American court hearing recordings and interviews - Season 6. Episode 3. January 17, 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 New Jersey, USA #crypto

Episode Date: April 30, 2023

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we're ready here good morning this is judge kaplan we will start our umnibus i'll be it reduced omnibus block by hearing set of hearings uh good morning council let me uh let me have appearances please good morning your honor richard canowitz haines and boone proposed counsel for the debtors and debtors in possession along with me is jordan shavez of hains and boone all right i'll take other appearances as council rise to speak your honor you are right today should be a rather straightforward day and we would ask proceed down the agenda in order we are thankful for the constructive comments and resolution of matters by the office of the United States trustee as well as the official committee of unsecured creditors you'll

see many many red lines but we're all in agreement that subject to your honors approval these motions should be granted in accordance with those orders That's fine. Appreciate the work of everybody through this morning, possibly. On the Zoom today is Mr. Mark Renzi. He was going to appear in person, but weather has trapped him in Boston. So we appreciate, Your Honor, allowing him to testify, if necessary, through Zoom. We don't anticipate any cross-examination, but for the record, he did have a second-day declaration that we'd ask to be submitted it under, you know,

It supports various motions that we've made on the second day. I've read through the declaration. I'll accept counsel's proffer. I welcome Mr. Renzi's examination, Mr. Renzi, if needed. Let's see how we proceed. Thank you, Your Honor. And at this time, I would cede the podium to Ms. Chavez. All right.

Good morning, Ms. Chavez. Good morning, Your Honor, for the record, Jordan Chavez with Haines and Boone. On behalf of the debtors, as Mr. Kanowitz mentioned, we'd just like to highlight some of the changes we've made to the orders for your honor with the constructive comments we've received from the committee and the u.s. trustee i do have copies of revised proposed orders for your honor for matters one through six on the agenda if i may approach and provide those to you yes please thank you your honor beginning on item number one of the agenda that we filed at docket number 294 is our tax motion that we

filed a docket number nine. We filed a notice of revised proposed order for the tax motion at docket number 267. The main changes to this order are on page three. We've just clarified that the debtors are authorized but not directed to also pay penalties that may have been incurred pre-petitioned for some taxes. And then paragraph six just adds the requested language that from the SEC that was in the interim order that has been carried over to the final order. We did not receive any other comments from the committee or the trustee on this particular final order, so we would ask that, Your Honor, grant the motion on a final basis and enter the proposed final order after the hearing. All right.

As far as going forward this morning, Mr. Sponder, to the extent you have a specific concern that hasn't been addressed and you're working out the language or you want to apprise the court of any specific issues, I'll just wait for you to come and approach the podium. Otherwise, I'll assume that the U.S. trustee has signed off or has viewed the language in the proposals. Good morning, Your Honor. Jeff Sponder from the office of the United States Trustee. To make it easy, the United States trustee has signed off on all of these orders that are being presented today, Your Honor. Can't be easier than that. I was going to say the same for the committee. Your Honor, Kenneth Allette, Brown-Rudnik, proposed counsel for the committee.

The committee likewise has signed off on all of them. Is the result of all this acquiescence, you know, everybody was just busy watching football this weekend? Yeah. Go ahead. The number of trees killed, please? All right. We had everything resolved before last night. And item number two on the...

Just a quick question then. We'll be getting final orders, complete ones later this morning, or... We're happy to submit that to change. chambers if that's the easiest I think that's easiest all right thank you the hearing will submit all the proposed orders right so will mark a granted order to be submitted thank you your honor and number two is the utility motion that we filed at docket number 10 we did receive some informal comments from the United States trustee and we did add the committee as a notice party so the main

changes for this order are in the notice of revised proposed order that we filed at docket number 293. Paragraph 3 is just clarifying the amount of the adequate assurance deposit rather than just referencing 50% of the monthly amount. Again, added the committee as a notice party. We imposed a duty on the debtors to set a hearing if there's objections to, or if there's delinquency notices that we cannot resolve or objections filed. And then paragraph 8 just provides a service deadline of two. days upon entry of the order to all of the utility parties and then paragraph 11 is the SEC's requested language again no objections were received to the utility motion and we'll ask

this court to grant it on a final basis oh yeah just looking at the SEC language we'll reserve that fun issue for another day all right again we'll mark it order to be submitted thank you granted thank you your honor item number three is the insurance motion that we filed at docket number 11. We did receive some informal comments from the committee, from the trustee, and from some of the insurance and surity bond providers. We filed a notice of revised proposed order at docket number 268. The notable changes in that order, Your Honor, our paragraph 5,

