today, the next time I'm in the agenda, I'll turn over to Ms. Brown. Good morning, Your Honor. May it please the Court. Still morning. It is still mooring. I had to double check that with you there. So may it please the Court, Kim Brown from Landis Rath and Cobb appearing today on behalf of the debtors.

Your Honor, this brings us to item number 12 on the agenda, which is the debtor's motion requesting relief from certain of the default provisions contained in bankruptcy rule 307 and local rule 301 to enable the debtors to implement an efficient and expedition claim objection process in these unquestionably large, unique, and complex Chapter 11 cases. As Mr. Diedrich explained during his case update, it is a primary goal that is shared, as you heard, from both the committee and the ad hoc committee, to return value to creditors as soon as possible in these cases. To that end, the debtors filed this motion, seeking relief from certain of the default provisions, to enable them to create a workable solution

that provides for an expeditious review and process to object to claims. Given the sheer volume of claims that likely will need to be reconciled and potentially objected to in these cases, the debtors submit that there is cause and that is in the interest of justice to provide relief that would authorize the debtors

to one, file more, more than three omnibus claim objections a month. Two, exceed the 100 claim limit per omnibus objection, and three, forego having to identify every conceivable basis to object to a claim on substantive grounds, particularly when the debtors believe that many can be disallowed on certain threshold substantive issues.

The US trustee has argued that this court lacks authority to modify the default rules governing on the clean objections. However, both the applicable bankruptcy rules and the local rules provide this court with clear discretion to approve the debtor's request. Specifically, bankruptcy rule 307C states, and I'll quote, unless the court orders otherwise, unless otherwise ordered by the court or permitted by subdivision D, objections to more than one claim shall not be joined in a single objection. Subdivision D provides that an omnibus claim objection may include 100 claims. The unless otherwise ordered by the court proviso

clarifies that this court may modify the bankruptcy rule 2007 including subpart D that sets a 100 claim limit to objections. But even if for some reason the court were inclined to go with the U.S. trustee's position that bankruptcy rule 307 does not provide such discretion. Local Rule 307-1 expressly states

that to the extent that there is any inconsistency with bankruptcy rule 307 on the one hand and local rule 37-1 on the other hand, the local rules govern omnibus claim objections. Local Rule 3001-F2

expressly authorizes this court to provide relief from the default limit on the number of claims that can be included in an omnibus substantive claim objection for costs. Overarching all of these rules, as acknowledged by the Office of the United States Trustee in its objection, is Local Rule 1001C, which provides that the court has discretion to modify the local rules in the interests of justice. As such, the debtors submit that this court has ample authority to provide the relief requested by the debtors. Here, ample cause exists for the court to exercise its discretion to allow the debtors to implement a workable claims objection process that will further the interests of justice. Absent the relief requested, it could take years, if not decades, to file, let alone diligence, diligence and prosecute claims to conclusion if they have to do separate claims

objections to the tens of thousands of claims that are likely to be in dispute in these cases and if parties who are filing claim objections are required to identify every conceivable substantive ground for objection to claims it would take it would balloon the time that it would take to diligence and also file those claims objections, which in turn would create an astronomical additional cost on top of the cost just to reconcile the claims in the first instance. This would be obvious to the detriment to the creditors and the holders of allowed claims, who share, I'm sure, in the debtors, the committees, and the ad hoc committee's goal

of getting value return as soon as possible to these creditors. This kind of delay is too expensive, it's too untenable, and it's obviously detrimental to the debtor's estates and the goals to achieve their paths forward. By contrast, granting the relief requested will further the interests of justice by providing for the expeditious and efficient prosecution of claims, and in turn help achieve the goals shared by all parties in interest to provide an expedition. distribution to holders of allowed claims for their recoveries. Now, the U.S. trustee has also raised additional concerns, that granting the relief requested will somehow so confusion among creditors or shift the evidentiary burden, but those concerns are misguided.

