American court hearing recordings and interviews - Season 6. Episode 4. January 23, 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'll let it go. See if they get involved. Ready, 12 o'clock, right? Let's, you ready to go, Keir? Let them all in. Good afternoon, everyone. Thank you for joining me remotely. This is the BlockFi Inc. Matter.

And we're having the call on the request of by correspondence, behalf of the committee, Mr. Stoltz's correspondence, and let me just make sure I see who's on. All right. Essentially, we're having an informal, although we are on record, scheduling discussion. And let's start with, I see a lot of faces that I've known over the day. past decade, Mr. Stultz and Mr. Eucetine, Mr. Serota. I've seen faces of those who've appeared in front of me recently, Mr. Jonas and Mr. Stark and others, and of course our U.S. Trustees Council.

It's always a pleasure for the court to work with the best of the best. And I see the best of the best in front of me. as far as expertise and professionalism. The problem with working with the best of the best is that they're there for a reason. They are the most strident, the most ardent in their advocacy, and they work the hardest to produce for their respective clients. This meeting is being recorded. Of course it is.

I know as well that we're talking about two types of hearings. A retention application for Muleles, and we're talking about a curb. And if I gave you all two hours to argue those, you would do it effectively, and if I gave you all two days, you would do it effectively. Problem is I don't have, and it's difficult to find two days to allow for that. but I need to give you more than two hours. So it's trying to come to what's a reasonable midway point.

I'm going to hear from you all. I'm going to first lay out my thinking about how to best go about this, and hopefully it'll comport or you'll be viewed it as workable. I actually try to contribute by clearing a two-day mediation that I had this week, off my calendar, to the chagrin of several attorneys. That mediation was scheduled for Thursday, the 26th, and the 27th. I already knew the 27th that was going to have to push them, but I try to make time. This is a curb motion, and this is an objection to a retention. As I said, the court It finds it hard to allow for multiple days of hearings on these.

I don't think that works well for the case, for the estate as well, for the costs involved. I would envision that this can be done in a day. Here's my outline of how to go about it, and then we could talk about it. We would start with the curb because I know the witness availability is an issue. we would use the declarations that have been on file, starting, I think the last one I saw was 6 o'clock this morning, filed. I know of three potential witnesses, Josephine Gartrell, Megan Crowell, and for the committee, possibly Matthew Manning.

But those are the names that I've seen on the declarations. We would use those as direct testimony. We would then allow for cross-examination. I think four hours of testimony would suffice leaving an hour and a half of argument on the curb. That's a total of five and a half hours. And I don't believe we need testimony on the retention application. I have some thoughts on that as well. I'll talk about later.

But I would leave an hour and a half for argument. That's seven hours. that would be starting at nine, taking a half-hour lunch break because there's nowhere in Trenton that you can go anyway. And that would leave, and you've all experienced that, and that would leave going to 4.30. If we did that on January 26th, that would leave the Friday the 27th for a limited matter of spillover if we needed. I understand calendar is tough. If we do it on the 27th, we would get it done on the 27th. I'm not glued to staff here is workable.

We could stay longer, but that's my time frame, and that's what I think it could be done. I know you all have been at it longer than I have on these issues and have possibly different ideas. Finally, with respect to the, I don't even know if I'm pronouncing it, right, Malas, retention application. I've reviewed the proposal. I've reviewed the counter proposal. It's not a huge gap, although it's significant. I would think the parties may want to consider, with respect to three types of fees,

the restructuring, the sale fee, transaction. fee and the mining asset sale fee, maybe employing a sliding scale that takes into account the numbers you've had in your proposal and the counter-proposal as a minimum and maximum, and just tie it to a performance gauge, you know, dollars or potential recovery or transaction result. Something along those lines.

I don't want to dictate it to you all. Again, you all have more expertise. in these areas. But it's not something that I think we should spend countless hour, expensive hour attorney time on trying to litigate. So with those thoughts, since it was the committee's initial request for by a letter, let me first turn to the committee and then I'll turn to debtor's counsel. I don't know who wants to chime in for the committee.

Mr. Mr. Jonas is going there. It's going to address, Your Honor. And thank you for accommodating us for this. I asked for the call because my experience has been that these calls with Your Honor

are always productive, and I know Your Honor always offers. Maybe you'll offer less the more we accept, but we appreciate Your Honor's availability and to Mr. Jonas. Mr. Jonas. Thank you, Your Honor,

Jeff Jonas, for our broad running for the committee and we do appreciate you taking the time your honor and let me say at the outset and I think I think our adversaries at all the firms would agree with me we don't like to have to take up the court's time with procedural matters we work hard to resolve these sexually sometimes most of the time we do but sometimes we can't and that's why we're here and I also want to be responsive to some of the you said, so let me just start with those because I think they are helpful and instructive. Your comments on, I say Molas, you say Morelis, somewhere in between we'll get it right.

