American court hearing recordings and interviews - Season 6. Episode 18. September 26, 2023. In re BlockFi Inc. et al., chapter 11 bankruptcy case no. 2022-19361, audio of hearing held in the BlockFi bankruptcy proceedings pending in NJ, USA #crypto

Episode Date: September 28, 2023

hearing starts approximately 45 seconds in

Hey, good afternoon, everyone. This is Judge Kaplan, and we will be addressing the Block Pye matters on for today, including confirmation. We have a somewhat full court. Nice to see. And we have parties, at least watching remotely. For the benefit of those who are watching remotely, to the extent counsel wants to be heard, they should use the raise hand function. Otherwise, I'll be focusing on those in court.

And I won't go through the process of having appearances, since we have a filled room, but as you begin to speak and to your appearance for your respective clients. Let me turn, I have an agenda. Let me turn to debtors' counsel. Good afternoon. Good afternoon, Your Honor.

Francis Petrie of Kirkland on behalf of the debtors. All right. So at the outset, we'd just like to thank the whole, on behalf of the whole debtor advisor team and company, we'd like to thank your honor and your chamber staff for being so accommodating, especially during what was a holiday weekend. We were filing documents late into the night last night and even filed some this morning.

I'm sure you noticed. And as usual, you have been extremely accommodating both today and throughout the course of these cases. I'd also like to highlight the efforts of the Block 5 management team and all the employees at the company who have helped advance these cases and work through some extremely novel issues at every turn to accomplish the resolution that we have before the court today. With their support, we've committed to a path that will maximize recoveries for clients and return crypto to those individuals through the Block 5 platform.

We also recognize the important role that the JPL's played in representing the international constituency in these cases in Bermuda. They're actually in the courtroom with us today. express deep appreciation to the committee for working with us to reach a global resolution. I'm sure committee council will be speaking at today's hearing and like them we recognize that crypto bankruptcies are not easy cases. With the committee's assistance, we managed to achieve a lot. We're at the finish line now and closer than ever to ending these cases and getting the company

out of bankruptcy, which will have people receiving distributions sooner rather than later. So we are happy to be before your honor today. At today's hearing, we're seeking approval of the disclosure statement on a final basis, and we also are here with a confirmable plan that solicitation has proven has obtained widespread support by all creditors. All nine voting classes submitted acceptances in favor of the plan, with each class accepting by over 90% in number and around the same amount in amount. We believe these results speak for themselves. As noted, we filed many documents over the past 72 hours, so I'll highlight the governing ones. We filed our brief in support of confirmation

at docket number 1608. The most current plan that we seek approval of is at docket number 1609 and is called the third amended plan with additional technical modifications. And the revised proposed confirmation order is at docket number 1610. We won't be seeking entry of that docketed confirmation order.

We have made some changes to that since the hearing prior to the hearing. So we'll submit one to chambers if and when we received confirmation today. And as you noted, we did file an agenda at docket number 1611. that shows the status of matters going forward. As you can see on that agenda, we've resolved the number of the formal objections through

language in the plan and the confirmation order and some by stipulation. Of note are some recent developments, particularly that we filed a stipulation with FTX that resolves their objection. That stipulation appears at docket number 1605, though we're not seeking approval of that stipulation today. We will ask your honor to enter it before this plan can go effective. The stipulation does a couple of things, but most importantly, it ensures that the FTCS debtor's claim is contractually subordinated to all BlockFi account holders in these cases,

and their affirmative defenses are waived. So importantly for today, that stipulation resolves FTC's objection to confirmation of the plan. We also worked out agreeable language with three hours capital in the confirmation order, clarifies their treatment, and builds in a construct surrounded the disputed claims reserve and required notice. The one in the filed confirmation order has since had some tweaks. but we are resolved with three hours capital.

And also have known... For some reason, this is not working. Let me try this again. Alan, I think you're not on mute. Okay, thank you. He is now. So also of note, Your Honor, the ANCOR objection, which was focused on last week, was resolved.

We added language regarding their entitlement to be a distribution agent to the confirmation order, and their entitlement to fees issue has been resolved through mutually agreeable language between us and Cora and the committee. So the resolution of these threshold issues removes yet another barrier that existed in these cases to eliminate very large claims that are against the estate that may have taken priority over client distributions. It adds certainty that distributions can be made to clients more quickly as well. It's undisputed that we meet the 1129 factors. So that leaves us with four objecting parties.

The U.S. trustee and the Securities and Exchange Commission both take issue with the scope of the releases contained within the plan and the gatekeeper provision. The securities lead action plaintiff, who has appeared in this court before, raises a couple of points that we plan to address later, and an individual creditor that seeks to prevent the debtors and other parties in interest from reconciling outstanding proofs of claim also have formal objections pending. We'll address each of these in turn, but first I'd like to provide the court with an overview of what the plan does. So after significant negotiation, we've worked out a plan structure over the course of several months that functions to facilitate maximum distributions to clients. It includes distributions that can be made in the form of digital assets, including ones that are acceptable to the Securities and Exchange Commission, and then a wind-down of the remaining estate overseen by a committee-selected plan administrator who reports to an oversight board. Perhaps most importantly is that the plan embodies the terms of a settlement with the committee.

and your honor's role in assisting us with achieving this result through mediation sessions cannot be understated, and we thank you for helping us get there. The settlement did not come easy, and virtually every term was fought over and negotiated before it was agreed upon. The final form of settlement does several things, but at the heart of it, in exchange for a release of claims, key members of the company management team will provide the estates with not only millions of dollars, but also required minimal hours of go-forward cooperation. This cooperation preserves the option to make in-kind distributions to clients, which would likely not be possible in the event these individuals were not cooperating with the estate. And it provides for the retention of certain key litigation causes of action that will move forward, including against FTX and Three Arrow's Capital.

And if proceeds are realized out of such litigation, it will significantly help maximize recovery to creditors. As is typical, we made certain modifications to the plan leading up to the hearing. In certain classes, we provided for a new option in treatment. If it's feasible, they can elect as to whether or not they'd like to make a loan repayment rather than be subject to set off. And in the convenience class, which once contemplated distributions only in cash, such claimants can elect to collect on their claim in acceptable crypto instead. These revisions are reflective of the ongoing work and cooperation with the committee

and the Winddown Trustee and provides creditors with more optionality than they had at the solicitation stage. So in short, the transactions contemplated by the plan make it clear that confirmation is the best solution for creditors. We've explored almost all available options and constructs and are confident that the one before the court today is value maximizing and the fastest way to get money back to creditors. So we've analyzed the remaining objections, which I just outlined, and in our assessment, these are almost entirely legal in nature. No objection seems to raise disputes about the facts at hand. But that said, we did file four declarations into the case. support of confirmation. At docket number 1584 is the declaration of Scott Vogel, who's an independent director and a member of the special committee of the board. His declaration describes the terms of the settlement and the investigation that led to assessing the claims

that were at issue. At docket number 1582, we filed the declaration of Mark Renzi, the debtor's chief restructuring officer, which describes the formulation of the plan and how we meet the 1129 factors. At docket number 1583 is the declaration of Brett Witherall of BRG. His declaration describes the formulation of the liquidation analysis and how we pass the best interest tests as part of the disclosure statement. At docket number 1607 is the declaration of James Deloia from Kroll, which sets out the solicitation process and the tabulation results of the votes. All of these individuals are here in the courtroom and are available to be cross-examined if needed, but we would like to admit all four declarations into evidence to ensure

that we meet our evidentiary burden. All right. Let me open it up to those counsel present, any objections to the court admitting it to evidence, the declarations of Mr. Wetherall, Mr. Wogel, Mr. Renzi, and Mr. Deloia, in lieu of direct testimony. All right, and for the record, Mr. Vogel's declaration will be admitted as D1, Mr. Renzi's declaration, CRO will be admitted as D2, Mr. Wetherall's declaration on behalf of D1. BRG is D3, and Mr. Deloyas from Kroll, his declaration that will be admitted as D4. Thank you. Thank you, Your Honor.

So with that, I think we could turn to addressing each of the objections that are still outstanding. For the record, by our count, we have four. Yes. Sorry to interrupt. I do have a few questions for a couple of the declarants. And I think in terms of, I'm sorry, Your Honor, Michael Eck and Lowenstein-Sandler, on behalf of Cameron Wyatt, the proposed lead plaintiff in the securities litigation.

I think in terms of appropriate order, but that's up to your honor. If there's any cross, that should probably take place before merits arguments on the objection. So, again, I leave that to your honor, but I just raised that. And specifically, Mr. Racken, you wish to cross-examine which... I it's not lengthy course examination your honor mr. Renzi the declarant from Kroll and I forget the we had two we had four declaration not mr. not mr. Witherall Scott Vogel mr. Vogel the independent director yes all right so mr. Vogel and mr. Renzi and and the declaration

Mr. Deloia? The lawyer? Any objections? I'm not sure what the questions will be. They're likely will be objection to the questions, but I have no objection to the concept of class examination. All right. I think it's better that we get the testimony aspects

and the factual predicate done first before argument. Mickey, do you want to be free? So why don't, do you have a preference? Not particular preference. Then let's start with Mr. 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 lawyer, representative of call restructuring.

Yeah, we're going to have to set up the monitor. Yeah, you'll be going there. We're just setting up the monitor. I'm sorry. I wanted to hear the questions, but it does not seem like this. This witness is going to have anything relevant to say about Mr. Eckin's objection. Again, we'll wait. We won't speculate.

Thank you, Your Honor. I'm just filling out the appearance sheet. It'll be about two minutes. Mr. Deloia, is that, am I pronouncing you correctly? Okay. Would you please raise your right hand? Do you swear or affirm to tell the truth, the whole truth, and nothing but the truth under penalty of perjury?

I do. All right, we'll wait. She's going to want more money. I know. Thank you, Ms. Earl. All right. Would you state your name and business address for the record? James Deloia. The business address is 55 East 52nd Street, New York, New York. And the court has accepted into the record your declaration as debtors' exhibit B4.

Mr. Ecken? Thank you, Your Honor. This will be extremely brief. Great. Thank you. Mr. Deloyer, do you know how many claimants were sent ballots in connection with class three, all the classes in class three? Off the top of my head, I am not, I wouldn't have the exact figure on me. I would have to go back to the affidavit of service. Would it be in excess of 100,000, do you believe? To be honest, I would not know off the top of my head.

Okay. Your declaration has as an exhibit a lengthy list of excluded ballots? Yes. Do you know how many excluded ballots there were? The exact amount, no. That's why I'm talking. But the declaration, though, is accurate. With respect to the excluded ballots, did you note at all how many or if any contained

check marks on the opt-out box with respect to the ballot? We do keep note of which ones do have check marks on the opt-out, and that is included in the opt-out figures. So that would be a manifestation of those particular claimants that they were looking to opt-out of the third-party release. Is that correct? That's correct. And with respect to those excluded ballots, how are those? I understand what the votes, that the votes were not counted. How were those opt-out elections dealt with?

Again, as noted in my declaration, we don't talk to the validity. We just count how many actually elect the opt-outs. So if the ballots were excluded, ultimately were the opt-outs set forth in the ballots also excluded? Yeah, I would object that seems to call for a legal conclusion. for what? You can ask him whether he knows. Can you answer that question? No, I cannot.

Again, yeah, we don't talk to the validity of the opt-outs themselves. We just note that they're made. Right. My question is not the validity of the opt-out. My question is whether they were counted or not counted if the opt-out was contained in an excluded ballot. Are you asking whether they were included? in the number of creditors who opted out that's correct your honor yeah they are

included so of the 10,000 plus that's been reflected in the debtors brief that includes opt-outs from excluded ballots I believe so yes I have to double check but some of them are duplicative if they are duplicative we would not double count opt-outs I have no further questions all right thank you and you redirect No, you want to. Thank you. Mr. DeLoyant, thank you for your time. And why don't we hear from Mr. Vogel? Good afternoon.

Good afternoon. Let's hope we don't reach the next morning. Please raise your right hand. Do you swear or affirm to tell the truth, the whole truth, and nothing but the truth, under penalty of perjury? Thank you. Please have a seat and give us your name and a business address. Scott Vogel, 885, Park Avenue, New York, New York. All right.

your declaration has been admitted into evidence as D1. Mr. Ecken, do you cross-examine? Thank you, Your Honor. Thank you, Mr. Bobo. And my questions are going to essentially relate to the declaration that was admitted into evidence. Do you have the declaration in front of you? I do not. Nick, we have some copies.

I think we might as well. Absolutely. All right. You may continue. Mr. Vogel, with respect to paragraph four of your declaration, you talk about the independent investigation with respect to potential estate claims and causes of action against the debtors insiders. You see that? I do.

In the context of that investigation, did you look at any claims with respect to violations, the federal securities laws against any of these insiders? We looked at claims that the debtor would have against these various parties. So you didn't look at any of the claims asserted by anyone else against these individuals. Is that right? I would object to the extent it's not in the materials, that would be privilege information. Overruled. We looked at debtor claims.

We didn't look at individual, what claims another individual would have against the various parties. I see. So you didn't look at the complaints and the pending securities class actions at the time? We were aware of those filings, but we focused on what the debtor would have, what claims the debtor would have. So the settlement that was ultimately reached that you'd discuss and your, declaration did not include any settlement of non-debtor claims. Yeah, I object, Your Honor. That possibly was a complaint.

Sustained. Well, the witness already testified that they only looked at debtor claims, Your Honor. I'm asking whether the ultimate settlement was intended to include or address any non-debtor claims. Well, phrase it that way, then. Can you repeat the question? Sure. You just testified that you looked at claims that the debtor would. happen in the context of your investigation. And ultimately, a settlement was reached, the committee

settlement, which you discussed in your declaration. All right? That's correct. And with respect to that settlement, is that settlement intended to address any non-debtor claims or claims that exist other than the debtors against these same insiders? Well, you're an honor, I would object asking him the intent of the settlement, asking him to identify the intent of many other people, separate and apart from himself, and it also requires him to interpret the settlement agreement, which would be a legal conclusion. He spends a lot of time interpreting the settlement agreement in this declaration, Your Honor. I'm not asking for an interpretation.

I'm asking whether certain claims were included or not included. Well, you can testify as to your understanding. You're limited to your understanding. So my understanding is that it was a global settlement. Various parties would be providing releases. Some of the release parties would provide releases to the company, and the company would provide releases to them, as well as to other parties that participated in the global release.