First, as Mr. Gluckstein explained in connection with the predator sealing motion, it is the debtor's intent, as it happens in many Chapter 11th, large Chapter 11 cases that when an omnibus claim objection is filed, the debtors will file a full copy of the objection on the docket and they will serve each impacted creditor with an exhibit that is customized that will identify just the claims that relate to that creditor that are subject to that claim objection. So there will be no confusion. The creditors will not have to sift through multiple exhibits to a different.

if a single objection applies to them, it will be clear from the start. Additionally, there's nothing in the procedures or the relief that we requested that by any means shifts the burden from any of the parties. The debtors agree. A properly filed and timely filed proof of claim is prima facie evidence that the claim is valid. It is the burden that shifts to the objecting party to provide affirmative evidence that the claim should be disallowed for the basis identified in the objection. As I just explained, the creditor is going to be served with this objection. It is going to include an exhibit that is customized to them and will explicitly outline what the basis of the objection is.

Do you explain how that's going to work, the customization? Sure. So think about it as to how we did it with respect to the claims. procedures. So A&M and Crull worked together so that when proofs of claims were sent out to the predators, they were individualized, where it identified what the predator's claim was, what was a scheduled claim amount. So in this situation, it would be no different. It would be A&M and Prow working together. They're going to take the master exhibit list that would be in the form that's prescribed by local 307-1. You know, It outlines exactly what the exhibits must look like.

We have not sought any relief with respect to deviating from the requirements and the rules as to what the exhibits must be. And then they will effectively create custom exhibits that will remove all of the other claimants except for those who are being served with the objection and are impacted by that specific claim objection. So is the customer or the claimant going to get a thousand-page spreadsheet, everything redacted out except their name? No, no, that is certainly not what we were, what we were intending to do, right? The goal here for the debtors and shared by,

you know, we've worked hand in hand with the committees to come up with a process that we thought would be efficient, expeditious, and as easy as possible on the creditors. So they will only have, you know, one, two, three rules depending upon how many claims are subject to their objection, and that's all that they'll see on their exhibit. Now, should they be,

to want to see all of the claims that were also subject to that objection. They'll have the ability to access that on the bankruptcy docket and granted, you know, the customer information, consistent with your honor's ruling today, that will be redacted, but they would still see, you know, there were X number of claims that were objected to on late-filed basis, similar to, you know, whatever their claim is. And I'm just using late-filed as an example. So what happens if you file an objection with threshold issue and your objection gets overruled? What happens next?

That's right. So assuming that this is a, well, there will need to be further diligence on both the part, well, on the part of the debtors and their professionals, to the extent the committee is weighing in on certain claims, you know there will be a dialogue there and after further diligence there would be a later filed objection that again would be customized so the creditor can see okay this claim objection applies to me here's the basis for the objection and then we would try to obviously work with the parties to and and those for the initial objections that are filed too when the debtors are always trying to work with the parties to try to resolve any issues on a consensual basis

to be it's beverage. And what are we going to do with, I want to make sure that pro se customers know that if they get a claim objection, and many of these people are overseas, that they have their right to appear by Zoom. They don't have to be here in person. Will that be in the notice as well? We can certainly add that into the next to the next garage. I'll certainly if you have a claimant who's got a billion dollars of Bitcoin on the platform,

and he hires an attorney, that's a different story. But people who are overseas and have a few hundred dollars or a few thousand dollars or even a couple hundred thousand dollars that they've invested on the platform, and they're going to appear pro se. I want them to know clearly that they do not have to appear in court to object, to respond to the objection. Certainly, and that's consistent with what we've generally done with respect to the various notices that we've sent.

So with the perspective of a bar date notice, you know, this is in a unique case. The bar date notice, unlike any other bar date notice you've ever done, included at the very top before you even got to the case caption that you should read this, this may impact your rights. And I would think and propose that where we have that in the notice for the claimants action, that we would also provide clear guidance that, you know, it's unnecessary for you to appear if you are pro se claimants in person in court and it could be handled. Okay.

All right. Okay. And then, Your Honor, with respect to, for a moment, just give me one minute. So that brings me to, you know, what the U.S. for Csies seems to be proceeding with here is really a policy position, that they're pressing regardless of the unique circumstances of these cases and the need for a workable solution to the claims procedures. What we've tried to achieve here and balanced and worked hard with the committee and at-hoc committee is for this to be something that is efficient, expeditious, and it meets everyone's goals of returning value to credit it. And the last point that I made, which probably is the most important, there's not been a single party with an economic interest or who would be subject to the procedures and the relief that we've requested that has objected or otherwise responded to the most of the public.