With respect to Moles, Your Honor, I hope your comments can actually help us to get to a consensual resolutions. I think they were instructive. Frankly, we wanted to come out on that is somewhat akin to what you said, which is a results-based or performance. based metric in terms of compensation. So I won't say anything more about that, but I'm hopeful that your comments might help us get to a consensual resolution. We'll see.

I also agree, Your Honor, with what you said about a one-day trial on both of these motions. I agree wholeheartedly with that. And although I think it's quite a bit difficult, we think we can do that. The problem, Your Honor, is I'll call it. problem this week is the problem, and let me tell you why. And again, all we really want is to have a level playing field. That's all we ever want. As you know, sometimes we take on very much uphill battles and cases and something I love

to do, and that may be the case here, but we will take it on, but we just want to have a level playing field and a fair opportunity to present our case, both argument and the evidentiary record. Let me just tell you why trying to do that this week is virtually impossible. I think impossible. We received last night, as you know, or this morning, the debtors filed a 14-page expert declaration and a 23-page witness declaration. That was at about 2 o'clock this morning.

Those related to the curb, we're told that there will, I don't know if they'll be similar in length or what, but there will be. the other declarations filed by tomorrow on MOLUS, on the MOLUS retention. And, Your Honor, we expect, we did file Mr. Manning's declaration. We do expect to have what I call a more fulsome declaration, probably from somebody more senior at M3, which we expect to be able to file today at some point or this evening. those would be the declarations that you had before you.

But we would also expect, Your Honor, we have no documents. We tried to do this informally and just asked for any documents that were either supportive of the motions or that would be used at trial in support of the motions. We don't have those, I'm not complaining about it, but we need to get those in fairly short order. so that we can properly prepare. We have not been able to do any depositions,

as you, I think, Your Honor, you are close to correct, but just reviewing the witnesses, even accepting the decks that have been filed, there would be Ms. Dtrell, there would be Ms. Crowell, there would be, on our side, there would be the M3, our expert depositions. We also were considering, Your Honor, having a committee member testify.

Obviously, somebody whose interests are directly affected in both cases, the court and molest, but that's been somewhat under consideration, Your Honor. So that would be, and if we do have that person, that would be at least four depositions that have to take place, and we would need to get the documents, even if that would have happened today or tomorrow, we would then need to conduct four depositions and get ready for trial. I've done a lot of crazy stuff under time,

compressed time, Your Honor. I don't think we can do that. By Thursday, certainly not. I really don't think we can do it by Friday, and I'll be honest, Your Honor. Having a weekend to properly get ready for trial often is critical because even if we finish the last deposition Thursday, we wouldn't have a transcript until Thursday night,

and then we need time, obviously, to review the transcript, prepare our examinations, or cross-examinations, and get ready. So long story short, Your Honor, I'm not complaining about the time compression here. I thought where you were going to go was there's a hearing scheduled on the 30th on Monday. And my realistic hope out of today, while I would have hoped for even a better result, what I thought was going to happen,

was you would tell us, we'll move everything, we'll hear everything on Monday. That would give us a reasonable time to do what we need to do and get ready for, you know, for everything on trial on Monday. So that's, I'll just stop there

and take a breath, Your Honor, and see if you have questions or want to hear from others, and I'm happy to, you know, I didn't want to address any of the substance today. I didn't think that's what we were here for or appropriate. If there's anything, if you have questions, John, I'm happy to address. Your Honor, it's Robert Stockett.

I didn't want to say anything. I think I could offer something that might be helpful in terms of context. If Your Honor will allow me, I know that that's not normal to happen. No, go ahead. Go ahead. Okay. Thank you, John. All I wanted to say was I'm very, very cognizant when Your Honor was saying,

look, it's a curb and it's a retention application. We should be able to work these things out. And I fully embrace the tonality of that. We haven't been able to work it up. And I think it's important that Your Honor appreciate it's in the text of the documents, but it's more in the subtext of the documents. and I think this is really what informs the evidentiary presentations. What we have here, Your Honor, is not an operational company.

Today, it doesn't make anything, it doesn't sell anything, it doesn't really provide services. There are 100 employees that are getting paid to sort of maintain idle. And then the retention is to convert idle into something that folks from headquarters believe could be more valuable in terms of recreating the estate than turning it all. They may be right. They may not be right. Our position has been we just kind of want to understand it before the decision has been made, but this is not the normal debtor, and the expenses that we're talking to are now accreting

to double-digit, double tens of millions of dollars as we're trying to figure that out. And maybe this contested matter will help. elucidate as discovery is produced and we learn through discovery in the trial, what ultimately is the risk-forward profile of expending 15, 20, 25 million more, because it's more expensive, about an idle company in this industry environment, is it sellable, is it reorganizable? Because I ask the question, it's not just these expenses. It's the hole that you have to fill on top of that in terms of money that's there to kind of move the company forward.