So in terms of that settlement, only the debtor is providing releases. Is that correct? Your Honor, I object. It's again cause for a legal conclusion. I'll overrule. The question asks you of your understanding of the settlement and whether or not there are release is being offered apart by other parties other than the debtor, correct?

Yes. It's also vague as to which settlement he's talking about. Well, I assume we're talking about the settlement referenced in his declaration. But, Your Honor, his declaration references to settlements. There are settlements that were reached between the special committee and the individuals, and then there's a global settlement that's embodied in the plan. It was also with the creditors committee. Well, then I'll ask you to refine you.

Thank you, counsel. I'll ask you to refine your question. It's the committee settlement that's embodied in the plan that I'm referring to, Mr. Vogue. So we were focused, we the debtor, were focused on unrelated. releases that the debtor was providing to various release parties. As part of the global settlement, there was an understanding that maybe others would be participating in that as part of this global settlement. When you talk about the global settlement, are you referring to something other than the committee settlement that's described in your declaration? I'm talking about, I would be talking about the plan.

Let me try it again. Is the global settlement something different than the committee settlement that's referenced and discussed in your declaration? I'm talking about, there are, as counsel just suggested, there are two plans. There are two settlements, the settlement that the debtors have with the various release parties, and then other people could choose to participate in a global release of the debtors as well. What other people? The creditors. But in terms of the committee settlement, that involves solely releases by the debtors to the other settlement parties, the insiders that are.

referenced in the plan and the committee settlement. Is that right? Yeah, Your Honor, I object. That calls for a legal conclusion about what the global settlement in the plan provides for. And, Your Honor, this declaration, this declaration, that's all it talks about. Let him get to the heart of it, overruled. To the extent you're able to answer the question, you want to repeat it for him? I'll try. With respect to the committee settlement that you reference in your declaration, involving certain named insiders of the debtor, the debtor is the only party providing a release in connection with that settlement.

Is that right? I believe that's correct. Sorry, it took so long to get there, Your Honor. That's fine. In paragraph five of your declaration in the bullets, the next to last bullet discusses an investigation or a topic of the investigation being the debtor's procurement of additional director and officer liability insurance in November 2022. Do you see that? I did. Could you provide me with?

with some additional context as to what that investigation is all about with respect to the procurement of D&O insurance? I would object that cost for privilege information. Sustained. With respect to paragraph 10 of your declaration, it talks about needing the cooperation from several debtor employees with respect to certain estate litigation. You see that? I do. And it includes certain committee settlement parties that have agreed to devote a certain number of hours in the context of that cooperation. Is that right?

Yes. How long do you think that cooperation is going to last post-confirmation based upon? upon what's in store for the debtor or the liquidating debtor post-confirmation. It lasts a year, two years, three years, with respect to all this litigation? It's hard to speculate. You anticipate it lasting more than a year? Again, it's hard to speculate. It's going to be dependent on how the plan administrator uses these various consultant advisors.

and what they're needed for. Is the cooperation that you've discussed in that paragraph conditioned on they're getting a full release from creditors? Yes, it's part of that global release. Would that include those creditors who chose to opt out of the release? Yeah, Your Honor, I would object, again, it's asking the witness to interpret legally out the settlement, I agree, sustained. Rephrase it.

I'll try, Your Honor. To the extent that there are creditors who opt out of the release and the indication in the papers filed is that that's an excess of 10,000. The fact that those creditors are not releasing the committee settlement parties, does that give the committee settlement parties the opportunity to back out of the deal that they struck? No. So even if there were 100,000 opt-outs and they faced claims from 100,000 creditors, they would still be obligated to fulfill their cooperation obligations under the terms of the committee settlement. Well, I believe it.

Maybe it depends on what those numbers look like in the scheme of the voting classes, but I think only 10,000 or so, as you noted, chose to opt out. But it basically doesn't matter how many did or didn't opt out. They'd still be bound by the terms of the settlements. Is that right? Your Honor, again, you're asking the witness. It's a sustained. Legal conclusion.

Mr. Vogel, with respect to paragraph 20 of your declaration, It mentions the gatekeeper, what's been called the gatekeeper provision that's part of the settlement and the subject of some objections that are pending. Is the court's approval of the gatekeeper provision a condition to confirmation of the plan? Yes. It's part of this overall settlement package. So, in other words, if the court doesn't approve that gatekeeper provision, then the plan would go up, would blow up, and it'd be starting from scratch. Would that be the result?

Yeah, I would object like a foundation. I don't know how we could know that. Sustained. In the context of the committee settlement that you discussed in your declaration, Is it your understanding that the individual committee settlement parties who are providing cooperation under the committee settlement preserve all of their rights to any existing directors and officers liability insurance? That's correct. Do you know how much directors and officers liability insurance coverage exists? Not off.

Again, with respect to the gatekeeper provision, Mr. Mr. Vogel, is it your understanding that that provision would apply even if a creditor opted out of the third-party release? Your Honor, I object. This is again called for legal conclusions interpreting the plan. I'll overrule that. Can you repeat the question? I'm sorry, you'd like me to repeat.

Yeah, he asked you to repeat it. Sure. with respect to the gatekeeper provision is that your understanding of the committee settlement on the plan that even if a creditor opted out of the third-party release, they would still be subject to the gatekeeper provision under the plan.

So in other words, it's not enough to just opt out. There are other hurdles a creditor would have to overcome in the context of the plan and the gatekeeper provision in order to assert their claims against the individual. That's how it's drafted. Mr. Vogel, with respect to paragraph 25 of your declaration, is it your understanding that the gatekeeper provision is not severable for purposes of the plan?

Do you know whether the plan provides for the potential for, the potential for, you? for severing a provision that the court ultimately believes or determines is inappropriate? I'm not sure I recall whether or there's a broader provision, but certainly not in the context of this gatekeeper provision. I have no further questions, Your Honor. All right, thank you. Redirect? All right.

Yes, we're direct. Just briefly. For the record, Mike Slade for the debtors. Mr. Vogel, just a few clarifying questions. You testified in response to Mr. Etkin's question that the gatekeeper provision and the opt-outs are parts of the global settlement, right? Correct. And the third-party releases are parts of the same settlement, right?

Correct. Was that part of what everybody negotiated for and got implemented in the plan? That's correct. Okay. That's all. Thank you, Your Honor. No further cross the director? Just some further clarification, Your Honor.

One question. Mr. Slade refers to the global settlement. Is he referring to a different settlement than the committee settlement that's set forth in your declaration? Yeah, I object. I'm not sure how he can know the answer to that question. Well, overruled, he can give your understanding. There is a committee settlement, and as part of the plan of reorganization, there is a global settlement. I think that answers the question, Your Honor.

Thank you. Thank you. Thank you for your time. You may step down. That brings us to Mr. Renzi. Good afternoon, Mr. Renzi. Good afternoon. You be so kind.

Please raise your right hand. We swear or affirm to tell the truth, the whole truth and nothing but the truth, under penalty of pressure. Yes, indeed. Please have a seat. Provide us with your name and business address. Mark Renzi, 99 High Street,

Austin, Mass. And for the record, we have Mr. Renzi. his declaration, Mark as debtor's exhibit D2. Good afternoon, Mr. Reza. Good afternoon. I just have a few questions again, focusing on your declaration. Should I have a copy? Yeah, that's probably a good idea.

Thank you. Yes, please. Getting his good side? Go ahead. We're fighting a little bit of a cold. That's quite right. Mr. Renzi, in the context of the disclosures set forward, within that disclosure statement.

Were you involved in the process of providing information or input? Yes. And in that context, was there ever any discussion of providing specific information about the pending class action litigation and what the claims were and what was asserted? and who the potential defendants were? Objection, lack of foundation. Sustained. Let me see if I can fix that. Mr. Renzzi, the debtor was aware of the pendency

of the securities class actions early on in the case. Yes. In fact, early on in the case, an adversary proceeding was commenced to enjoin the contingent to enjoin the contingency. prosecution of the securities litigation against the non-debtor defendants in that case. Is that right? Yes. So in that context, you became aware of dependency of those class action complaints in Massachusetts

and New Jersey. Yes. And getting back to my question, was there ever any discussion about including a description of that litigation, who the defendants were, what the claims were in the context of the disclosure statement? Objection, lack of foundation. How could he know whether there was any discussion about that topic? Well, he would know if he was involved in any. Well, that's that question. Were you involved in any discussion regarding inclusion of information with respect to the pending class action litigation? I defer to counsel. I'm not asking if your counsel was involved.

I'm asking if you were involved. It wasn't under my purview to discuss the, the class action lawsuits in terms of, you know, how they were presented in the disclosure statement. The purview is to make sure the financial information was done appropriately, and that was our main focus. With respect to paragraph 35 of your declaration, I'm there. Again, with respect to the individuals that are parties to the committee settlement and are getting releases, from the debtors. And again, aside from the cooperation and what value that might be, in the aggregate, they're contributing, I believe it's a shade over $2 million.

Is that right? Yes. And just to clarify, that's the financial aspect of it. There are other things that they're providing. The cooperation, for example. Yes. Anything other than the cooperation and the financial aspect of it? I think they're helping, you know, with any wind down to the estate that's necessary.

So that's important and any testimony required to maintain any value from litigation for the estate, to help the estate with other legal entities outside of the estate. But only up to the amount of hours that they're specifically committing for that. purpose? It is written that way. Yes, it is. However, I'm certain to the extent that they are people that are diligent and to the extent that something else is needed, I'm sure they can negotiate that to make sure they're maximizing value for the estate. So they're good people. But that's your speculation as to what would have. That is my speculation. You heard me ask Mr. Vogel? how long he anticipates that cooperation and the scope of the cooperation that you just testified to,

how long is that going to be required? And he was unable to estimate. Do you have an idea? Would it be more than a year? Is it anticipated to be more than a year? Sure. I've read Mr. Vogel's declaration. You know, BRG as an institution is involved in a number of crypto cases.

They're complex, as you know, sir. I think it's more than six months, and hopefully it can be resolved within a year. So if you want me to put, you know, parameters, that's my best guess. It could take longer, though. And going to paragraph 37 of your declaration, you specifically state, and I, Mr. Vogel and I had a little bit of a discussion on it, You specifically state that the committee settlement and the debtor release under the committee settlement has no impact on the claims of third parties. Is that right? Yes, I defer to Mr. Vogel on this aspect, but that's right.

This is what you essentially testified to in paragraph 37. Is that right? Yes. The plan provides for releases of the debtors' potential claims subjects in the terms of the committee settlement of their director's officers and employees. yes that's what it says the debtor releases a vital component in the plan and it is a sound exercise of the debtor's business judgment and should be approved thank you mr bowman i'm sorry mr rancy in paragraph 44 of the declaration uh you talk about the fact that the potential claims at issue are no secret you see that testimony it's a long paragraph Can you help me aware that is? It begins with this case and other cases. Right at the end of the second sentence.

I have this case and other cases in the cryptocurrency sector. More generally, I've received tremendous publicity and the potential claims at issue are no secret. When you made that statement, were you in any way referencing the claim set forth in the class action litigation that's pending? Yes. So it would be your statement. It would be your position then that the creditors and customers of L'FI were generally aware of the securities litigation claims? I think it's public record, so if they chose to read it. I'm moving on to paragraph 49.

In the first, I'm sorry, in the second sentence of paragraph 49, you refer to the release parties being exposed. and I'm quoting to numerous frivolous litigation claims after the plan is confirmed. What's the basis for that statement, Mr. Renzi? I've discussed with counsel that that's a potential. That's the basis. So you aren't relying on any particular evidence in terms of making that statement. I was relying on excellent counsel. Based upon your response just now, the idea of numerous, frivolous litigation claims is conjecture and hypothetical.

Is that right? Look, I'm not a lawyer, but I do rely on counsel when we're doing analyses and when pulling together a declaration. So I trust our counsel. So the basis for that position is, and that understanding is simply discussions with counsel. Is that right? Yes. I have no further questions, Your Honor. Thank you, Mr. Atkin.

Redirect? No, Your Honor. Thank you. All right, Mr. Renzi, thank you for your time. You may step down. Thank you, Your Honor. Thank you, Mr. Atkins. I believe that completes the witnesses.

Yes, Your Honor. Thank you. At least from my perspective. And we'll return to the next phase of the hearing and argument. Maybe just to make sure that the record is closed, can we just confirm that nobody else has any witnesses to offer in support of or an opposition to confirmation? Well, let's start with the debtor. Debtor's no further witness. We do not, Your Honor.

Committee is not offering any independent witnesses, correct? No, Your Honor. All right. U.S. trustee? No, Your Honor. Any other objecting creditors? then the record is closed with the declarations that have been admitted and we'll turn to the argument phase thank you your honor so for the record it's francis petrie of kirkland on behalf of the debtors

by our count we have four remaining objections right now so there's the u.s tricity and the s.ecci c Wyatt who is the securities lead plaintiff who we just had due cross-examination and the individual creditor which i spoke about before so we'll begin a lot of these arguments are intertwined, but we'll begin by addressing the arguments raised by the two governmental entities, which are the U.S. trustee and the SEC. So I'll start first with good news, which is that we've largely narrowed the issues that were raised in both the SEC's objection and the U.S. trustee's objection, both formally and informally.

There's changes to the amended plan that deal with the definition of exculpated parties, for instance, modifications to who is a releasing party under the plan, including excluding parties who are known not to receive notice and holders who are deemed to reject from All of those parties automatically are excluded from the releases. They don't need to take any additional steps to opt out, and they are automatically out. Nonetheless, one of the issues raised by the U.S. trustee that we weren't able to resolve surrounds the scope of the debtor release, which they argue is overly broad. First, the debtor release that is contained in the plan is critical.

Both we and the committee had very hard-fought months-long negotiations that led to determine the scope of the debtor release and tailor it appropriately, including multiple mediation sessions. In our view, it's undeniable that the debtor release is in the best interest of creditors. Without its inclusion, we would not have the support of the people we need to affect the plan. Some of this might have not been clear on cross, but there's a lot more to the committee settlement than just the monetary contribution and cooperation. There's a waiver of claims on the platform. There's subordination of other claims.