we've agreed to give the committee consent rights for payments that are proposed above $50,000. And the rest of the orders, just clarifications from the insurance and bond providers and the carryover language from the interim order that it does not impact money transmitter bonds no formal objections were received and we'll ask the court to grant this motion as well on a final basis all right granted order to be submitted thank you thank you your honor number four where is the claimants motion or critical vendor motion that was filed originally on the first day at docket number 13 we filed a revised proposed proposed or

order docket number 2.92 after comments were received from the U.S. Trustee and the committee. And we've agreed to include on page five of the order some reporting requirements and objection rights. So upon entry of the order, we will provide the committee and the trustee within 30 days, just an updated report on the spending that's proposed in the critical vendor order. And of course, the SEC language we've carried over from the interim order. We'll We've received no formal objections to the critical vendor motion and would ask Your Honor to grant that on a final basis as well. All right. Thank you.

We'll mark a granted order to be submitted. For counsel who are appearing remotely, I haven't forgotten about you all. If you wish to be heard, please just use the raise hand function. Otherwise, we'll just keep on proceeding. Thank you. Thank you, Your Honor. Item number five is a new motion that we filed, so we're moving on. out to our second some of our second day motions and this was to set up procedures for

rejection of executory contracts and unexpired leases this was filed at docket number 122 we did receive some informal comments that we incorporated into the proposed order that we revised and filed at docket number 290 this the main changes in in the procedures after receiving comments are that we received language from the US trustee that clarifies the procedures and adds the committee as a notice party. We agreed to give some consent rights to the committee for rejections, creating claims over a million dollars. And paragraph 2E adds the debtor's duty to set a hearing if we receive objections

and provide at least seven days notice of such a hearing. And just to clarify, rejection dates for both personal property leases and real estate, all as of the initial notice date, unless there's an objection? Yes, Your Honor. And there's a really limited amount of real property leases, but to the extent we were requesting retroactive rejection as of the notice, that would, of course, be if the keys are turned over and the property's been returned to the applicable landlord.

All right. Thank you. Again, granted OTBS. Thank you, Your Honor. My last item is number six, which is our administrative fee procedures. We filed this at docket number 123. We received some comments from the trustee and the committee that we incorporated and filed a notice of revised proposed order at docket number 269.

The main changes to the order are, of course, adding in the committee once they were appointed and all the requested language from the U.S. trustee just to clarify the procedures if they were to want to object to any of the fees. And there were no other formal objections received to those procedures, and we would ask the court to grant the order on a final basis. All right. Granted, consistent with prior orders on these matters that the court has approved. All right, granted in order to be submitted.

Thank you, Counsel. Thank you, Your Honor. I'll turn the podium back over to Mr. Canowitz to handle item seven and eight. Okay. Again, for the record, Richard Cano, at Haines and Boone, proposed counsel, debtors, and debtors in possession. Your Honor, I'm handling what is known as the Ordinary Course Professional Motion, as well as the loan servicing motion. I have copies of the redlined orders, if you would like. Yes, please.

Absolutely. Thank you. Thank you. The ordinary course professional motion, Your Honor, at Docket 124, standard fare in these type of proceedings, much of the language can be found in other orders that you approved in the LTL case, for example. It's heavily marked by the U.S. trustees office, not because it was deficient, but rather because we wanted some clarification on certain things. Two points to note that I would say is a takeaway that may be different. One here, we're asking for the authority to give post-petition retainers to certain professionals. For example, Lennworth Johnson and Antigua requested a $20,000 retainer in connection with the proceedings down there.

It was a foreign representation. He is not familiar with the proceedings here. He asked for it. We agreed, subject to your honor, approving. That's the only one we anticipate actually providing, but the motion is flexible that the extent someone else comes forward. We will do that on notice. So that's one takeaway that you might not see in other types of ordinary course

professional motions. The second big picture item is the fact that after six months, we're going to look at the aggregate cap. We probably may have to come back to expand it, but the trustee wanted us to have a revisit of where we are after six months. So to the extent we think we're going to go above the aggregate cap, we need to enhance it, increase it, we'll come back and we'll deal with those issues. In advance, no retro. If any professional goes over the aggregate cap or monthly cap for three months in a row, they're supposed to make application and get retained, all of the typical procedures that you would see that to the extent that a party is,

actually handling large matters case administration issues will come back and the appropriate retention applications if necessary all right so they ask that the court grant that motion and we'll submit it as mishada said after court thank you we'll mark it again granted order to be submitted the next motion your honor that i will handle is on docket one 25 it's what's known as the loan servicing motion this is for institutional loan portfolio only This is not for retail clients, as we make clear. The aggregate amount of potential institutional loans is north than $900 million. So we're talking about a large portfolio that the debtor deals with on a day-to-date basis.