Is it 20 million? is it 50 million on top of the 20, 25 million, 30 million that you have to expense. And we started with 260 million of customer deposits, and no one's asked them what they think about this. That's the subtext of it all. So, Your Honor, the evidential presentation is not just to cope in the normal way, is this person going to leave, is this person an engineer that's necessary. It's really maintaining idle so that if the strategy,

that the debtor wants to have is move forward. Does that yield more value? And the people who is money that's stake are not really been able to understand the answer to the question. That's the issue that undergirds the evidentiary presentation because that the dispute that undergird this whole contested matter. We simply said we don't understand where you're going with this case. We kind of want to understand it before you spend all the money.

That's the pig and the vote. Fair enough. I hope that was helpful, you know. No, fair enough. Thank you. Anyone else on the committee side? Ms. Bilski for the U.S. trustee, did you want to weigh in before I go turn to the debtor?

Please, Your Honor. Thank you. And I echo the appreciation for the court hearing that today. Part of the reason I think we're here is because of the concept that Jeffrey Bonder of my office had with regard to tomorrow's hearing, and that's because you can be traveling for something work-related, and you will not be available until Friday to 27. So despite the court, he's not the only one to acknowledge this, but he has been the primary attorney on this issue. And so it's all possible that I have to have him present to do that.

And Friday over the early state, there's no other conflicts on the near radar that he would have. All right. Thank you. Let me turn to the debtor. Mr. Sarota? Yes. Thank you, Your Honor. You started off.

today's hearing by referencing appropriately so best in class professionals and before I introduce Mr. Susberg to address the court who clearly falls into that category just a few observations. I mean, my friend

Mr. Stark references and Mr. Jonas the need for additional time. You know, we were involved in the Sears case and there were, you know, God knows how many depositions conducted within a very short period of time. And Judge Raine was quick to understand that declarations as direct evidence could clearly make the process go faster, and we have it here.

So I would just, before Mr. Sussberg addresses the court, I would respectfully suggest, Your Honor, let's get the show on the road. These are big firms with a lot of talent, and they can put the resources that are necessary to present your honor in exactly the day that you described. There's nothing unique about the retention of an investment banker. There's nothing unique about the Kirk Keep. We had the pleasure of doing it for, Your Honor, I think, in two or three hours in the Sertatat case. So the lay doesn't help anybody, and I'll now turn it over to my friend Mr. Sussberg.

Thank you, Mr. Sper. Thank you, Your Honor, and very much appreciate the time. I think originally we had scheduled the curb for Friday and the molest retention for Monday. In light of the comments from the U.S. trustee, I think from our perspective, it is critically important to echo Mr. Shorota's comments that we get these calendared. And we've been prepared to go forward with the curb on Friday and, if necessary, molest on Monday, or if we could do molest on Friday, we're happy to do that too. I think, you know, from the substantive perspective and Mr. Stark walked into it a bit, there's a fundamental disconnect between the company and the committee at this point, and it's incumbent upon our team to try to correct that over the course of this week, which we'll do.

And we can do that at the same time that the discovery is ongoing, that Mr. Jonas is not correct. Documents have been produced, and Mr. Slade can address all that as necessary, but I don't think it is. At its core and at its bottom, I think that's the, I think, the committee believes that we will ultimately end up in a liquidation. And we, as the debtors, have a fiduciary obligation to run out every single ground ball, as I like to say.

And that's exactly what we're doing. And that's what we've done in other similar cases. And everybody needs to understand that even if ultimately the result is a return of customer money, the amount of time, the cost, and the energy, including at the investment banker level, is so substantial that it's not as simple as simply giving people their money back. And I live this through Voyager, and everyone is going to hear, through the direct testimony and the argument, exactly that concept. And from this company's perspective, we have severed most all of our workforce, as Mr. Stark had said. We need these people to be employed. This is a curb,

it's not a key. All the executives have taken themselves out of the rain, and in order for us to either to pursue a value maximizing a loan concern or third-party sale or even a self-liquidation, these employees are critical and delay in having this approved and more so with MOLUS who's out in the marketplace

does no one any benefit. So, Your Honor, we will spend time with the advisors that we always do. We have a good working relationship. It doesn't necessarily mean we always agree and that's part of the process. But we will work to see if we can get to a result. But having the curb period on Friday

and the molest retention more later than Monday is very, very important in these cases, and we would ask, Your Honor, to set those hearings today. Thank you. All right, thank you, Mr. Sussberg. Any response or anything else? Anyone wishes to add? Your Honor, just real quick,

this is Mike Slave for the debtors also. I'll be the one handling the discovery, and I've worked with Mr. Joseph's on many, many cases before. and we've gone through this a number of times. I just want to confirm for the court that we have made our witnesses available for deposition on Wednesday with respect to the curb. We've identified who they are, and there's no reason that can't go forward. With respect to documents, I mean, what he said he wanted is all documents that support the curb.