There's many pieces of the settlement that are outlined in detail in the plan that shouldn't be glossed over. It's very complex and a cornerstone of the plan itself. Either way, we set this out in our papers, but the courts in this jurisdiction analyze debtor releases under the zenith factors, which include an inquiry into five different prongs, all of which are easily met in this case. First, there's an examination as to the identity of interest between the debtor and the non-debtor. The debtors have indemnity obligations to the vast majority of the release parties, so any asserted claims would effectively be circular. Second, an inquiry into the contribution of the plan by the non-debtor. The release parties here are, providing a lot, as I just outlined, in the form of cooperation with the estate, the CEO,

COO, and other insiders are also making additional personal contributions. But again, here, it's not just about the money being contributed. It's about preserving the ability to make in-kind distributions and to assist in recovering amounts in key ongoing litigation. Without the debtor release and the other provisions of the plan, those contributions, both monetary and significant non-monetary, would not be possible. Third, prong looks at the necessity of the the release to the plan. The debt of release is essential to the success of the plan. Absent this release, it's highly unlikely that the release parties would have agreed to support

and highly unlikely that would have been able to formulate a plan at all. Fourth looks at the overwhelming acceptance of the plan and release by creditors. We have that here. We have all of these individuals who voted in favor across classes. We had over 90% of voting creditors vote in favor of the plan, which includes the release, and we should not second guess their judgment. And fifth, there's an examination to the payment of all. or substantially all of the claims of creditors or interest holders.

The plan provides the highest amount and in-kind recovery for creditors. And the cooperation by the management team obtained as part of the release allows for the possibility of real success on the litigation. So for all classes, there will be truly significant swings in recovery if they're able to prevail. So the fifth factor is also met here. Nobody is really saying that these are claims that the company should be pursuing because it's not getting enough value in exchange for the release. In fact, earlier this year, each of the special committee of the Block FI board and the Unsecured Creditors Committee filed unredacted versions of their investigation reports. And we engaged in several contested hearings at which we made

our respective views known about the merits of the claims held by the debtors. There was truly a very robust and extreme public disclosure about the merits of estate claims more than significantly more than you'd see in any other Chapter 11 case. And through that public information, the creditor body became educated on the value of these claims and even armed with that information, they submitted overwhelming votes in favor of the plan. The other piece of the government objections deals with the opt-out provision and the third-party release. In this case, the third-party release is reasonable and appropriate

and wholly consistent with the decisions of this court and the circuit more broadly. First, and I can't emphasize this enough, the release is consensual. The law is clear that parties that receive sufficient notice of a plan's release provisions and had an opportunity to object or to opt-out of that release and failed to or chose not to do so, including where such holder abstained from voting altogether,

are agreeing to grant such a release. In these cases, we engaged in a fulsome process noticing surrounding the plan. And the third-party release language is clearly and conspicuously all over multiple documents. It's included in the combined hearing notice that went to every one of the creditor matrix. It's on the ballots. It's on the opt-out forms. And all of these were sent to parties in connection with solicitation, as well as the disclosure statement and the plan. The committee also emphasized the option to opt out for all creditors in the letter that it sent out as part of the solicitation package, which

went to all of their constituency and through its own tweets, emails, and other communications, which the debtors also engaged in, highlighting the key parts of these documents and the deadline to submitting voting and opt out results. And even beyond that, the obligation to affirmatively opt out is explicitly stated multiple times in the disclosure statement. No party is surprised by the that opting out is a key part of this plan. If it was known that a party did not get proper notice, they either got a bounce back email

or returned physical mailing, then those parties are not subject to the release, but that's not who we're talking about here. The other piece of the obligation is a suggestion that parties who have rejected the plan did not have ample opportunity to opt out. We also argue that that's untrue. Parties who voted to reject the plan

received the same ballot as anyone else and were given ample opportunity to evaluate the opt-out form. the opt-out form, though they still, like others, were required to check a box or opt-out if they did not want to be subject to the release. And many of these parties, over 10,000 of them, did just that. The sheer number of parties that opted out is a clear demonstration that the process worked as intended, and was clear and understood by all parties who chose to retain these actions if they exist and participate in opting out.

I would also point out that this method follows the reasoning that was followed in Aceto corporation and Your Honor, it's much like you saw in Sir LaTalpe. I know that there's an argument how to pronounce that. When Your Honor overruled similar objections that the SEC made here as they did there. So the overwhelming weight of authority in this district suggests that the opt-out mechanisms such as the one included in the plan constitute consensual releases. Courts throughout this circuit follow similar reasons. Recent cases, including one in front of Your Honor two weeks ago, upheld the notion that a non-debtor release is consensual where holders of Cleanton and interest are provided the opportunity to opt out even when the holders in such

classes reject the plan. The objecting parties also object to the third party release not including a carve out for fraud, intentional misconduct or gross negligence. The third party release without such carve out is clearly warranted in this case where releasing any and all potential claims of fraud, willful misconduct and gross negligent are crucial to properly implement the plan. The debtors have hundreds of thousands of clients who have a unique outrage towards certain of the release parties, specifically the debtors, current officers and directors. We needed to release such parties to implement the terms of the settlement and the plan, and any carve-out for fraud, willful misconduct,

and gross negligence would circumvent the third-party release. The objecting parties do not cite any Third Circuit authority that requires a carve-out in non-debted releases. Courts in this district and in the Third Circuit have repeatedly approved plans that did not include such a car valve. And again, this is a consensual release. All stakeholders needed to do to preserve such claims was to opt out, meaning that under clear law in the circuit, the release of claims given by stakeholders who do not opt out is consensual, notwithstanding the inclusion or exclusion of this car valve. So, Your Honor, unless you have any questions, I'd like to move on to the gatekeeper provision. Please.

Another piece of this objection is to what's labeled as the gatekeeper provision. And to clear of any misconception about what we're asking for here, this is an administrative safeguard. To the extent any entity that has opted out or otherwise not participated in the releases seeks to assert a claim or cause of action against a released party, that entity must first obtain an order from this court determining that they are authorized to bring such a claim. And we'll be clear about something right now. It's not contemplated necessarily that the gatekeeping court is ruling on the underlying merits of the action. The court's is making an inquiry into whether or not there's an ability to bring the action or whether

it has been addressed already as part of the plan or confirmation order. So what we're asking for here is for this court to make an initial threshold inquiry and engage in the construction of the terms of the plan and to interpret those terms in conjunction with the confirmation order. Clearly, this court is the best forum to accurately construe the language of its own plan and confirmation order, especially here where there's a bargain for benefit and complex history. Settling parties provided financial and other contributions to obtain the releases that are contained in the plan. And this court has jurisdiction to implement this mechanism, notwithstanding what some of the objectors say. Though true that bankruptcy courts are of limited authority, this is certainly within that authority.

All we're asking for the court to do, as I stated, was to figure out whether a claim is barred or not by the terms of the plan, which this court is otherwise very familiar with. This court can unquestionably decide that. And if there is a real direct claim against the released parties, then the claim will have to be later defended on the merits. But what we and the settling parties anticipated was that there will be many frivolous claims that parties will bring here. As we stated, over 10,000 creditors have opted out. So in this case, there are a lot of lawsuits that will likely have to be sorted through that may be asserted against a wind-down debtor with limited resources. That is a huge concern.

So I'll note that this mechanism isn't in every plan. That's true. but it has been approved in various instances in many courts in different circuits. It stems from the Barton Doctrine, which we've also seen in the Madoff and General Motors cases, and the Fifth Circuit in Highland Capital engaged heavily with the topic and ultimately upheld confirmation of a plan that found that this provision helps screen and prevent bad faith litigation against parties, including directors and officers. One of the SEC's issues with this provision surrounds burdens. They argue that the burden falls inappropriately upon creditors to bring this cause of action or come before this court.

Even if that's taken as true, those creditors accepted that burden by overwhelmingly voting in favor of the plan, which contained a description of this mechanism. And the solicitation version of the plan of DS did not amend this version. That is what went out to creditors and what they voted to accept. But on this topic of burdens, odds are that if there was an issue about the release of claims, those issues would likely be in front of this court anyway. The plaintiffs would likely be brought here by defendants who would then seek this court to interpret the terms of the order and enforce the plan against them. So I argue that what this mechanism does then is to preserve wind down debtor resources that otherwise would be wasted defending frivolous actions that are going to be improperly brought.

And likewise, this structure benefits everybody. Individual claimants may have no idea whether their claims are released or enjoined by the plan. Clearing up this inquiry to those individuals is in front of this. court is beneficial. This court is definitely, at least in my view, more acceptable and accessible than the vast majority of other jurisdictions or forums and will let them know whether their claim can be properly broad. And it prevents courts from around the country from inconsistently misconstruing the terms of the plan and a confirmation order, which is especially at issue here when certain parties are making a substantial contribution to the estates with the expectation

of certain protections in return. So in sum, the gatekeeping megan is a feature that offers protection, consistency, and fairness to these parties. Its inclusion and structure were negotiated heavily with the creditors committee and was accepted by all voting classes. It's common in other circuits and in other cases, and has been approved by this court.

It's a key part of the settlement that was negotiated with settling parties, and I'm certain that the plan would probably not exist without its inclusion. To address, so I think that addresses some of what Mr. Wyatt's objection consisted of. But at the outset, we'd just like to note that that Mr. Wyatt, we do not believe, has standing to make his objection. He has opted out of the third party release himself, but he seeks to object on behalf of other individuals in a class that has not

yet been certified. In short, he's objecting to consensual releases given by people he does not represent. And what underpins the objection is that the third party release is consensual and appropriate. There's no due process issue here, as we outlined. Individuals were provided notice and an opportunity to opt out. If they didn't submit a response, They were sent in email. There were tweets. There were posts on the debtor's website. The UCC had its own set of communications,

including a letter that was sent to every creditor in this case. More than 10,000 people exercised the ability to opt out if they chose to. The creditors understood that this feature existed and some of them exercised it. But for those who received notice and did not opt out, Mr. Wyatt appears to be substituting his judgment for theirs. I can personally imagine many reasons why individuals would choose not to opt out. For instance, they may want the settlement parties to focus on other things like litigation or returning things in kind to creditors without being served with discovery or be distracted

by another lawsuit. Or maybe the individuals just want nothing to do with what's probably a frivolous lawsuit and to move on. The securities lead plaintiff, as I said, is attempting to substitute its judgment for theirs. But for those who decided not to opt out, they consented to this mutual release. It's likely a lot of individuals do not even know that Mr. Wyatt seeks to represent them or speak on their behalf, and invalidate a release that they chose to be party to. Currently, he does not represent them, and we do not know if he ever will.

And from where we sit, no other party has really expressed a desire similar to his. And the lead plaintiff had ample opportunity in these cases to certify a class at this point. To address any issues on disclosure, we did include information in the disclosure statement about his complaint and the adversary proceeding. It's in Section 10J and is cited in our confirmation brief. We believe that these factors in total mean that his objection should be overruled. I'll now address the one additional objector. This objector's issue was a potential ambiguity surrounding the language of causes of action in the debtor release section,

which we clarified through an additional edit at their request. The edit is not a material modification to the plan. It simply reinforces the rights that are otherwise provided for under the plan. This individual raised their misunderstanding to the UCC and the debtors several weeks ago. They were notified through counsel prior to the voting deadline of the intention of the section. And if this result was not what the individual wanted, we offered to change the submitted vote. The individual instead chose to accept the plan, notwithstanding this explanation and offered to change the vote to another direction. The standard is that any plan modification that is not material unless if a creditor knew of the modification, they'd be likely to reconsider their acceptance.

And here tellingly, this individual, in fact, did not change their vote. when presented with the option to do so. The edit that we made was arguably not even necessary, but we made that technical modification anyway to clarify this perceived inconsistency in the plan. Now other creditors had joined in to argue they also believed that claims objections were going away. No reasonable person could read the disclosure statement and the plan

and say no claim will ever be objected to. The disclosure statement and the solicited plan were clear that the debtors and the wind down debtors were instituting a claims objection process. There are many provisions for, providing descriptions of how we plan to object the claims, including page two of the DS, Article 11A in multiple sections, Article 11E4, all of these are described in our papers and cited in our confirmation brief.

Article 7B of the solicited plan expressing provides that after the effective date, the wind down debtors would have the sole authority of file, withdraw, or litigate to judgment any objections to claims. The sections go on, including the second page of the DS, which says in all capital letters that the ability to object to claims after the confirmation or the effective date of the plan, irrespective of whether the disclosure statement identifies any such claims or objections to claims. There's no read of the plan or disclosure statement that suggests a vote in favor of the plan ensures that a claim will be wholly permitted in full at any point in time.

And regardless, under the bankruptcy code, section 502A preserves the ability for any party to object to a claim, even if the debtor somehow did not have this right. So in light of all that, Your Honor, even if we confirm, the plan that does not hinder this ability's individual. It does not hinder this individual's ability to dispute the debtor's objection to their claim. They were included in the 11 omnibus claims objection. The response deadline to that is October 3rd,

and the 11 omnibus claims objection is currently scheduled to be heard by this court by this court on October 10th. If they have any offenses, they should be heard at that time. With that, I will turn the podium over to likely the committee, Unless Your Honor has any questions. No, not at this juncture.

Thank you. Let me hear from the committee, please. Good afternoon, Your Honor. Kenneth All out of Brown-Rudnik for the official committee. Your Honor, we join in the debtor's request that the objections be overruled. As Your Honor is well aware, the committee settlement was extremely hard-law in this case. Now, one of the things we're proud of in this case is that every creditor got a huge amount of disclosure. If you look at some of the usual cases where releases like this have been approved,

it's not necessarily a huge amount of information that's been given out. But here, the debtors put out a 100-plus-page report, the committee put out 100-plus-page report, and both reports were expressly referenced in the disclosure statement, and all parties were encouraged to read them. We certainly don't like every aspect of the settlement, and I'm sure that the debtors and the settlement parties don't either. But at the end of the day, this settlement in getting this plan approved

is the best path forward at this time for the customers of Blockifying. There's one statement that counsel for the debtors made about some settlement parties anticipating frivolous claims. To be clear, the committee has not reached any view that any potential, claims and frivolous. In our view, the third party releases and the gatekeeper function are a negotiated part of the plan. We are certainly not taking a position, and I don't think that anybody has offered an opinion

on if any specific claim is frivolous. But what we have agreed to and what we request to be approved is the settlement that has been embodied in the plan after very, very hard-futable. negotiations. I also want to address the final objection to the modification of the plan. At the end of the day, this objection just asks that the court order that the entire plan be resolicited again. This is not a case where we can simply, there's 9,000 that leave claims simply accept those claims at face value, not only because some claims are overstated but some claims are understated. If you look at some of the

omnibus objections that have been filed, they're actually asking the claim amount be increased because it was very important to the committee. We have hundreds of thousands of individuals who are not experienced in bankruptcy and we did not want the claims process to be essentially a quiz on if claimants could properly identify what debtor was liable, properly fill out the form, and to properly set forth the claim. And so there are, and I expect there will be additional objections, to make sure that people get more than what they claimed

because they made a mistake on the claim form. We need to get the claimed population right. And there is no way that asking all of the customers of Blockby to sit in bankruptcy for another two months, that they overwhelmingly accepted the plan, just so they can be asked, did you mean it? because you know one of the objections that was received was from three arrows capital that wanted to make sure that they were deemed to have opted out they've asserted hundreds of millions of dollars of claims

if any reasonable party thought that the plan released the ability to object the claims three arrows would have been beating down the doors of the debtors demanding to be included in the opt-out release not demanding be taken out of it so you know with that Your Honor, we'd urge that the Court overrule the objections and confirm the plan. All right, thank you for all that. Let me turn to the – I want to hear all objections and then any responses. Let me turn to the governmental objectors. Mr. Maz, I'll let you – want to catch your breath?