As you can see, there's typical loan servicing types of things in there, such as collections, forbearance, extensions, workouts. To the extent that we want to ultimately take a haircut, if you will, on any of the loans, there's procedures to give notice based on the threshold under a million dollars, pretty much do what you want. Million to five million, we're giving notice for people to respond, especially the committee, see if we have an objection. And then, of course, if there are any objections above five million to put it out on notice for a hearing before Your Honor, if necessary. But this will allow the debtor have flexibility to do things in the ordinary course. As you can imagine, many of the counterparties are distressed themselves,

and we want to realize the highest value without litigation and court costs if possible. But to the extent we have to, we will come back to court. Loan servicing is all undertaken in-house? Yes. The debtor has extensive both financial and legal capabilities, and they've been doing this without us. Without us, bankruptcy lawyer. So this motion is just really a handoff back to them of what they've been doing

and doing it competently and well for the benefit of the estate. So counsel that would be pursuing collection remedies or workouts or other efforts are part of the ordinary course professionals? It would be that. To the extent that we might need a specific collection lawyer in a specific jurisdiction, we would add that to the ordinary course professional. Okay. That's my contemplation. If it becomes something much larger, of course, we'll come back to court if we believe that it runs afoul of any of your honor's orders. The other thing to note about this motion is BlockFi International has some institutional loan portfolios.

The JPLs at Bermuda were hesitant in connection with this motion. That's why you'll see throughout the motion in the order there's certain carve-outs, and likewise that we agree that they must seek orders in their court so that they become comfortable with what we're doing if it impacts a BlockFi International loan. We don't believe there are many loans that fall into that bucket, but notwithstanding that fact, we wanted to make one motion, put it before your honor, to cover the enterprise as opposed to separate debtors. And again, just for clarification. 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 maybe for the participants who are watching this it does not concern the retail customers no consumer correct it's made clear in the motion and

correct all right thank you thank you your honor motion will be granted order to be submitted Thank you, Your Honor. I'll see the podium. Good morning. Good morning, Your Honor. Francis Petrie of Kirkland, proposed counsel for the debtors. I'll be taking us through the next few items on the agenda, all of which bring us back to final orders for relief that was already granted on the first day of these cases. We filed revised proposed orders on the docket approximately 48 hours ago.

The orders have not changed since then. However, I do have redlines to the forms of final order that we filed with the original motions for convenience. May I approach? Yes, please. Okay, Your Honor. So the first item is the order on NOLs or equity trading procedures. There have been no material updates to the language of this order from the interim stage. This has been circulated to the U.S. trustee and the committee, and they are signed off on it as represented.

In addition, I can confirm to address your concerns at the first day hearing that the equity holders that are implicated by this order were all served with the motion and the interim order on December 1st and had notice of this final hearing. nobody spoke up or provided comments um so unless your honor has any questions i respectfully ask you to enter this order on a final basis just a quick question the order contemplates uh especially uh sending out advanced notice of the procedures to all equity holders correct not just the ones who are currently 4.5 percent yes then in the back of my mind it's not on for today when we had one of the motions with respect to redaction or it was to limit notice to equity holders, was it not? I thought there was a pending motion, and it seemed inconsistent,

that it would be too burdensome on the debtor to notice all equity holders because you were not sure of who's holding the stock on a specific date. And I was wondering if it's too burdensome then, why is it, why are we able to do it now? Unless I have that other motion wrong. Your Honor, Jordan Chavez, for the record. On the first day, we filed a motion to waive the requirement to file an equity holder list. So that was the relief we were seeking in addition to consolidation and redaction. I thought there was a requirement, too, to waive the notice of requirement of future events that occurred during the bankruptcy,

from financing to disclosure on equity holders. Do I have it wrong? Your Honor, I'd have to go back and look at the language, but I think what Mr. Petrie is saying through the NOL motion, and now that the dust has settled, I think we are able to serve the equity holders with this type of notice in order to get this relief that is very much needed for the debtors. Maybe we just revisit that other motion. I thought it was more expansive. I thought it referenced how difficult and cumbersome it would be to serve all equity holders.

and it seemed inconsistent. So we can revisit that. That's obviously being deferred, so we can revisit that at a later point. We'll definitely revisit that in the order. As you could imagine, we're in less of a scramble now than we were initially filing this case. So we'll discuss the actual terms of that form of order going forward. All right. So this motion will be granted.