The only party who has raised the concern is the Office of the United States Trustee. Both the committee and the I-Hoc committee support the relief that we requested. So unless Your Honor has any other questions, I will see the podium to this. You'll also like to speak about. Okay, thank you. Good morning, Your Honor. For the record, Robert Poppity from Young Conaway, Stargant, and Taylor. As Ms. Brown said, the Official Committee on Secure Creditors does support the relief requested.

We do appreciate the United States' trustees' concerns, Your Honor. We did have a conversation with them a number of weeks ago when the motion was filed about what the committee's position was on the relief requested. Much of that conversation focused on noticing issues making sure creditors were getting appropriate notice. Our conversations with the debtor were very much consistent with the colloquy you just have with Ms. Brown in terms of how the notices are going to work, which in my experience is exactly how they would work in a case of this size. So they're going to have a customized notice so creditors don't have to scroll through dozens of pages, if not hundreds of pages to find their particular claim. And so we're very comfortable with all of that. We're also very comfortable with, I think, the point that Your Honor and Ms. Brown just demonstrated that if there's things that need to be in the notice about like Zoom hearings and other things,

we're comfortable that it can be done that way. Again, we appreciate where the United States trustee is coming from. But ultimately, this is a large case. There's thousands of claims, and ultimately parties do have to read the notices. The key from our experience is being very clear in those notices about what the expectations are, what are the response deadlines, how is the hearing going to go, making sure that notice is set up in a way that parties can very easily find their claims and I'd have to sift through dozens of pages. So we're very comfortable with that and I think that's key here. We also think we have to be flexible as the debtors have said. This is a very large case. There are any number of claims. While our local rules

do modify the bankruptcy rules, which by the way we do think is appropriate, it's very clear that the local rules have made modifications to the bankruptcy rules. I'd like to think that the reason the local rules are drafted in the way they are is the years of experience of practitioners in this district, trying to make sure that the claims process works the way it should, efficient, making sure credit are getting appropriate notice, but at the same time, it's very clear that those local rules can be modified in the interest of justice. And as your honor, and I think most folks in the courtroom know, oftentimes in these larger cases,

they are modified to allow for more objections per month, more claims per objection and such. So we think we have to be flexible here. And again, while we appreciate the United States trustees' concerns, we're just not prepared to go to a place right now where the parade of harboles that they've identified in their papers is going to play out. We obviously have the opportunity to seek to modify those rules, as do the debtors, if ultimately we find out that they're not working for this case. And of course, Your Honor has the opportunity and every ability to police, his dot, to the extent that they're you know it becomes unwieldy or there's any abuse of the so-called one bite at the apple rule if that is lifted in this particular case so as miss brown said the committee does support the relief requested your honor and if you have any questions please let me know okay no questions thank you thank you good morning honor and for the record Matthew Harvey from Morris Nichols Arston Tunnel on behalf of the ad hoc committee we echo the comments of the official committee we support the relief as previewed in the comments about the people

plan support agreement up front and the progress was made. An issue in this case is going to be claims administration and the efficient administration of claims. A focus of our committee since day one has been returning property to customers or its value as soon as possible. And as the debtors alluded to their presentation, chopping as much wood on claims administration in advance of the effective date will enable that. We are supportive of process that's efficient, particularly with the guardrails that

is put up here and the additional guardrail that you're on are helpfully. suggested making it known to creditors their rights and their ability to appear and advocate for their rights without having to appear in Delaware in person so the ad hoc committee is supported thank you thank you Ronan mr. Hsuji good morning your honor Jonathan Lipsi on behalf of the US trustee the US trustee opposes the motion and I heard a lot about guardreels here the motion as articulated has no whatsoever on the number of creditors,

the local rule and the bankruptcy rules have it at 100. I don't think there's any inconsistency between the two, despite what Ms. Brown says. The local rules track the bankruptcy rules. That's number one. But the stress here is, and they have unfettered rights to go after non-subsensitive claims, claims, this is only as to the substance of claims.