Why don't we hear from – we'll hear from the U.S. trustee first. Thank you, Your Honor. Thank you, Your Honor. Good afternoon. Jeff Sponder, on behalf of the United States Trustee. As you know, Your Honor, the U.S. trustee filed an objection to the third amended joint plan at docket number 1476 on the basis that the exhalation clause is impermissibly broad. The debtor releases are overbroad. The opt-out clause is insufficient. The non-debtor third-party releases are not fair and necessary to the reorganization.

The injunction provisions are impermissible. The plan is not a settlement subject to approval under 2019. and the gatekeeping provision should be removed. In addition, the U.S. trustee object to certain of the wind-down provisions in the plan. As counsel mentioned, as a result of discussions between the U.S. trustee and the debtors, the debtors filed last night, a third amended joint plan with additional technical modifications at docket number 16.09. The third amended joint plan now includes modifications agreed upon between the debtors and the United States trustee that include modification to, Article 1, Section 121, as to the definition of exculpated parties, that it includes only

specific estate fiduciaries, removing Article 4D12 from the plan, which provided an indemnification and limitation of liability to the plan administrator. It modifies Article 2G and Article 12C, which concerns statutory fees, and provides that the debtors and the wind-down debtors are jointly and severably liable. And it modifies Article 2G and Article 12C, which concerns statutory fees, which concerns statutory severably liable. And it modifies Article 1, Section 191, which is the definition of releasing parties to set forth that no holder of a claim or interest that is deemed to reject the plan shall be a releasing party. Your Honor, I realize that we have had, we filed similar objections in various cases over the years, which had been overruled by Your Honor. In fact,

one such case was decided just a few weeks ago. With that knowledge and understanding, the United States trustee intends to rest on his objection. filed again at docket 1476, but would still like to address some of the remaining issues, including certain of the releases, the injunction and gatekeeping provisions, and the plan as a settlement under Rule 1919. First, Your Honor, this plan provides for third-party releases, as we all know, for the benefit of the released parties. The non-debtor third-party releases are referred to as consensual, but the definition of

releasing party includes all holders of claims. that vote to accept the plan and who do not affirmatively opt out of the releases provided by the plan. All holders of claims are deemed to accept the plan and who do not affirmatively opt out of the releases provided by the plan. All holders of claims who abstain from voting on the plan and who do not affirmatively opt out of the releases provided by the plan and all holders of claims who vote to reject the plan and who do not affirmatively opt out of the releases provided by the plan. It is unclear, Your Honor, if holders of claims or interest whose ballots are returned to the debtors marked undeliverable are releasing parties.

Creditors who are deemed to reject the plan and whose ballots are returned undeliverable should not be deemed to have consented to the third party releases. With that said, Your Honor, I believe counsel argued and agreed today that during argument today that those are outside of the definition of releasing parties. Your Honor, likewise, the U.S. trustee submits that those parties who vote to reject the plan and who do not affirmatively opt out of the releases provided by the plan are not agreeing to consensual third-party releases, and thus, including them in the definition of releasing party, is contrary to applicable case law, including the standards set forth in Washington

Mutual and other cases that we cited in our objection. The U.S. trustee submits that those creditors who rejected the plan but did not affirmatively opt out of the releases did not provide affirmative consent. To the contrary, Your Honor, those parties that rejected the plan, in all likelihood, believe that with their rejection, they were in fact rejecting the releases as well as with, you know, nobody to check the opt-out box. Mark in the rejection box should establish a complete rejection of the plan, including the releases. Accordingly, Your Honor, the U.S. trustee submits that those holders of claims who rejected

the plan, but who did not affirmatively opt out of the releases should be deleted from the definition of releasing parties. Second, Your Honor, through the plan, the debtors request an injunction, precluding and permanently enjoining all persons or entities from interfering with the use and distribution to the debtor's assets in the manner contemplated by the plan, and those that have been fully satisfied under the plan are permanently enjoined from any set-off or relief except for payments or distributions contemplated under the plan. Section 1141D3 does not grant a liquidating debtor or discharge, which is the situation we have here. In addition, Your Honor, 1141A sets forth that the provisions of a confirmed plan bind the debtor, any entity acquiring property under the plan, and any creditor accept if the plan is a liquidating plan under 1141D3, which again is what we have here. Instead, Your Honor, where we should look at is Section 362C1, and that section applies,

and that provides that the stay of an act against property of the estate under subsection A of this section continues until such property is no longer property of the estate. And in addition, Section 362C2 provides that the stay of any other act under subsection A continues until the earlier the time the case is closed or dismissed. Further, Your Honor, the debtors include a gate-keeping provision which the U.S. trustee submits represents an inappropriate burden on the claim holders and should be deleted. As provided in the objection, there is no reason why a court in which a relevant action has been filed between non-debtors cannot make the determination as to whether the claim was released under the plan. Again, we asked the court to follow Judge Owens' decision in the in-ray Gulf

Gulf Coast Health Care LLC case and not the Fifth Circuit decision. Your Honor, the U.S. trustee is amenable to limitation being placed on the injunction, which is exactly what occurred in the Bedbath and Beyond case a couple of weeks ago. There, the debtors agreed to the following limiting language, which seems to coincide with Section 362C1, and that is that that the injunction would remain through and until the date upon which all remaining property of the debtors' estates vested in the wind-down debtors has been liquidated and distributed in accordance with the terms of the plan. Such limiting language should be included in the injunction provision, especially in light of the addition of the gatekeeping provision in the plan, which requires parties to obtain a final order from Your Honor to pursue a claim against the debtors. Third, Your Honor, the debtor is an Article 4A suggests that the plan itself is a settlement agreement subject to approval under Rule 1919. However, sending a plan to impaired creditors for a vote is not the same thing as parties negotiating a settlement among themselves.

In addition, Your Honor, it appears that Article 4A does not limit the settlement of claims to the debtor or the estates and does not appear to be permissible under Section 1123B3A. For a plan to incorporate a settlement of claims or causes of action of other parties, those parties must have expressly agreed to settle or compromise those claims, Your Honor. In docket 1609 at Article 4A, the debtors have agreed to remove any reference to Rule 1919 and Section 1123. However, the debtors replaced such language with a phrase, and I quote, to the extent provided by the Bankruptcy Code, which would seem to incorporate Rule 1919 and Section 1123. In addition, Your Honor, the paragraph provides that the plan is deemed a motion to approve the settlement of all claims and controversies, which again would seem to suggest that it's in 1990. motion. Similarly, Your Honor, Article 8B appears to impermissibly seek to provide for the

settlement of third-party claims. The releases described in Article 8B are not part of the any agreement between the debtors and all parties affected by the plan. Also, Articles 3C, 3A to E, and 4A to C purport to treat the distributive provisions of the plan as if they were part of a settlement. The debtors have not provided any justification for such additional relief. As a result, trustee request that paragraph 4A be removed from the plan as it is not necessary applicable, that the second paragraph of Article 8B be modified to remove reference to rule 1919 or any reference to settlement, and as well as to remove the provision that the releases are, I quote, a good faith settlement and compromise of such causes of action, and that any references to settlement

and distributed provisions of Articles 3C, 3, and 4 be removed. Lastly, Your Honor. Let me just clarify, because obviously plans can incorporate. settlements correct so what's the distinction here that's that's your office finds troubling the the the entire plan is being shown or be or being included as a settlement that it's the entire plan and what we're saying is that the entire plan is cannot be a settlement under 99 there can be just like the committee settlement you can have those type of settlements incorporated

through the plan I'm here it's the whole the entire plan is now be set forth as the settlement so if the court were to confirm the plan and then the confirmation order make it clear that the confirmation is being approved based on satisfaction of 1129 a factors and not the standards for approving a 1919 does that address the concerns yes your honor lastly your honor the debtors I'm through docket 1564 modified the treatment of Classes 3B and 3D to allow a voluntary opt-in for a loan repayment treatment.

Docket 1564 also defined certain new terms, such as loan repayment amount, loan repayment election, loan repayment treatment, and loan treatment deadline. These modifications appear to change the treatment of such claimants under the plan. However, as it appears that this is an added election post-confirmation, such modifications would appear to be appropriate subject, Your Honor, to the debtors or the wind-down debtors providing notice to those claimants to let them know that there is that post-confirmation election. Your Honor, and some, the debtors and the U.S. trustee were able to partially resolve the U.S. trustee's objection concerning exculpation, statutory fees, and the limitation of liability

and indemnification of the plan administrator. For the reason set forth in the U.S. trustee objection, as well as the argument that I've made today, the U.S. trustee requests that the remaining objections concerning the releases, the injunction provision, the gatekeeping provision, and the plan as a 99 settlement be sustained. In addition, Your Honor, to require the debtors and or the wind-down debtors to provide notice of the loan repayment treatment to those parties that have been affected, that will be affected. Thank you, Your Honor. Thank you, Mr. Sponder. Mr. Mazza?

Thank you, Judge. Alan Mesa, on behalf of the United States Securities and Exchange Commission, I will start to indicate that the debtors and the committee work with us with regard to certain aspects to seek consensual resolution on issues and as represented by counsel. However, there are some remaining issues which we brought to the court's attention, some of which been shared by other stakeholders, which we believe. are concerning going from confirmation or potential confirmation of the plan. To begin with, I just want to, on behalf of the SEC staff, state a reservation of rights regarding crypto distributions, which has been stated in incorporated in a proposed confirmation order, and was also stated in our objection and reservation of rights. The plan contemplates transactions involving crypto assets, including the distribution of certain crypto assets to shareholders

and the liquidation of crypto assets. As set forth in our limited objection and reservation of rights, the SEC is not opining about whether these transactions comply with the securities laws and reserves its rights to challenge transactions involved. crypto assets. Going beyond a reservation of rights, two issues stand out. One is, as mentioned by the Office of U.S. trustee, or as alluded to by the debtors, there is a failure to include any exception for welfare misconduct versus negligence, a classic exception that we find in almost

all plans that are filed, we find it actually disturbing that a bankruptcy court would actually approve a release provision, even consensually, that basically accepts fraud, well-ful misconduct, gross negligence. We've raised this issues with other judges and other districts, and even judges that are favorable to opt-outs and other forms of consent do draw. line when it comes to this exception and have directed debtors at disclosure statement hearings or confirmation hearings when brought to their attention to at a minimum include that provision. One such was in the windstream holdings in front of Judge Drain, who certainly

was in favor of the opt-app. While a specific case per se may be not easily available, probably because it's a highly unusual issue or it's resolved without the need for litigation. It does make sense, as Judge Weil said in the famous Aegean Marine case, that it just would be an anomaly that parties who have peripheral interests in the Chapter 11 case would somehow walk out of a case, a bankruptcy case, with a better result than how they filed their own personal bankruptcies, in which case fraud would clearly be accepted under 523A19 for an individual with 523A2. So the thought of going through a bankruptcy proceeding as a third party and then having the bankruptcy court say, no problem, you get out of the proceedings, somebody sues you, don't worry about fraud.

You're good. It's just, it's not consistent with even bankruptcy analysis. So we rest on that objection, and we hope at a minimum, if these releases are approved, which we're no fan of third-part releases, at a minimum, the court could at least direct the debtor to put what is essentially a classic template exception into those releases. Now we get to the gatekeeper provision. As expressed by the U.S. trustee, we support this objection. We believe this is a totally unnecessary.

There have been so many plans filed to date. Now all of a sudden this has become the flavor that gets inserted into plans. You have to wonder how bankruptcy courts function for the last, I don't know, how many years without it. Given the clear exception of weight in the plan for those stakeholders who have been carved out of the release, either in the form of opting out or otherwise, if they were deemed to reject the plan, we don't see this as a necessary provision. The unusual provision, which also includes the bankruptcy court's adjudication of what is a colorable claim. I put that in the quotes.

Not only presents an unnecessary hurdle and burden, which ultimately could discourage claimants from bringing their actions, which were already accepted from the plan, but also unjustly expands the jurisdiction of the bankruptcy court to go beyond the bankruptcy case and confirm plan to include reviewing and making dispositive findings with respect to non-debtor claims, which are outside of the purview of the bankruptcy arena, and again, which are specifically carved out of the plan. Now, they will say that it's just a threshold determination

but truthfully, there is cases that say that colorable goes beyond mere interpretation. And this would now be going to application of a provision case in controversy. And now we're asking the bankruptcy court now to start digging into the possibility that this claim has some merit or not, which now expands beyond interpretation of the bankruptcy plan. That's not to say that the defendants of such an action do not have the opportunity which is depleted as an affirmative defense and come back to your honor, for your honor to review and then work without determination. But to set that up as the floor for how this operates is now bringing the,

this whole issue into a whole new uncharted territory, which apparently was a non-issue for so many years and through so many filed and confirmed plans throughout the last, you know, I don't know, I don't want to say two generations, but it's always, you know, could be 30 years, who knows, as long as I've seen plans, but I'm sure there's others here that may have seen ones before that. further to the extent that the debtors are relying on the assertion that the settlement parties would not be entering into this deal absent this provision. So, first of all, it's questionable. It's not clear that this was the whole nexus or foundation for the plan. However, it's been asserted in declarations.