Order to be submitted. Thank you, Your Honor. Okay, so next is the debtor's final wages order. Again, there's no significant changes from the interim stage. The red line changes all reflect conforming edits to the entered order, the entered interim order. We discussed this order with parties and interest, the U.S. trustee and the committee, and they've all signed off. So unless Your Honor has any questions, again, we respectfully ask that you grant the relief requested on a final basis. I do not review it initially. The motion will be granted.

And I would say just even if there's been no changes to the order, send us down all the orders from today's hearings in one package so we have clarity. We'll be sure to do that, Your Honor. Thank you. Great. And so next is the debtor's final cash management order. The changes reflected in this red line show comments from certain cash management banks that wanted to clarify their relationships with the debtors. Comments from the committee about the ability to move crypto externally outside of the ordinary course wallets and custodians

that the company currently does things with. And comments from the United States trustee. Some of these are conforming changes from the interim order, as discussed. but others are updating the order for the current state of affairs with regards to complying with the 345B guidelines and the debtors post-petition obligations. I'd like to note that the U.S. trustee did file a formal objection to this order, but we believe we've resolved that objection by adjusting the requested to priority status of the intercompany loans to administrative priority. I spoke to Mr. Sponder of the office of the U.S. trustee, and he's comfortable believing that we have resolved this objection with this form of order. So unless your honor, any questions with this being consensual, we ask that you grant the release sought here on a final basis. All right.

Mr. Sponder, it does address the concern on the super priority nature of intercompany loans that you had. Good morning again, Your Honor. Jeff Sponder from the office of the United States trustee. It does. Okay. Then I'll mark it granted with the limited objection to U.S. trustee who has, haven't been resolved. Thank you, Your Honor. And we'll submit all these to chambers after the hearing.

Thank you. that I'll turn the podium over to committee's counsel all right good morning your honor more and Kenneth all that of Brown Rudnick proposed counsel to the committee I am joined by Don Clark of Genova Burns proposed local counsel to the committee with me also in the courtroom is a member of the committee Corey Grossman I just wanted to note that mr. Stark my partner spoke a lot at the previous hearing about how diligent the committee is, and even though this is a fully consensual hearing today, the committee still felt it was important, and Mr. Grossman is here.

And Mr. Grossman is... Good morning. Welcome. As discussed, the committee does not object to any of the second day motions that are being entered today. We appreciate the ability to get our informal comments on those resolved. the only thing for the committee today is if your honor is prepared we have a consent order on the committee's motion to intervene I did see that it was submitted to chambers this morning yeah I look through it I have no objection to it we'll be entering that order okay and that's all for the committee honor all right thank you mr. Canowitz yes your honor

dan Richard Canowicz Hansen boone proposed counsel that is in possession I think uh giving the committee intervention I I think it's good to circle back from our last hearing just to give you a status update of where we are. I'm not going to talk about anything on the merits. No party has to worry about what I'm going to say, but if they want to chime in, if to the extent they're on Zoom, so be it. Coming out of last hearing, Your Honor made certain, I would say, admonishments, directions. I hope that the parties and parties in interest heard them. I could tell you that the FTX debtors have requested from Judge Dorsey has been granted to mark off without date, their motion to stay. We'll be in contact with them in due course. Likewise, our motion to preclude

certain testimony in that proceeding in connection with their lift stay motion, or not sorry, their stay motion was also adjourned without date. So we are not facing a January 20th motion in Judge Orsies Court. Two, the JPL's Antigua are proceeding on the petition, the windup petition there on January 27th. We were compelled to file papers by January 9th in connection with that proceeding. Our papers are very straightforward. We don't object to the wind-up per se. We object to the language in direction for three

that was pointed out in prior pleadings filed in this court that would touch upon the pledge issue. We've asked for a stay of that portion of that wind-up petition to the extent they could do that, or alternatively a form non-convenience argument since the Pledge Agreement has arbitration in New York under Delaware law. We do not know what's going to happen down there. On the 27th, it may go forward.