That's not a particularly, you know, direct request for information, but if there's any information he wants, I'm happy to have a conversation again about. anything else he was. There's no reason those depositions can't go forward on Wednesday. We're prepared to depose Mr. Manning, and I think there's no reason that this can't go forward to get done before the hearing on Friday. We've done it many times before, and this is not brain surgery. We can do it. Your Honor, Your Honor, Ms. Yes. Again, we're not talking about whichever debtors that Mr. Serota mentioned to you

or it's not brain surgery in the usual case. And no, the committee has not drawn a conclusion about whether or not this company is reorganizable, sellable, or will liquidate. We've been very clear that we want to study the issues because they took all of the crypto, converted into cash, put it in a bank account, and want to use about 10% of it to run, as Mr. Sussberg said, all of the ground falls. I think it's, and my committee is pretty clear in their view,

that that's a lot of money relative to the entirety of the estate, and we kind of want to understand if we're reorganizing, if this is asked number one, what does ask number two look like? We asked that a couple of weeks ago, and we've yet to see a business plan, yet to find out what the whole is, but now the fee that's being proposed for MOLIS is to compensate them if that were to happen in the sale, I think we all can read the newspaper

and look outside and sort of see it that's where the wind is blowing on a sale and we're paying people to stay in that possibility. It doesn't look very likely looking at the precedent transactions out there that we will get any money for it, but we have to sign up to a very large fee. We totally want to work this out.

We've never wanted to have a contestant. I said at the first hearing when I was at, We'll present all issues orderly and have a fair hearing on everything and we want to minimize it. But, you know, that's not about both ways, too. If this is actually an issue that sort of in its own way sets the tonality of what we're doing, isn't it fair that we at least ask the questions because we're not always able to understand it after asking? If we have to do it in deposition to do it by expert opinion, okay, I guess that's how we're going to do it. but this is not a small matter.

This is not just any old curb and this is not just any old retention. This is 10% of the estate in its present format before anybody's had an ability to assess whether or not the path and the tasks that's being allocated to these people actually is just burning their money. That's the question. Nothing more true than that. We wanted a little bit of time to ask questions. That's all. I would just ask that Mr. Stark, my friend, spend more time preparing for the argument hopefully this week as opposed to doing what we're doing now

so we can all get down to business. I think it's suggested under-advising. Thank you, really. I can feel the love of the friendship. So, anyone else? All right. It's Jeff Jonas, Your Honor. I won't believe it.

I'll just say I just don't think it's reasonable to have at least three, maybe four, depositions on Wednesday and Thursday and be required to be ready for trial on Friday. Understood. I guess I'm going to put you all to the task, though. I don't think the estate, I don't think the employees, I don't think the debtor or not necessarily think the creditors are going to benefit by those. delay and having more time that I lose the Thursday, the Friday that we set aside for this week, and the Monday. I will certainly put, I'll put off the MOLUS. We're not going to do that as part of the day on Friday. We'll put that on for the Monday.

That gives us the full day. on that Friday, it gives you all, unfortunately, the burden of getting your ducks in order on Tuesday, Wednesday, and Thursday. And then we'll hear our argument, and we'll get a better picture. And maybe some of those answers will occur over the next three days. And maybe it calls for additional time, but we don't get anywhere if we don't start. So let's start. I appreciate the concerns

we have to start this is this was scheduled a long time ago the case was filed in November the end of November and we're already in the end of January

so it's time if council can agree now as far as the pending motions to seal and I know the U.S. trustee has objected on both the debtor and the committee filed their recent declarations under seal. I'll rule on the motion at the outset on Friday. For purposes of the hearing, let's proceed. Use initials instead of names. And we'll be

able to go forward and protect interests going forward. At least prepare for that. And In the interim, if there are concerns, as they tend to work out, if there are discovery issues, if there is something that arises that you need my attention, reach out for chambers. We'll have a probably not a Zoom call. We'll have just a series of calls. Mr. Stultz, I see your hand raised. Thank you, Your Honor. Two housekeeping matters.

Our motion to seal is currently listed, I think, for Tuesday morning, so we're going to adjourn that until Friday. Yeah, we're going to move. I'm moving everything that was on for the 24th, except the molest matter will be on for the 30th that Monday. We'll move everything to the Friday, the 27th. And, oh, on Friday, let's start at 9 o'clock, if you don't mind, until we have the most of the day. And, again, we'll just plan on a half-hour break for lunch.

but if issues arise or you need the court's assistance, just reach out. All right. Thank you, Your Honor. Thank you very much, Your Honor. Thank you. Thank you.

Thank you, Your Honor. Thank you, Your Honor. Good time.