But even those decorations talk about settlement parties, not the expansive gatekeeper provision that would be sought to be imposed on all these non-debtors suing related parties and nothing due to the settlement. So if your honor is inclined, and again, we don't believe it's supportable, but if your honor is inclined to approve, but if your honor is inclined to approve, this gatekeeper provision. Okay, so let's narrowly tailor it for the settlement parties who were so keen on only entering into this plan process under those conditions. Why should somebody else who has nothing to do with the settlement be forced to bear this prejudice, which is a prejudice? Because basically what we're saying is, even though you opted out, even though you carved out or you carved out, you still have now this extra hurdle.

It is a burden. Whether they want to admit it or not, or whether ultimately it gets back to the bankruptcy court anyway, but honestly, from the beginning, it's a hurdle and a burden and a challenge for that particular non-debtor, a stakeholder suing another non-debtor that they are now required,

required to stop before they file their complaint in state court or whatever other non-bankruptcy jurisdiction. And then they have to come to your honor. They have to go through all that. They have to probably hire an attorney. They have to incur additional costs. They have to come in front of your honor. And your honor says, yes, go do what you want to do originally, which you bargained for

under the plaintiff. We don't support that kind of position. we don't think the bankruptcy court should support that petition. They mentioned a Highland case, which is a case that's being brought as the flagship case for this kind of provision. But even at Highland, it was limited bankruptcy case, and the court even said on remand

that it was just forward-looking to protect the administration of the plan. In other words, a certain subset of professionals would be protected. That's not what's going on here. They have this extensive provisions going to everybody. You want to, you want to, you got a release? Yeah, you're accepted from the release.

You want to sue Joe Schmoe, nothing to do with the settlement and everything? Uh-uh. Got to go back to the bankruptcy. We don't see that as consistent with anything in Hyland. And it's not consistent with the plan meaning of the plan. And it

doesn't deprive the bankruptcy court at a certain date if an affirmative defense is brought as appropriate to coming back to the judge and saying, Judge Kaplan, please, do I have permission? If that's a defense that one of these parties wants to avail itself as an affirmative defense, consistent with federal civil procedure. So going forward, we, would like the bankruptcy court here to address these two issues with the debtor and absent the debtors amending a plan to include the exception for fraud will from misconduct gross negligence as found in many plans and either deleting the gatekeeper provision or otherwise tailoring to the narrative that's been presented to the judge that the court denied confirmation.

Thank you, Judge. Thank you, Mr. Mazen. All right. Again, I see hands raised, but let me go to other objectors. Mr. Atkin, were you going to make argument? Yes, Your Honor. While our issues with the plan are similar to those of the U.S. trust and the SEC, frankly, we have a more narrow perspective.

We're not a government agency. I have a client. And we're focused on the claims in connection with the securities litigation. And the impact on those claims with respect to what we believe are offensive provisions of the plan. I'm glad to see the debtor reached out and worked with the U.S. trustee and the SEC. No such luck for us. We've had no contact with the debtor since the filing of the objection. Let me get to the standing issue first, Your Honor.

Kind of seems more like a heads-eye-win tells you lose argument. from a standing perspective as the presumptive lead plaintiff, and we point this out in our papers, the presumptive lead plaintiff himself has a pecuniary interest because the larger the class, the larger the recovery, the more of an incentive award he would get from the district court. If the class is narrowed, if the recovery is less, because of the impact of the releases, that incentive award may not exist, or it may be limited.

But that's really not the major issue with respect to standing. We've also objected, as the U.S. trustee and the SEC has, to this gatekeeping provision. And Mr. Wyatt, as an opt-out, even with respect to his individual claim or as a class representative, is impacted by this gatekeeping provision, both in terms of cost and in terms of unnecessary, what we believe at least, delay in litigating claims that for all purposes should be resolved by the district court, ultimately. So, you know, standing, Your Honor, the cases prefer to look at a party in interest from a broad perspective. And you can't be really a party in interest with respect to certain issues and not a party in interest with respect to other issues. Either you're a party in interest or you're not. And we believe it's clear that Mr. Wyatt is a party in interest as contemplated by the Code and that his interests are impacted in several ways by the provisions that we find objectionable.

So moving on, Your Honor, to certain problems that we pointed out with the ballot itself. you've heard an argument thus far that there has been significant disclosure with respect to the plan and a lot of patting on the back with respect to that disclosure. But specifically, here are the problems as they relate to Mr. Wyatt. and his constituency. Number one, the ballot includes certain definitions specifically laid out, but doesn't include two definitions that are critical for a class, a punitive class member to have a sense of what's going on.

One is the definition of the committee settlement parties, who are the beneficiaries of the release specifically and are in fact several of them are defendants in the pending class action and the definition of related parties which succeeds in bringing everyone else potentially in the universe under the umbrella of these releases

those two critical terms are not defined in the ballot although other terms are. And we believe that that limits the ability of a class member to really determine whether they should opt out or not. The second of all, Your Honor, the release, the opt-out clause itself or the opt-out checkbox itself, you don't get to it until page 7 of the ballot. And this is all the ballots under Class 3, 3A, B, C, D.E. So a creditor is making a decision on whether to accept the plan or not,

and then has to wait through several more pages before they get to the opt-out checkbox. We think that's a problem. There's an informational statement in the ballot. of about a page and a half to give a creditor guidance with respect to the vote and the ballot. Nowhere in that informational statement, which is something that maybe a creditor would read, nowhere does it talk about the opt-out generally, or certainly nowhere does it talk about any specific claim, that a creditor may be releasing if they potentially have claims as a punitive class member under the federal securities laws. With that, Your Honor, we

believe that although there was a lot of disclosure, key aspects in key places in the documents, failed to really provide putative class members with the information that they would need to realize that they're potentially giving up a valuable claim. Why not?

But the documents don't provide them with that information. There's no indication specifically as to the pendency of the securities class actions. And Your Honor, the debtors knew from the get-go in this case, given that they filed an adversary proceeding to enjoin those class actions early on in the Chapter 11. So, Your Honor, from that standpoint, we believe that there are issues, serious due process issues,

with respect to the information that was provided to these particular creditors, who Mr. Wyatt is looking to represent in the class action, to make an informed choice, assuming that the opt-up mechanism itself is appropriate. We have certain views with respect to that, but I'll get into that in a moment. Your Honor, let's talk for a moment about the concept of consent. Here, consent, which we believe is being engineered by the debtor, creates silence and inaction where there's no information about the securities litigation, as I've just pointed out, concerning the claims that they're potentially giving up.

We don't believe it's necessary, we don't believe it's fair, and we don't believe it's equitable. The committee settlement is not conditioned on a release of the settlement parties who are defendants in the securities litigation. It can't be, just by virtue of the opt-out mechanism itself, as was pointed out in some of the cross-examination that was conducted earlier. Your Honor, the opt-out mechanism in this case improperly places the onus on class members to, A, know of the existence of the securities fraud-based claims. And, Your Honor, these cases, the securities cases are in their infancy. So there's been no notice sent out to class members yet. there wouldn't be in circumstances like that. And then the litigation was enjoined by this court through a stipulation in order.

So there was nothing going on in those cases other than, as the court knows, the filing of the plaintiff motions, which was the only thing that was allowed. These securities fraud claims are not disclosed in any plan-related material. And then these individuals are being asked to successfully navigate and interpret a maze of dense ballot and plan provisions to understand the impact of the third-party release. Your Honor, this to us is not due process, especially where the majority of the customers of the debtor, and you've heard an argument and in some testimony that they amount to hundreds of thousands of individuals. They're not, for the most part, institutional investors. Most of them, a lot of them are individuals. Your Honor, the debtor's cite in their confirmation brief,

and I had a limited opportunity to take a look at it, given the fact that I was in synagogue to a certain point in time last night. And then... Now you're making me feel guilty. Breaking Finn. No. Because I read it. No?

Well, you're... Your Honor, I'm impressed. I'm impressed. But the debtor cited the Aegean Marine case, which you've heard mention of, Judge Wilde's case in New York. We happen to have been involved in that case. And the debtor is cited favorably for the proposition that the,

excuse me, for one second, Your Honor, that the clause protecting estate fiduciaries and the exculpation provision is appropriate. appropriate. But let me quote what Judge Wiles said about third-party releases in general in that case. He said in the transcript which we could provide, it's part of the record in that case. He said, and I'm quoting, this is all about consent and what consent means. right? So you're basically urging me to say that you need me to manufacture consent for you, because we know, we know in every one of these cases, there are people who are going to get

this big package and they're not going to open it, or even if they open it, they're not going to understand it, and they're not going to respond. We know that. So all that this opt-out approach does is it seeks to manufacture judicial deemed consent without an actual thought process on behalf of the person whose consent is being sought. Your Honor, debtors' counsel happened to be debtors' counsel in that case as well. And to the extent that they cite Aegean Marine for their benefit in connection with the exculpation clause, you've got to take the burdens. with respect to that decision as well and can't say that the court should ignore it

if they're asking the court to look at it and endorse it from the standpoint of the exculpation provision. And, Your Honor, as was pointed out by Mr. Meza, these individual defendants were defendants in the class action and our parties to the committee settlement, aren't even entitled to a release in their own bankruptcy case. There is no provision of the bankruptcy code that authorizes a release of third-party claims other than in the asbestos concept. So what the debtors need to hang their hat on is that it's a matter of contract, that they've consented as a matter of contract because the plan is in essence a contract. But when you look at contract law with respect to the issue of consent, they for the most part take the position that there must be an express manifestation of consent.

And at page 66 of their brief, they admit that it's really a matter of contract. And that's what they're relying on with respect to the propriety of the release and the so-called consensual nature of the police, of the release. Your Honor, that has not been demonstrated here on the record. Consent simply shouldn't be implied on the basis of notice, and the notice here does not even pass muster, as we've pointed out, from a due process perspective as it relates to the securities claims. Your Honor, I want to say a word about damages here, because regardless of what a class three creditor recovers, and it varies from class to class, and frankly, most class members fall into 3E under the plan. these customers, these holders of BIAs, are entitled to, or the recovery that they're entitled to under the plan is a matter of contract. So it's really the value of the crypto at the time of the petition.

That's how it's determined. And that is what their claim would be. The fact is that from the standpoint of the securities laws, the damage. are much more significant because the securities laws can reach back to a point in time when the crypto prior to the filing, when the crypto was valued higher, I think it was maybe 20 to 25 percent higher at that point in time. And the allegations in the complaint are that by virtue of the misrepresentations in fraud and other misconduct perpetrated by the defendants, they invested, and they lost that differential by virtue of not failures to disclose major issues

that ultimately resulted in the value dropping significantly over a very short period of time. So we're not talking about anything that these BIA holders can recover in a bankruptcy context on their contract claim. The damages are potentially significantly higher in the context of a securities fraud claim. Your Honor, it's important to note that this is a liquidation. This is not a restructuring. and the cooperation from the former or current directors and officers that was negotiated as part of the committee settlement is not dependent on the release of those individuals. It is not a condition to confirmation. We can't find it in the plan.

Your Honor, much has been said about indemnification obligations that the debtors may have to certain of these parties. And I want to talk about that solely in the context of securities fraud claims. Number one, securities fraud claims that form the basis of indemnification requests are statutorily subordinated under the bankruptcy code under 510D. Just as the litigation claims of my constituency are subordinated under 510B, And those claims are not entitled to any recovery under the plan. Contract claims, yes. Securities claims, no. So if the debtors chose to assume those obligations for reasons I can't possibly fathom,

rather than allow the bankruptcy code to subordinate those claims, That, Your Honor, is, from our perspective, that's on them. Second of all, and equally important, is that most of these individuals have already waived their indemnification claims against the debtor as part of the committee settlement. So there's no risk with respect to those claims going forward. The other thing that's important to point out is if you look at the indemnification, provision under the plan, and I think it's article VE at the top of page 59 of the plan. The plan specifically carves out any indemnification obligation to any person for any cause of action arising out of related to any act or omission that is a criminal act or constant.

actual fraud, gross negligence, bad faith, or willful misconduct. Now, there you have the clause that should be the carve-out with respect to the releases as well. But the debtors utilize that carve-out to deny any indemnification obligations to anyone who ultimately is subject to a finding of liability on that basis. And those are the claims and the security. case. So there effectively couldn't be any indemnification obligations running to these individuals if they're ultimately found to be liable under the federal securities laws and with respect to the claims raised in the securities litigation. Your Honor, let me talk for a moment about the gatekeeper

provision and then if you'll indulge me, I'd like to go over some of the arguments the debt are made in the brief that was filed yesterday. that I think they're mentioning. I'm going to ask if you could 10, 15 minutes? Yes. Okay, thank you. Sorry. All right.

We really echo the comments of the SEC and the US trustee on the gatekeeper provision. There are already, all these protections are already built in, especially in securities litigation, which is governed by the private securities Litigation Reform Act. So those claims can't even go forward. There can't be any discovery, nothing, until a motion to dismiss is decided by the district court. So the district court is going to determine whether those claims are actionable, whether they're subject to a motion to

dismiss, or colorable. That's fundamental to a securities fraud litigation. And you're Your Honor, you have enough to do than to sit and ruminate over violations of the securities laws and whether they're colorable or not, in the debtor's words. That's a function of the district court. It's a non-core, these are non-core claims, and there are serious jurisdictional and constitutional and constitutional authority questions. that are baked into what the debtor is requesting in connection with that gatekeeper provision. And now, Your Honor, with the remainder of my time,

I'd like to go over certain aspects of the debtor's confirmation brief. At page 62 of their brief, in footnote 175, they cite several cases from this jurisdiction, and others in favor of the op-dap mechanism. What they don't say and what these cases say each and every one of them, Congolium, Models, SLT Hulco, aceto, a case I'm somewhat familiar with, St. Michael's Medical Center, they all contained the fraud, willful misconduct, and gross negligence carve-out, all of them. If that carve-out were in this plan, Your Honor, you wouldn't have to worry about me holding my tongue and limiting myself to 15 minutes. I wouldn't be here by virtue of the standard carve-out provision

in these cases. And the debtors cite each and every one of them. They obviously cite bed, Bath and Beyond, a case that Your Honor decided a few weeks ago. Similarly, Bed Bath and Beyond, if you look at the plan, they have the same carve-out provision with respect to fraud, gross negligence, and willful misconduct. And then they cite the Lynette Company, Inc. case at page 63 of their brief in the footnote. I happen to be involved in that case, too. And what happened with respect to the same constituency, putative class members and a securities fraud class action, they were allowed to opt out on a class-wide basis.