Our opposition is too prompt. First of all, there's the issue on unlimited monthly omnibus claims. There's no limit whatsoever. It could file 10, 100, 1,000 a month. And there's no limit as to the number of creditors. It could be 100, 1,000, 10,000. That, not what's standard.

what Ms. Brown said and the court's questions concerning how the notice is going to be sent out, that's, without a cap, that is an unwieldy docket situation for the court and for all the parties in interest. Notwithstanding that, the real problem that the U.S. R.C. has with the motion is on the substantive issues. And as we're as we articulated in our opposition, the way the motion is couch and the relief's thought is, they have multiple rights of the apple. They could take a first bite, lose, come back another time, come back a third time, come back a fourth time,

at infinitum, the way the relief as articulated is right now. And that, in the context of this case, where creditors, customers have been, by every everybody's account victimized by the pre-petition actions, the egregious fraud involved in this case, to submit them, and as Your Honor pointed out, we've got pro se, worldwide customers and creditors, who would have to come in multiple times,

wear up multiple times, to fight different objections on different grounds. And that cuts against transparency, due process, and the way the delicate balance of claims objection litigation is articulating the code and the rules, where you're the creditor, you file your proof of claim, it's fine to face of evidence as to amount validity, and it becomes the objector, in this case, the debtor is burdened to come forth with some kind of evidence, and that means all the evidence, all of the substantive grounds, under what the defendant.

debtors propose they don't have to do that they can keep coming back the argument that everybody wants this case to move fast is actually contrary to what the debtor is asking for because they can keep coming back the issue of finality is not served by having these multiple bites figure out what the claim objection is all of the substantive grounds give it to the debtor I mean give it to the the claimant and let the litigation process commence. Once that happens, it's the contested matter. You have all discoveries fair game under 1914.

You get to take deposition. You get to ask for documents. You get to make requests for admissions. And then you litigate the case. The way it's set up right now, and yes, it's a big, complicated case. But the point is, get to the finality early. don't let it drag on and on and on. So I think based on the facts and circumstances of this case,

what Apple pre-petition, what the creditors and customers have been through, the bottom line is make the debtor, the debtors follow the rules as written, they're set up for a reason, and get the case moving as fast as possible and final as fast as possible. We have 9.5 million customers, if even 10% of those filed claims that are objectionable, how long would that take if they were limited to 300 claim objections per month? That's a good point, Your Honor. It would take a long, long time. Take a decade or more, maybe two decades. Just can't do that. Well, that certainly goes to the docket issue. I understand that, Your Honor. But on the substantive

issues, there's got to be some cap. There's not at the moment. Well, on the substantive issues, we have a lot of, there's a lot of times when litigation, parties file a motion for summary judgment on a threshold issue that they think might resolve the case. And it doesn't. And it goes to trial. I can see in this scenario where they have threshold issues, as Ms. Brown pointed out, a late file claim. So they find an objection to the late Falkland. In the event, I overruled that. I would say then the debtor has an obligation to come forward with all substantive objections after that.

And then we'll deal with all of them at one time. They can't come back and back and back and back and back. Get one shot. Get their initial threshold objection. They get overruled. They get another objection and that's it. One more. And they have to include all the substantive objections.

I think that deals with the issue of the serial litigation down the road for these folks. And a lot of these, nobody's going to object. They're going to be disposed of without objection. There'll be some, but we can deal with those. And if we end up with 10,000 objections in a month, then we'll have to spread them out over a period of time. and we'll deal with them. I can sit here all day and we can go through them one at a time

and we can get as many guns as we can. But at this point, I don't see how I can say to the debtors, you can only do 300 per month and you have to put every single possible objection in, which then requires these claimants to come in and respond to that, which is going to be a burden on them too. where there might be a simple way to dispose of the issue up front.

So for those reasons, I didn't give Ms. Brown a chance to respond to you, but for these reasons, I think I'm going to overrule the objection, but I'm going to put those limitations on it. One. Yes, go ahead. Kim Brown again, Your Honor. So I would just like to clarify with respect to the multiple bites of the apple. I certainly appreciate what your honors coming from.

I just want to distinguish between non-s substantive claims objections, which are not limited in having to file. You can file, late-filed, duplicate, no supporting docs. Those objections are deemed non-subsensitive under the rule, and there's no limitation with respect to those. And perhaps the example that I was providing for you and the connection with knocking out one with the others was not the best for.