It may be assigned to another judge. We will report back once we know what the outcome is there. We've also had discussions with all the various parties about the proposed amended complaint that we are going to be filing. At this time, it was our goal to file the amended complaint by January 20th. We have a draft in process. it may be delayed for the following reason. We had a very, from my perspective, productive call

with the Department of Justice, both the criminal side as well as the civil side and their bankruptcy counsel as well. They would like to take a look at our amended complaint. Clearly, they have the seizure and forfeiture in mind. Sure. We are not making the government a defendant in the adversary proceeding. In fact, we're not making the FDX debtor as a defendant in the adversary proceeding.

this amended complaint will address emergent, and whoever speaks for emergent will come to court and speak for emergent in this court, and likewise, again, it's Marix, and it will explain in further detail all the relief we seek in that amended complaint. We got on the phone before we spoke to the DRJ with the defendants, among others, in connection with the intervention motion, if you will, by the committee, because it led to a natural discussion. and we agreed that we're filing the amended complaint. We're not going to try to jam anyone. Initially, under your honor, schedule and order was February 15th to respond to the complaint. We agreed to move that back to March 15th. Okay. To the extent that the DOJ and the state is discussing the amended complaint

for the purposes of, again, you're out to try to limit litigation and to not step on toes. We're respectful of their process, and hopefully they're respectful of our process. But to the extent that we need to move forward on the amended complaint, we're going to try to work things out with the DOJ. If not, we'll file it. But as to the defendants, we'll give them whatever time they need to respond. So right now, the goal is hopefully to file this by January 20th. If it gets pushed a little, likewise, the response date is from February 15th to March 15th. And I believe we should come before, Your Honor, hopefully on January 30th, with a request to amend Your Honor's order that's a pre-trial.

And it was really straightforward. And then, of course, adjourned the pretrial conference that's on for some time later anyway. So we're not going to trip any deadlines in this court, but I want to give parties an understanding of what's at play here. The government has requested certain things, and I think it's incumbent on us to at least discuss with them their concerns, if any, in connection with the amended complaint. Fair enough. I appreciate the update. I think others listening in also benefit by it. Thank you. Thank you, Your Honor.

And then the last is just really to tie up the loose ends in connection with the adjournment of the two motions. Yeah, that's what I want to go over our upcoming schedule a bit. Yeah, so the redaction of the PII, which is docket four, and the ceiling of confidential parties, which is docket 127, those have been carried to the March on the hearing date, Your Honor, to March 13th, I believe. So docket number four, which was the redaction, and the all 127? Yes. Okay. Yes.

and notwithstanding those adjournments, Your Honor, to the extent that the Office of the United States Trustee has an objection to professional retention applications, and their deadline is the 23rd of January, not with saying that those motions haven't been heard, nothing will prohibit the court from entering orders retaining the professionals. So it's sort of like a subject to, right?

You'll enter the order, hopefully. Hopefully there won't be any objections and we'll submit the order, but to the extent we have a hearing, and you overrule objections, these objections will be still outstanding. Subject to your Honor's ruling on these motions when and if will deal with disclosures that must be required to be done after that ruling. So, you know, if we could work it out with U.S. trustee in connection with these motions,

you won't have a motion to be heard. If we can't, one day you will decide it, and we will apply accordingly Your Honor's ruling to whatever disclosures we made. But the retentions will have been... granted before that. Essentially, reservation of rights. I'll leave it to the U.S. Trustee to explain their thought process on what's going on with the process, but it really was. We couldn't be in a catch-22 where we adjourned something, and then the retention applications get held up pending determination.

It's similar. We had an L.T.L. And the U.S. trustee's office was very effective in working out an arrangement to reserve rights pending the court having a chance to look at the issue. So that's fine. So unless anybody has comment, including U.S. trustee, I think that captures the intent of the parties with adjournment and how it relates to the retention apps. As far as, let me just double check, because we have two dates coming up in January, the 24th and the 30th. The 24th, from what I could tell, is the wallet issue and the retention process. and the retention program. Yes.

Those are still planned on the 24th, or are we moving to 30th? I didn't know if you all want to consolidate the 24th and 30th or how you want to proceed. We'll be two court dates between now and the 30th. We're still in discussions with all parties about what will be heard on each of those dates, but we've been working with your change. And so we'll work out scheduling as soon as possible. That's fine. Just to let you all know.

I just had a calendar issue. If I could find it. I am speaking at a town hall. Welcome to attend remotely. 12 to 1 o'clock on the 30th. So if you don't think we have enough time to do, handle the matters in the morning before the 12 to 1, I would do it in the afternoon when we have more time on the 30th,

from 1.30 on to the afternoon. So take a sense of what your, the time. you'll need and add more. So, all right. Then I think this was relatively straightforward. Anyone remote attending through Zoom wish to be heard on any issues? Your Honor, it's Robert.

Yes. I just wish to apologize for not being in the courtroom and thanking Your Honor and your staff for allowing the pure vice when I have a medical issue that I won't be able to be gone to call. Not a problem. This was easy. straightforward as easy as extra points in football uh all right so uh thank you all and we're adjourned