So again, it was no issue for them in that case. It was resolved. Similarly, they cite the court's decision in Cobalt, which is a case that was before Judge Isgar in the Southern District of Texas, a case I'm also somewhat familiar with, with Carthlin and Alice on the other side. In that case, they cite favorably but neglect to point out that putative class members were allowed to opt out on a class-wide basis so they would not be bound by the release. So there are ways to resolve these issues, ways that we've utilized in the past to resolve these issues.

But the case law, even the string of cases that the debtor cite, obviously favor the inclusion of that general fraud carve out. And if you look at their brief, Your Honor, you know, they give you the reasons, you know, why that shouldn't be included. in this case. And the reason, at least as far as I can tell, reading it, is because there's so much fraud here, and there'll be so much litigation, that we've got to avoid all of that. That's really what the argument is, that this is a case littered with that kind of misconduct. That's not a reason to release those claims. And Your Honor, just a couple of comments on the arguments that the debtor's

counsel made with respect to their presentation a little earlier. Everything that was referred to in that argument is hypothetical, conjecture, without any factual basis. The floodgates argument, I've heard that a few times over the years, with no basis as to how that's going to happen and no basis to determine that litigation would be frivolous. They'd be just showered with frivolous lawsuits. There

are ways to deal with that too, Your Honor, if it were to come to pass, but not by preventing someone either on a class-wide basis or individually to assert those kinds of claims, especially

in a case like this. I also heard mention that we had the opportunity to certify a class in the context of this case, and it's hard to certify a class where a lead plaintiff hasn't been appointed and the case has been enjoined.

So that just wasn't practical. It wasn't an option with respect to this case, given the timing. Your Honor, we're not substituting our judgment for the judgment of class members who likely don't have a clue as to what they did or the impact of not opting out. We're just trying to give them the opportunity

to assert claims that they have or not. That's what this is about. It's about giving people the opportunity to assert these claims, and then the judicial system will do its part with respect to determining whether these claims have merit or they don't. But to cut them off at the knees

at this particular juncture without the opportunity to have them see the light of day is really inappropriate, not justified. We're not looking to blow up this plan, Your Honor. We have no objection to all of the substantive provisions of the plan regarding distribution, classification, all of that. We're just looking to preserve rights for people who really weren't in a position to make that decision themselves.

So with that, Your Honor, unless the court has any questions, and hopefully I kept to my 15 minutes. You did a good job. Thank you, Your Honor. Thank you, Mr. At this moment, I don't have any questions. I see a, well, there's Joanne Gelfon who has a hand raised. Is there anyone else in the courtroom who wishes to make argument? Ms. Gelfand, I'll get to you in a moment.

Your Honor, Brett Nave of Lathamon-Wakins on behalf of the Joint Liquid Airs of the Three Arrow's Capital. Your Honor, I can confirm Mr. Petrie's comments and representations that we have agreed to our language in the order that will resolve our objection today, and that language, I understand, will be included in a revised order that will be submitted. And we thank the debtors and the committee for working with us to resolve those issues. There are still, of course, a number of issues outstanding as it relates to three arrows in it. claims, specifically the debtors pending estimation motion, claims objection, and our motion for a leave from stay. We'll next be before, Your Honor, on those issues on the 10th. Those issues aren't for today. They don't affect confirmation today. My comments are intended to briefly

preview where we see things going as it relates to three arrows. And in particular, as your honor may recall when we were before you on a status conference last week, you remarked perhaps in that it might be a good idea for the judges in these various cryptocurrency cases that present these dueling debtor dynamics to get together at NCBJ and maybe sort through how to proceed. Well, we thought that was a great idea given the need for coordination and efficiency and adjudicating common issues that the 3AC claims present across debtors in a number of Chapter 11 cases. And to that end, we'll shortly be filing a motion in this case as well as the other cases where we have similar claims that present common issues pending and similar motions for a leave from stay pending, seeking a joint judicial conference among the judges presiding over those cases to discuss a path forward for litigation of the three arrows claims.

You have a nice location picked out. I think probably virtually, but we can discuss. If your honor is open to it, perhaps in the BVI. I understand that we've reached out the chambers regarding scheduling and plan on seeking to shorten notice so that that can be heard together with the other issues that will affect process moving forward on the 10th. And given that outreach, just wanted to preview for your honor that that would be coming. All right. Thank you, counsel. Thank you, Mr. Kana was for your restraint.

Anyone else in court? Ms. Gelfand, and then I know my court reporter would like, and others would like a break. Ms. Gelfand, let me hear from you. Thank you. Thank you, Your Honor. Joanne Gelfand, I'm Ackerman LLP on behalf of creditor John Lim. Your Honor, I had hoped to be here in person. I'm so sorry I'm not between the holiday and a little travel snafu. I find myself on Zoom.

Initially, Your Honor, I want the court and everyone in the courtroom to understand And there is no desire to derail the plan. However, we had to bring this matter up to the court and that we've worked and tried to really settle this with the debtor. We've been in constant touch with them since the modification was filed last Thursday. And in fact, we were the party that brought it to the debtor's attention that their release actually looked more like a general release and it actually released the objections to claims. We didn't spring it on them and let them go through confirmation with this problem in the plan.

The starting point, Your Honor, would certainly be the release and the modification. The releases of all causes of action, and as you know, this release is available to accepting creditors who do not opt out of the third-party release. The release language provides very broadly that all causes of action are released, and they include in the release language, claims, cross claims, damages, controversies, demand, obligations, liabilities, debts arising under law. And then the debtors add this sentence to the definition of causes of action being released. Quote, for the avoidance of doubt, causes of action include, any right to object or to other by the contest claims or interests that claims objections are being released.

In response to our pointing this out to the committee and the debtor, a modification was filed, I believe, last Friday. The modification creates an ambiguity in the plan. The modification, which does not modify causes of action. It modifies the article in Article 8, which is the general release provision. At the end of this general release, releasing all causes of action, including, as I've stated, claims objections, the modification states as follows, quote,

for the avoidance of the doubt, nothing in this plan shall release waiver, otherwise. limit the debtors or now we have a plan for confirmation that's ambiguous on its face. I know the debtor is asserting that taken as a whole in bringing the disclosure statement into the analysis,

it's clear that claims objections were not waived, but that's just not so. First of all, the plan is entirely consistent with the release of the claims objections. First of all, of course, we have the explicit language. And then we turn to Article 7, which the debtor hangs their hat on. Article 7 deals with claims objections and gives a great deal of power to the wind down debtors to bring claims

objections. And we've been accused of trying to wipe out a meaningful claims objection process. Nothing could be farther from the truth, and that's just not what will occur. We heard from the debtor today that more than 10,000 creditors opted out of the third-party release. That means more than 10,000 creditors are not entitled to the release of their claims objections. Proll filed their certification, and they attached 326 pages listing the opt-out predators 20 or 25 a page. So we will have a robust claims objection procedure as to the opt-out creditors, Your Honor. Your Honor, there are other things in the plan that show it's consistent with the release. Again, going back to Article 7 claims objections.

The first sentence in Article 7 dealing with claims objections is, except as otherwise provided herein. So the released claims have clearly been accepted. Then we go to Article 4C2 of the plan. Article 4C2 speaks to the release of all claims, quote, other than retained claims. Then we go to the debtor's schedule of retained causes of action. In the middle here, after going on and on about what they're retaining and getting to these claims,

it says unless any cause of action is expressly released, accepting again from the retained, causes of action these released objections to the claim. The debtor has asked the court to consider the disclosure statement in determining whether or not the release covered claims objections. Clearly, it appears improper to bring in this parole evidence. We know the disclosure statement has many warnings about reliance, and of course, it provides as they do, that the plan would govern any inconsistency. Yet the disclosure statement is completely consistent.

The debtor argues that Article 11A2J&O, dealing with treatment of claims and estimation, show that the objections to claims was never released. Again, both of these sections have a preface, which is, except as otherwise provided in the plan. So again, they're releasing these claims objections. We now have an ambiguous claim, excuse me, an ambiguous plan as modified.

Offering Mr. Lim the opportunity to change his vote just wasn't a fix. Mr. Lim is one of many creditors affected by those. This affects all accepting non-out predators. The committee had the timing a bit wrong. I placed a call to the committee on Friday, September 15th, scratching my head about why the claims objections were released. I will note we're also released in the Celsius case. It's exact same language. So another common issue here.

Changing the vote was not in Mr. Limb's interest. He voted to accept the plan as is and to release the claim objection against his claim. Your Honor, Rule 3019 is clear that a modification may not adversely change the treatment of any creditor. And in fact, the 11th Circuit last year in the In re-America CB State Group case reversed the bankruptcy court, finding that a shareholder, who either was not entitled to put or rejected the plan, was entitled to resolicitation and new disclosure because the modified plan eliminated the shareholders' right to purchase certain equity. The 11th Circuit pointed to the language in 3019,

saying the treatment of any creditor and determined that even the shareholder who may not have been entitled to vote was covered by it. And the court knew it would be difficult to unwind things, but sent things back, essentially saying, figure it out to the Southern District of Florida, which is my hometown. We would ask the court to confirm the plan without the modification. Otherwise, this does not comply with Section 1129A. It violates Section

1127 and 1120 baffled by the inability to resolve this one claim with the debtor Mr. Lim is not the scoundrel here he didn't put land added

through the modification to the release was Galpon's fortune Unfortunately, we're having transmission issues, and a lot of your arguments not coming in clear. We have, I have, the court has the benefit of the written objection. The oral argument is proceeding along the same lines as the written objection. I can accept the written objection and rule on it. if you want to try to sum up, see if we could have to do a reservation of, I would like to just conclude with a reservation of rights.

Your Honor, can you hear me? Yep, we have that on record, the reservation of rights. Okay, of all rights. And we would be happy to even now, if the court's taking recess, to speak with the debtor. Thank you, Judge. Thank you, Ms. Galifond. I don't know on whose end. the transmission problem is, but I thank you for your efforts. You are free, obviously, to reach out

for counsel. I am taking a 15-minute break. It is 3.30. We'll come back at 3.45 or so. And thank you all. Oh, I didn't mute myself. Are you? You are unmuted. You are unmuted. All right. Let me, before I turn to debtors' counsel, I don't see anyone else remotely he wishes to be heard. We've about last of them. Let me hear from reply, Debtors' counsel. Yes, Your Honor. For the record, this is Francis Petrie of Kirkland on behalf of the debtors. So not much has changed since my initial presentation in my view.

We've heard from each of the objecting parties, and there's two main points that I believe came out of that. First, the third party release is consensual. And in a consensual case, you and others have held that a lot of things can be bargained for, and anything can be released. Though things like fraud and carve-out cannot be discharged, they can still be released in such a structure. The opt-outs that we've seen in this case are higher than you've ever seen. And each of those parties who consented to that release understood the scope of what they were either releasing, or what they were not releasing. Every individual in this case had the option to opt out,

and that structure was something we negotiated for in the terms of the settlement. Even accepting parties had the option to opt out here. But the release parties negotiated for that limited structure and limited the universe of non-release claims. The massive amount of opt-outs that were received in this case is evidence of their consent, if anything. There was notice of what these individuals agreed to, and all they had to do is perform basic diligence

to figure out what they were going to do. going to be releasing and when. So then to take on the other main argument that came out here, which was about the scope of the gatekeeper provision. First, the gatekeeper provision only applies to this extent that this court has jurisdiction. It's not an attempt to front run anything. And no party is better than this court to make this determination of determining the scope of the confirmation order and the plan.

Those are the only things that we are asking this court to do. And anything beyond that is not something that we are actually looking for. I'll also address a few other arguments that were made by the U.S. trustee. First is about the limitation to the injunction. The purpose of the injunction is designed to protect what is being confirmed. We're not seeking a discharge through this plan, and a time limit can't be agreed to, because at the point property is distributed is when an injunction would be most important. A lot of their other arguments are mooted by the fact that the third-party release is

consensual and settling claims, but we did remove language that made specific reference in 2019 in certain sections to replace it with to the extent provided for by the code. And just to be clear, the under-deliverable ballots issue for those parties who do not receive actual notice, they are not subject to the releases. And we're happy to make the other notice amendments that he requested about the parties who can elect to make other post-confirmation elections under the terms of the plan. To address Mr. Wyatt's arguments, as I stated before, in this circuit not opting out equals consent. First, we do still maintain that he's not outstanding to bring these claims. He is not the lead plaintiff in a class action.

He is a large claim holder in a class action, and the class has not yet been certified. And further, he has opted out of the release, so he personally has will receive no injury, and he has no standing to object on behalf of others. Ten thousand parties did opt out of providing the release, and he has provided no evidence to the contrary that these parties didn't know exactly what they were doing when they opted out, nor is there evidence of any sort of damage that would be suffered by his client. As a result, we do confirm that he has no standing to object to these claims on behalf of others. If they wanted to preserve their claims, they could opt out, but they do not need an individual passing their judgment for them.

It's also possible that there's a world where there's claimants who actually are seeking to get the release from the debtors because they think BlockFi has a claim against them. The possibilities are endless in this, and he has presented no evidence to the contrary. However, the balance of the evidence does cut in our favor here. And then just to briefly address the last objection about the plan modification, I don't think, what I said earlier still stands. Nobody could read the plan to believe that claims objections are being released or terminated. It would result in an absurd result where a bunch of asserted claims would be actually allowed against the estate. And we've provided a lot of evidence about how that was not the intention of that portion of the plan. Thank you, Your Honor.

All right. Thank you. I do believe the committee would like to speak up. Mr. Ollett? So I have a few responses and then I believe Mr. Stark will want to speak at closing or now whatever would be appropriate. That's fine. So basically two responses to points.

You know, the SEC and a number of other parties pointed to a lot of the sections of the gatekeeper provision. But I just wanted to direct your court's attention to another. provision that was very heavily negotiated. It says, in essence, that provided a party opted out, nothing in this plan or confirmation order prevents, releases, or obstructs a properly pled direct claim. I think that combined with all the statements that the debtors have made on the record makes clear what this gatekeeping function is and is not. This is about making sure a claim is a direct claim before letting it.

proceed. It's not about making Your Honor the judge for any and all claims against the release parties on the merits. As for the issues regarding the modification of the plan to make it clear beyond dispute that the claims could still be objected to, that there's any number of provisions in the plan both before and after the modification that could be pointed to do it show that it was always intended that parties have the right to object. To the extent that there's any ambiguity, and the Council pointed out, it's been clarified in the plan. It's been clarified on the record.