this particular scenario. What I think we would be an understanding on our wanting to ensure we're not taking multiple bites of the apple over a substantive objection. But if we can knock out a substance, I'd ask if we could have at least two bites on a substantive objection with one part of it. So the substantive objection, so let's say our initial

threshold issue oftentimes relates to we have no evidence in our books and records. So that would be the initial one that we'd try to you know knock off of the first case. off of the first case. And if we can get that summarily dismissed, great. If we can't, then on the second objection, then we have to come forward. We will continue our diligence, everything we need to do, and bring forth every single potential substantive objection done. But it would be exclusive of the non-substantive objection world. And the only caveat I would ask that we

can do a carve-out for relates to know your customer guidelines. So as your honor may recall, in our bar date process. Not only do customers need to file a valid bar date, a valid claim, but they also need to provide valid, know-your-custom guidelines. You know, the crypto industry has known for there being some players, not all, that operate a little shady,

and so it was imperative to the debtors that there were folks who were not utilizing the claims process, either if you're selling their claim or otherwise, to launder money or otherwise, commit that acts and so knowing knowing your customer is very important what I understand is that the plan is going to have certain deadlines for the know-your-customer information to be provided and I think this know-your-customer issue it's novel

this isn't something that has come up in a lot of the bankruptcy cases and you know we had done some digging but did not find anything as to whether an objection related to failure to meet know-your-customer guidelines would either be a non-subsensitive objection it's certainly not identified in the local rules as what can be a non-sensitive objection but at the same time we'd like to move forward with the substantive pieces and getting the substantive claims knocked out as possible but if we're only getting two bites of the apple and then we get to plan confirmation and a creditor fails to provide the requisite know-your-customer information we

would like to have a flexibility to object later on to disallow the claim because, you know, whether they're a shady actor or what it might be, that now that that has been embedded and they have failed to provide that. So if your honor is amenable, we would ask that you get two bites at the apple with respect to a substantive objection exclusive of an objection related to know your customer requirements. What are the two bites for the substantive? I'm, you, I lost me on that one. No, but I'm sorry.

So we would have the opportunity to object to file an initial substantive objection that would try to dismiss it on threshold substantive issues like lack of books and records. And then to the extent- Those are non-substant. No, no. No, lack of book and records is actually a substantive objection under the rules. So it's usually one of the easiest ones to knock out, which is why we're like, we believe we can get summarily dismissed a number of these on substantive grounds.

But to the extent that we were not to prevail on that issue, that we could then come back and file a second substantive objection, and that substantive objection would identify every substantive grounds in which the debtors have a basis to seek disallowance of a specific claim. Okay. On the issue of to know your customer. Yes. issue, I would suggest looking at, Judge Shanna has a crypto case.

Pittrix. Pittrix. And he, in order to receive, in that case, that we're returning to crypto to, and in that case, he said, well, you have to, there's a form, you have to fill out, kind of a know-your-customer kind of thing. If you don't fill it out, you don't get your crypto back. And that was a separate process from kind of the claim

objection process, which might be something you use here. I don't know, but it might be worth taking the look at it. We'll see if it's something that is useful. We certainly will take a look at that, but I know that in our bar date order, we have included this requirement related to know-your-customer issues, and I'm thinking that perhaps there's a way that we can, you know, implement some provision in the plan that would address the know-your-customer issue. I just don't want there to be a scenario.

where we launch our two substantive objections and then we get to a point down the road where the creditor has failed to provide the know-your-customer information and we are then in a position where we can no longer seek to disallow that claim. Okay. Jonathan LeChi, Office of the United States Trustee, just to clarify, I think the court is correct because local rule 37-1 subsection D, Roman at 6, it breaks out what substantive and non-substensive is, and it clearly says non-substantive is, six is a claim that does not have a basis in the debtor's books and records,

and that is covered as non-substantive in the local rules. So I think the point is they make that objection because it's not substantive, and then they go to substantive, substance it makes you lay it all out just so it's clear I wanted to point that out okay sorry so it's not just that it has no basis in the books and records but a non-s substantive objection also has to have where they have failed to attach and this is to you read a claim that does not have a basis in the debtor's books and records and does not include or attach sufficient information or documentation to constitute

of proof of patient evidence. So while I'm referring to it as a books and records, the substantive objection is really a no liability based on the books and records, which is separate and apart from a non-subsensitive objection, whereas in the books and records, we don't have anything, and you didn't attach anything. The rule says what it says to you.