Everybody understands now what this plan means. This plan means that even if you did not opt out of the release, your claim filed against BlockFi is still subject to an objection to make sure that you receive. the claim that you are entitled to. Anything else penalizes other creditors or potentially the creditor themselves if they filed a amount that's too low. You could hold simply based on all the provisions that make the wind down debtor partially a successor to the committee as well, which has its own right to object to claims as a party in interest. And any other creditor would always have the right to object to any claims. So to the extent that

Your Honor thinks that there's any ambiguity left in the plan, I don't think that anybody would object to something clearly being stated on the record that it's clear that anybody's claims are subject to objection to make sure that everybody gets the claim that they are entitled to. Thank you, Your Honor. Thank you, Mr. O'Land. Mr. Stark. Thank you, Your Honor. And thank you for allowing to switch counsel.

I know that's not normal. For the record, Robert Stark from Brown Redneck, also appearing on behalf of the official committee. Just a few words, if your honor will allow me, just retracting the lens a little bit, okay? And a little bit of case summation, because I'm a little bit fearful at this moment after hearing the argument,

and they were very persuasively stated, but they're on teeny, minute aspects of a plan, and I worry that for focusing on the bark on the tree, we lose sight of the entire topography. So if Your Honor, allow me just for a few minutes, and I won't take too much time. The first sentence of our statement in support of the plan states as follows. These cases have been hard, quote-unquote, period, five words.

And those five words were intended to be poignant, not as a matter of advocacy, but as a matter of fact. The truth is, crypto bankruptcy cases, all of them are harder. In this case is hard. In our milieu here, unlike Bedbath and Beyond and Biofarma and all the other cases that have been cited to in the briefs and talked about today by your honor, we have issues that not only go to typical bankruptcy blocking and tackling, who gets what, who owns what? between wallets and BIAs and lending, how hard is that issue?

And that's just normal blocking and tackling for any bankruptcy case. Then we delve into a thorny litany that begins and then proceeds well beyond what I'm about to do now. How did we get here? Who's responsible for the business failure? How do we maximize value if we're not going to rehabilitate a business? How do we wrap this up? Who's going to be responsible for the wrapping up? And a million other tough questions.

The litany is very long, as Your Honor knows so well. And business failure always automatically seeks into blame. And there's a lot of blame. And there's a lot of anger in this case. Let's be honest about that. There's been a lot of anger in this case. And meanwhile, we've had massive monthly deterioration about it. Tract, where everybody's talked about it, known.

If this case does not end quickly, did not end quickly, massive amounts of erosion every month. And meanwhile, and this is critically important, we are separating people's life savings from their own bank accounts. Pause on that for a minute. The customers, the 600-odd thousand people who have deposited with BlockFi cannot get their money for things that they need for their daily lives. That's a big responsibility that we in this room in Your Honor have had to deal with. for almost a year. And that's a terrible burden. In crypto bankruptcies, the crucible of Chapter 11

burns hotter. It just does. And in this case, it burned very, very hot. This is not retail or buy a farmer or any widget company. This is crypto. And we have to think about it in that milieu, because it is different. And we have to behave in this case and think about things

differently, and we've done that. But even in this hot crucible, we have a job to do and we've done our job. We have to get to a resolution and a resolution that creditors can support and they do come out in support in mass volumes. That I think is important, but also critical importance is that we have to be able to walk away from this bankruptcy case, what happens today one way or the other, and be able to look back on today in hindsight and ask ourselves, was it reasonably balanced outcome? Was it rough justice fair? And do we have systemic and process integrity? Those are the three concepts,

I'll throw out today for your honor to think about, because we do think that was done here. Of course, there are attributes of the deal that we don't like and they don't like and everybody doesn't like. Certainly it wasn't fast enough or wasn't inexpensive enough or what have you. But think back on it. It was quicker than every other crypto bankruptcy case out there. It was a whole lot less expensive than any other crypto case out there. It was open.

Everyone knows what happened and everybody can see everyone's side. and everyone can choose their own path. They could choose to give the release or not give the release. No strings attached one way or the other. Move forward and make a decision. More disclosure than anyone has ever seen. Okay? It is balanced.

Nobody really likes the outcome. Everybody feels aggrieved in one way or the other, which I gather, I hate to say it because it's trite, but isn't that the definition of a deal, of a settlement that's quality, when no one's happy with it? Is it rough and it's justice? Your Honor will be the determiner of that, but the creditors have spoken.

They voted en masse in favor of it. And does it evidence systemic and process integrity? The adversary process in this case was hot, because we are in the heated crucible of crypto bankruptcy, and it came out with a deal that was hot, but has been accepted and accepted broadly, and we've now have time to heal. I'd like to add two more points just to make sure our topography is, right? Don't want to lose sight of the forest for the trees to use another trait phrase. And the first is a comment about the committee.

Now I get it. At this moment, creditor committee lawyers love to get up and talk about how great their committee and law their committee. And it's wrote. And I really at this moment don't want to do that. What I want to do is speak again, in fact, and not advocacy, although it will come out as advocacy. It is 100% from the heart. the committee, this was not a quote-unquote hard case. For the committee, this case was impossible.

It was all-consuming time and energy. It was gut-wrenching in every attribute of the word. It was an emotional roller coaster. And it was more than just the analytical economic analysis that we have to do. It was emotional in many respects. To do this job, we analyzed, we reanalyzed, we discussed, we analyzed again. We fought amongst ourselves, not weekly, every single day. We analyzed, reanalyzed, met, thought, discussed, reanalyzed, and did it again. Okay? This was – I've been doing this for a while.

This was one of the hardest, if not the hardest, if not the hardest committee assignment I've ever had. I will always remember it. It was that hard. As Your Honor knows, committee members are not paid, and this was a full-time job, and many of them had to move away from their daily employment activities to be able to pay attention to this case as they need to do that. That was great sacrifice. But here's an important part that I know Your Honor is aware of as well. We faced criticism and worse almost every day in the chat rooms, the pressures, the threats. What we were doing trying to do for everyone was faced with a constant.

barrage of what are we doing and why are we doing it and we must be doing something wrong. The easiest thing is to throw in the towel. The hardest thing to do is to be dogged about it. Through litigation, first a mediation, then a second mediation, then a settlement. And there's a truism, at least in terms of what I've learned in life, is that it's very easy to threaten, it's very easy to strafe someone in an anonymous way, say on a chat room. And almost anyone, anyone can do that. Almost anyone can and is willing to levy an attack in a courtroom, because you can in America with minimal recuperations. Fewer will do the work, and fewer still will have the brain power and importantly the stomach to settle. That's the continuum. It's easy to attack and threaten. It's hard to settle. And that's what we had to do. And I say all that in a way,

to laud the committee for all they did, but more importantly, for purposes of now, at this moment, looking at the topography, knowing, as Your Honor I know knows how hard it was to get here, let's not lose sight of that data to inform how hard this was. The second point is I'd like to go back to some pretty tough days in July in this courtroom and in the hallway. And there weren't many people with us. Iran was with us. I've had the privilege to appear before bankruptcy courts all around this country in many different kinds of cases, and I've been involved in many cases,

mired and complex issues, and I've been sent to mediation many times. Many of those times have failed. And then what happens next is a devolution of the case into litigation, and hopefully a settlement on the courthouse steps after a long administrative burn, and sometimes we go to judgment. Never before have I experienced a case where when mediation failed, rather than allowing the case to seek automatically into that litigation devolution, the judge, Your Honor, arrested the falling knife and said, we're going to try this one more time. Get in that room and

figure it out and I will guide you. Never before, as a judge changed personal scheduling and court scheduling to focus personally and specifically on the case at hand to avoid the disaster that we knew was going to happen next. For all of those people who are listening who are separated from their life savings, from then from November when the case filed until we got to a deal, you folks will sit in a room until you figure it out. You figure it out we did. That was a privilege to watch.

And that's something that everybody should be aware of. But it's what's incredibly important as we listen to the objection. today is to remember, because in bankruptcy we forget so quickly, to remember where we were on those hot afternoons here when the air conditioning wasn't working so well, and we figured it out. And now we are a couple of months later with overwhelming creditor support. We cannot lose sight of the forest for the trees and go back to those days or spend more months in bankruptcy over rather small issues.

It was an incredible privilege to work on this case. It was an incredible privilege in honor of my career to be in this case before your honor, being guided by your honor, into working with this committee. I'm very thankful in my career for that opportunity. It's time for this case to end. Any questions for me, Your Honor? No, I don't. Thank you, Mr. Stark. Appreciate your comments.

Are there anyone who wishes to be heard? No one wants to follow that. But I have to. All right. Thank you all. Very well argued. record is closed or does listen to oral argument. I'll echo Mr. Stark's reference to the uniqueness of cryptocurrency cases,

in this case in particular, novel issues, evolving precedent that changes day-to-day as our sister courts in the Southern District decide issues and Delaware decide issues for the first time anywhere in the country. And as this court decides issues for the first time, it's been difficult and it's been challenging. And what we have in this third amended plan as modified with technical changes is a common. compromise and to address the response is concerned I agree this is a settlement within a plan and we are confirming a plan and yes this so there's no surprise I intend to confirm the plan today I find that the plan satisfies the 1129

requirements but I need to address the issues and the objections that have been raised but the plan embodies a settlement which was aggressively and painstakingly negotiated through failed mediations, through multiple settlement sessions, and it was only truly the dedication of the parties in not wanting to see a failed effort and counsel. And when I speak to parties, the committee members, the debtors management, the professionals involved, all the really work together to produce a settlement that satisfies all and known at the same time. There are unique aspects of this settlement and this plan that we do not see in other cases. And as Mr. Maza points out, we see some more recently than we've seen in 30 years, in three

decades worth of cases. Well, the law evolves, the practice evolves, the needs of the parties change, and sometimes necessitate changes in how we practice. Let me get to specifics. With respect to the opt-out provisions, it is no secret that this court has approved in the past in Sir La Tables, get my French accent in Bedbath and Beyond recently and Laxidon in a host of cases. This court, I, as well as my colleagues within the district, have approved opt-out releases, the linchpin being the proper notice. And in here there's no question in this court's view that there is proper notice to the creditor body

at large to the stakeholders through a hearing notice, through a disclosure statement, through a plan which has language advising the parties of the ability to opt out, the need to opt out to preserve their rights. Beyond that, there are websites which, with pages addressing the issues that were put together by the debtor. There were, the plan and disclosure statement which had that language is the ballot that had the language. There was the solicitation letter drafted by the committee explaining the process to creditors. There is no question that creditors were placed on proper notice. Now, Mr. Eckin quoted the concerns raised by a colleague and friend Judge Wilde

in the Southern District with respect to consensual releases. And let's be clear, these are consensual releases because those who don't want to participate, who want to bring their claims, notwithstanding how they vote, had the ability and option to opt out and not doing so made a conscious choice. Now, going back to Judge Wiles, he and I have a different view as to faith in individuals, faith in or maybe not even faith, but expectations of individuals, and their ability to protect their own interest and engage in individual responsibility. I think 10,000 plus creditors who opted out confirms gives me comfort in knowing that the opt-out provisions work,

that creditors can be expected to protect their interest and take a minimal effort of a checkbox in a digital form or a paper form to secure their rights. I expect, and I think as a side, and I said this at the Bedbeth and Beyond hearing, we have a number of examples where we expect action to preserve your rights. You have to answer someone's a complaint. You have to respond to a jury demand. You have to unsubscribe. You have to reject cookies. There are things you have to do.

And we do it all the time. and simply checking a box to preserve your right is not onerous, is not an obstacle, and is not a hindrance, as long as you're on notice of the need to do so. So we go back to that notice provision. And in this case, the facts and the manner in which the process was undertaken, it was clear that there was notice.

Now, did the plan and disclosure, statement, describe all of the possible claims or the securities, potential securities, fraud claims? No. It didn't go into specific claims. It referenced many. But there are a host of potential claims that non-parties could bring against non-parties. But what was clear was that there was going to be a release of all claims. It didn't need to go into specifics. The releases and the language and the notices was clear that by failing to opt out, the creditors were releasing their claims, whatever they may be. The court views these as proper consensual releases,

consistent with the law on the Third Circuit, consistent with the law as set forth by colleagues in similar cases, and similar cases. As to the gatekeeping function, likewise, I'm sure counsel is aware I did approve that recently in Bed Bath and Beyond. It's a form of protection, negotiated relief

available for those making a meaningful contribution to a Chapter 11 case. And it ensures the benefit of the bargain, so to speak. It is not an assertion of jurisdiction over that which I don't have. It's limited to what the code and the judicial code allow me to decide. But what it serves as a method of, frankly, preserving judicial economy and preserving the centrality of the bankruptcy court as a form to decide,

an appropriate form to decide what the meaning of the plan is, what the meaning of the confirmation order is. And how does it and how do potential claims fall within the plan and the confirmation order? It is, while the use of gatekeeping functions and plans may be a newer phenomenon

that we see a lot in the Fifth Circuit in the bankruptcy courts and have mixed our views within our circuit, the actual mechanism isn't new. This court, I've sat for seven years, I can point to countless cases where I've been asked to interpret confirmation order, interpret a plan, because this court is best equipped to do so. It makes no sense to urge parties to make contributions to a Chapter 11 case and in return secure releases,

or secure certain rights that will be undercut by then having to defend their position all across the country in front of separate courts and separate forums with inconsistent results. The gatekeeping function ensures that a single court with the closest hands-on and understanding of the plan and the terms of the confirmation order, make an initial threshold determination as to whether a claim is direct or derivative and whether it's been released. It serves the interest of those who bargain for certain rights in making contributions, and it serves the interest of even the plaintiffs in not spending time on money on a claim that will have no traction. It is not burdensome, and as I said in other hearings, we end up in the same place anywhere.

When these actions are brought, somebody is bringing it back to the bankruptcy court to determine whether or not it's a discharge injunction, it's a plan injunction violation, it's a stay violation. It wouldn't be a stay violation any longer, but an injunction, whether it's inconsistent with a plan or the terms of the order. It comes back to this court anyway. So we're just putting in place in language what is the practice. I have no issue with the scope or the provisions of the gatekeeping function. Going back to some of the more specific concerns, I will ask that the confirmation order make it clear that the court is approving the plan. the plan which embodies a settlement and that approval of the plan is based on satisfaction of 1129 as opposed to the rule 9019 standards I will ask that there be language in the confirmation

order that directs the wind down the individual in charge of the wind down to give the proper notices with respect to the loan repayments and I would urge you to get the language asked for by the U.S. trustee I am not mandating any change to the release with respect to willful misconduct or gross negligence or fraud claims because it goes back to the issue of the bargain that was put in place in the settlement and the negotiated relief and the fact that these claims, like all claims, don't have to break it down to certain claims. those who do not take advantage of the opt-out knowingly waived rights to pursue claims of any sort. And so there's no need to break it down further into subcategories. I will add, just for the record, that the discussions of opt-out and the benefits and burdens of opt-outs

weren't just limited to information available on websites and in the documents. All you had to do is Mr. Stark suggested is go on any of the social media, go on Reddit. Pages and pages of things discussing the opt-outs. Public understood the meaning of it. And it was a conscious decision in exchange for ensuring that the plan goes forward, in exchange for ensuring that there would be personnel knowingly with the capacity to arrange for in-kind distributions to make the process work in exchange for exchange for waivers of certain clawback claims that agreed to accept a plan that didn't offer everything that they would want but allowed the case to emerge, allowed the debtor to emerge, and

start the process of getting individuals the funds to which they're entitled. respect to the objection, I know I'm doing this half hazard, but you all spoke for a long time, and I'm just trying to go through my notes. With respect to the Wyatt claim, let me be clear. I disagree with that there's no standing. Cameron Wyatt had standing to raise the objection. This is a combined disclosure statement and confirmation hearing. Mr. Wyatt is a creditor, an individual creditor at a bare minimum. and thus could raise issues as to disclosure, and I don't know how you carve outstanding from one aspect of a hearing to another.

So I'm not overruling Mr. Wyatt's objections based on standing. I am overruling them based on the merits. I disagree as to the concerns raised with respect to the scope of the releases, the process, and I find that there was, due process in the manner in which it proceeded. With respect to the objection raised, behalf of John Lim, if I accepted the analysis proffered by counsel, you would have an absurd result, where you would simply by accepting, but casting an accepting ballot, you in effect could load up a claim and there could be no

objections. FTCS could have added hundreds of millions of dollars to a claim and just accepted, filed an accepting ballot and there could be no objection. The debtor can't negotiate a way of another party to their ability to object to a claim. It's not feasible. It's not likely. When you read the disclosure statement as a whole, I think it makes it clear, certainly acceptable for approval, that the claims, process, the claims resolution process, the ability of the debtor and other parties to object, continue, notwithstanding the releases, notwithstanding affirmative votes. But in any event, Mr. Lim's claim is more properly resolved through the claims resolution process. There is a pending

objection to the claim. Mr. Lim is free to raise the release. in response to the debtor's objection, and I can evaluate the issue further, but it's a valid part of the claims allowance, not necessarily fatal to the plan confirmation process. The court wants to note, of course, the overwhelming acceptance of the plan by every class entitled to vote. That has a bearing. And it should be the exception that a court ignores the will of the parties that have the financial stake in the matter. There are times where it's appropriate. Today is not one of them. None of these issues that have been raised warrant upsetting the balance that built into the settlement.

That's part of the plan, and that was negotiating. negotiating that was negotiated. I'm approving the disclosure statement as satisfying the requirements under 3016 and 3019. Needless to say, I haven't had a chance to read through. I skimmed the revised proposed findings of fact and conclusions of law. Let me ask this at debtors council. Is there another version coming or is that the last The ERR, another version will be coming. There's always another version. I'll await

receipt of that and have a chance to take a look. If there are language issues in the proposed findings of fact and conclusions of law as revised, all parties are free to advise chambers of concerns.

I don't anticipate having extensive hearings on it but I could always take a conference call if need be I want to thank the debtors principles management and of course the professionals for the effort in trying to do the right thing to the best they can in a very difficult situation in the unforeseeable circumstances like Likewise, the committee did extensive work. And again, also I want to note with respect to the information available to the

creditor body, to the stakeholders, it decided to opt out. Let's not overlook that they were in-depth investigations undertaken by both debtors' counsel and independent directors and the committee. that these mammoth voluminous reports in mostly unredacted version were docketed and made available through links there aren't many chapter 11s where you would find such transparency and for that i do thank the committee and its council its professionals that insisted that that element be part of the process I think it was incredibly valuable to assist the court, but also the creditor body as a whole. And as long as we all don't look at Reddit too closely, we'll continue to do the same.

Again, I appreciate the concerns raised by the Office of the U.S. trustee in the SEC. They're difficult choices. It's But again If it's a difficult choice I think the court ought to lead In favor of the interest as expressed By the stakeholders

Who voted so overwhelmingly To go forward Any issues or concerns That anyone wants to bring to the court This is Sonder Thank you, Your Honor. Jeff Sputter from the office of the U.S. trustee Your Honor, you hit every objection of the U.S. trustee except for the injunction language which we asked for a

limitation I don't think I heard anything about it but I just wanted to alert you to that for a decision on that if you may I did I was going to overrule it I understand the debtor's concern with the time restraints on modifying the injunctive language I guess it's not every case where it's appropriate like in all cases but But for the purpose of the record, I'm overruling the objection. I'm overruling the other objections raised, except to the extent they've been addressed by the debtor in modified, and the technical changes in a modified plan.

Ms. Racken. Thank you, Your Honor. Just a quick question. The colloquy with respect to the gatekeeper provision seemed to indicate, as well as your Honor's statements, seem to indicate the purpose is to deal with the question of whether a claim is derivative or direct, and also to deal with whether the claim was released. There's language in the gatekeeper provision, which I still don't understand, relating to whether the claim is colorable or not.

I didn't hear the debtor talk about that, and I would just want some clarity as to whether that's going to remain in the gatekeeper. keeper provision and because it's going to, I would assume, create some of the same confusion I feel in terms of waiting into the merits of a claim. All right. Let me have debtor's response. MR. Your Honor, I think we were clear on the record several times that we're asking for two

things in the gatekeeper provision. First, a determination as to whether a claim is direct or derivative. Second, whether it's been released by the plan. And we would only ask for, Your Honor, to make those rulings within the jurisdiction of this Court. Well, then why don't we include that wonderful language we see all over in the plan? For purposes of, to be clear, for purposes of clarity, the Court as a gatekeeper was expected to undertake this two-prong analysis. Yes, Your Honor, we could include that, too-more. And Mr. Rackett, it may not resolve the issue as a whole, but it certainly should add in clarity.

It's better. I try to make it better. All right. Mr. Ketterwitz. Yes, Your Honor. We do have two other matters to address, but happy to allow people to leave if they're not going to be involved.

We hopefully will resolve or argue these things very quickly, given the time of day. In fact, the U.S. trustee has agreed that it's only going to be oral argument in our declarations on the redaction motion could be submitted. So I think I could, argue at less than three minutes.

Sir? Not much longer than that, Your Honor. So it's up to you if we take a five-minute break. Let's just knock it out. Thank you, Your Honor. Thank you. So Mr. Serrota's time and me, because we have a tea time at six. Your Honor, this is a motion that the debtor filed a long, long time ago,

docket number four, believe it or not. Mr. Renzi's declarations at 276, which is what we would like. you to submit and rule on. And our reply is at 337. And our other submissions were just recently made at 1594. Bottom line is, Your Honor, we believe that under 107B, but not with respect to the sale process, but with respect to confidential information, and with respect to 107C, with respect to the harm that individuals could happen, if we allow names of either corporations or individuals, email addresses of corporations or individuals, or addresses of email of individuals or corporations be out there in the public.

We just saw what happened in connection with the Crowell Security breach since the time we filed the motion. We've given you a litany of parade of horribles in other cases, and even a name, a name of a company that goes out there. You could do a Google search. You could find out, oh, you're involved in crypto. the office and directors. Maybe they're individually involved in crypto. So the bottom line is between the terms and conditions, the applicable law, the bankruptcy code, and all the other decisions on this, including probably Your Honor's own thoughts about how to protect people from harm, I would ask that Your Honor grant the motion. There is no evidence in opposition to our motion. It's just oral argument and speculation. And the bottom line is,

we've got to stop the harm before it gets out. And we have been living under an interim order, and that interim order has protected us to a certain extent. But when people have asked for unredacted copies, we've given it to them. And that still didn't even stop what happened with the Crowell security breach. So I would ask Your Honor to grant the motion. It is opposed, but it is purely argument. There is no evidence to support any of the trustees' statements. Thank you. Thank you, Mr. Kenowitz. Mr. Ola? Your Honor, I will likewise be brief.

We'd ask that you move our declaration at Docket 234 into evidence. You know, the U.S. Trustee's original objection included a parade of horribles that have not come to pass. The debtors' motion and the committee's joinder noted a parade of horribles that, frankly, has come to pass. You know, criminals did make an effort to hack Kroll to get this exact information. The court in Celsius released this information, and there have been nine notices of fishing attacks against Celsius customers in that case. For the reasons set forth in the committee's papers, we'd urge that Your Honor find that this information in the context of a cryptocurrency, bankruptcy, where transactions are irreversible

and once the money's gone, it's gone, to find that cause exists under 107C, because of the undue risk of identity theft or other unlawful injury to seal all of the custom information thank you your honor thank you mr all right mrs bielski thank you your honor Lauren beleski with the office of united states trustee we are here a confirmation of a liquidating plan and the redaction motion is meant to exist not just during this case but in perpetuity and not just for individuals but for non-individual as well the asserted cause under section 107B1 simply does not exist any longer. The debtors platform and customer list is not being sold and the debtors are liquidating. And we don't believe that the non-individual would fall under 107C. So at the very least, the information for non-individual clients that was being protected as a valuable commercial, as valuable commercial information should now be disclosed on the schedules.

So we should really just be talking about individuals in Section 107C1A, which requires, of finding that disclosure of information creates not just a risk, but an undue risk of identity theft or other unlawful injury. And the TCC's reply at docket number 278, they cite to a New York Times article from February 18, 2018, which recounts threats to physical safety, but it did note the spiking value of Bitcoin at that time and identified victims that may have been more unique to – more unique than what's being portrayed here. One of the victims was the head of a Bitcoin exchange in Ukraine.

Another was a New York City man that was held captive by a friend. Another article from 2021 regarding physical violence involved an individual described as the co-founder of the Spanish Facebook, which could suggest that he wasn't targeted just as a crypto holder, but for other reasons connected to his wealth as well. Two of the online articles cited in the TCC's reply contain reports that after the disclosures in Celsius, this were created. of the biggest losers, and those investors were subject to harassment and mockery, and while that's troubling, Your Honor, it's not undue risk of identity theft or other unlawful injury.

The debtor has informally provided our office with additional articles and accounts, suggesting physical threats. But those threats were by creditors against principles of the bankrupt crypto companies and their professionals. Again, troubling, but not relevant to this issue, Your Honor. On Saturday, the debtors followed a supplement to their prior response, highlighting again fishing scams, identity theft, and other scams. So it would appear, Your Honor, that what we're really talking about here is the financial threats. And we submit, Your Honor, that clients, the creditors here are savvy in the tech space. They understand, own, and deal in cryptocurrency, and this indicates level of sophistication

that creditors and non-cryptocases may not possess. And given the online presence of these creditors and what the debtors and the committee have offered as an abundance of instances of hacking and fishing to target holders of cryptocurrency, they are aware of these threats. And they could take measures to educate themselves and protect themselves

the same as individuals who have to be wary of other financial scams, like mortgage closing scams, debt settlement scams, and ransom money scans. Do we redact the names of proposed buyers and a sale motion because of the risk that they could be targeted with the wire transfer scan. Do we redact the names of addresses of creditors that are owed significant amounts of money by a debtor because we think that they have a high net worth and therefore be a target?

Your Honor recently said and reiterated today in the context of confirmation and what we should expect of individuals of any level of sophistication, that when given a ballot and an opt-out forms and plans and disclosure statements with pages and pages at legalese, the part of the parties can't bury their heads. They have to take action. They have to take steps to protect their interests. It should we expect less of holders of cryptocurrency to protect their interest, especially knowing for years now that there is an abundance of fishing and other scans out there. What I've learned during this case is that crypto holdings are risky and not just for their volatility. The scams and the fishing attempts are not new. They are prevalent and sophisticated,

and in some instances, maybe a lot of instances, affect. objective, but it hasn't deterred individuals from holding these assets. In the face of this known risk, it is a choice. What the court has to consider, in light of all of that, is whether disclosing names on these schedules going to create an undue risk. As set forth in our paper papers, the code and the bankruptcy rules tell us the debtor shall disclose. There is a long-standing common law right of public access to court records.

Public access is codified in the bankruptcy code in Section 107A. Section 107 and C offer limited exceptions. And the debtor has the burden of proof to apply any exception to the general rule. And as the Third Circuit said in Sundance is showing that disclosure will work a clearly defined and serious injury. So we submit, Your Honor, that crypto holdings are risky, but disclosing a name does not create an undue risk of identity theft or other unlawful injury. Instead of keeping schedule sealed in perpetuity, it is time to unseal that limited information, as well as full disclosure of any non-individual

because they are not protected by the exception in 107C. And again, it doesn't appear as if the exception in 10b is still being pursued drunk. Thank you. Ms. Bilskin, let me just ask a question. With respect to individuals, what is sought by the Office of the U.S. trustee, disclosure of the names and address or just the names just the names your honor just the names

all right thank you uh i happen to be on a panel with judge glenn on monday uh at fordham university school of law this will be one of the topics we're debating i think i'll decide this after the debate uh i assume there's no need to decide in the next few days No, Your Honor. We could live on the intramura as we have. Okay. All right. Thank you for the argument. I'll think about it. See what Judge Glenn has to think now. That's to say. Anything else? Yes, Your Honor. For calendar purposes only, I believe, you carried the Wyatt motion to modify the stipulation that was put into effect months ago on the class action. I think, Your Honor, in your ruling, would have denied it, but you wanted to see.

see where the plan was going to go. Well, we know where the plan's going. So hopefully we have an effective date and we can move forward under that stipulation pursuant to its terms. I don't believe Mr. Rekin, your thoughts on the motion that was carried to today? Yes, Your Honor. It's part of the focus. I know you had a docket order on it. At this stage, Your Honor, with the plan being confirmed, I don't know what the timing is with respect to the effective date. I'd like to have some insight into that, but leaving that issue aside, at this point, it really makes no sense because the injunction expires on the effective date. So I don't know whether that's a couple of weeks out or whatever, but if that's the case and that's the time frame, it's really moot

at this point. Is it better just to withdraw it as moot? I'll withdraw it as moot, Your Honor. All right. Thank you. Thank you all. Thank you for Tough case, tough day. Take care.