All right. Well, as I said, I'm going to overrule the objection, but I do want to click. guardrails on this including that we notify with the customization of the notice we notify these folks that they don't have to appear in court if they're objecting or they're responding on a pro se basis that they can appear by Zoom I will give the debtors the opportunity for two bites if you have a substantive claim objection that you can bring up front that you think is dispositive you can bring it if you

have a non-subsensitive claim you can bring that but then once either one of those gets overruled you get one more shot one more bite at the apple that makes sense you understand what I'm saying we can file a non-subsensitive objection based on whatever the grounds are and typically you know you'd batch them by non-subsensitive here's all the late filed here's all the duplicates are you suggesting that with respect to the non-subsensitive, you want us to include every basis with respect to? No, you can, if you have a non-substabstitive that you think, yeah. If you have a non-substantive that you think it's dispositive, you can bring that.

If you have a substantive claim that you think it's a positive, you can bring that. If either one of those gets overruled, you get one more shot at a substantive of check. Unsubstantity. And that's it. Yeah. Thank you. Okay. And that does not impair us in the event that there is a, know-your-custom issue.

Yeah, the know-your-custom issues, I think is a separate issue that, is it's something that we have to do in this case, given the nature of the business we're involved with here. Certainly. And I'm sure that's something that we can clean up in the same process. Okay. Thank you, Your Honor. I appreciate the presentation.

All right. So the parties should meet and confer, come up with an inappropriate form of order. Mr. Lipsy, did you want to? No. Okay. And we'll get that entered as soon as it gets uploaded. Is the other, I didn't ask about,

do we have a final version of the order uploaded for the first issue that we talked about this morning? I did see the black line for the change, but I don't know if there was a file. If it has not already been uploaded, it will be as we speak. Okay. All right. Anything else? I take your honor.

Okay. Your honor, if I could just find out if counsel for emergent, the emergent matter is present or all the time? The emergent matter, your honor, I'm pretty. No, I know, but I wanted to the record judicial certification on the Fiat for U.S. trustee we had spoken to emergent better's counsel about scheduling a status conference not on the dip financing motion but on a different issue which is currently the fee examiner order it was entered

prior to the emergent case being jointly administered with the rest of the FTX debtors so Morgan Lewis whose emergence counsel currently is not covered by the fee examiner order and We would like to have a status conference to discuss that matter. And we wanted to know if we could just add that to the next omnibus hearing date. Your Honor, Matthew Ziegler of Morgan Lewis for the emergent debtor. That is totally fine with us. We're available, I believe, it's November 15th to have that status conference.

If that would be okay with Your Honor? Yeah, unless we have a – are you guys talking with the PLS folks about rescheduling the oral argument on the motion to dismiss? I want to try to limit the number of hearings if we can. Thank you, Your Honor. Adam Landis Southerly, the Congress. Yes, we have been in contact with those parties. They have agreed to the November 15th date, so that should be going forward at that time. November 15th, is that the next Omnibus Day?

That is the next Omnibus hearing. Okay. Then we can add this to the next Omnibus as well. Thank you, Your Honor. Your Honor, while I'm up here, could I give you 30 seconds on the emergent dip motion that was continued from today? Well, it's not on for today. on for today what do we what do you want to talk about I just I wanted to give you a status update we were unable to surmount the logistical hurdles of having our

declarant available today and as your honor will note the US trustee has posed some objections we have resolved objections from FTX and from block by so we anticipate we're in touch with chambers and we will find a replacement date when our witness can be available okay and we would ask your honor if it is at all possible that she'd be allowed to participate by Zoom just because she's based in the Cayman Islands and there are very few resources in the estate right now. But we will post that request to chambers

every time. Yeah, I did have, this came up in one of my other hearings in Malencroft. We are post-COVID now, which means if you want a witness to appear remotely, you have to put it in writing and explain why pursuant to Rule 43. Okay.

Rule 43 says you only get it if it's for compelling circumstance, or it has to be under compelling circumstance, for good reason under compelling circumstances, good cause and something like that. So, you know, I have to make it on a case-by-case basis as to whether or not it is or is not compelling circumstances. Understood, Your Honor, we will review the order and make that submission if appropriate.

Okay, thank you. Thank you. Last for the record, Your Honor, Adam Landis, for the debtors again, for Lentis, Lepin-Copp. We've been doing our best to let all parties know that we are post-COVID to remind parties of Your Honor's Chambers' rules and procedures and to ensure that if people want to submit declarations, that they have the declarants in court prepared for cross-examination. We'll continue to do that, but I think it bears repeating on the record for those who are listening, and we'll keep doing our job to let people know that they've got to be here. Okay, thank you.

All right. Anything else? or we adjourned. Thank you all very much. We've adjourned. Thank you.