American court hearing recordings and interviews - Terraform Labs chapter 11 bankruptcy hearing, Jan. 31 '24 Delaware bankruptcy case 24-10070, #crypto

Episode Date: February 3, 2024

For information about the chapter 11 bankruptcy proceedings see https://dm.epiq11.com/case/terraform/info BBC article: Cryptocurrency firm Terraform Labs files for bankruptcy in US 22nd January 2024, 09:51 EST https://www.bbc.com/news/technology-68055557

All rise. Please be seated. Burkovich. Good afternoon. Good to see you. Nice to see you, to your honor. Good afternoon. For the record, Bernie Berkovich from Wild Gatchel and Manjee's on behalf of the debtor, Terraform Labs, PTE, LTD. I'm joined by my colleagues, Jessica Liu, Gavin Andrews, Jared Friedman, and Christine Calabrese, as well as Zach Shapiro from the Richard Blaine firm. Good to see you. Also in the courtroom today is Mark Califano from Benton, which is the debtor's proposed special litigation counsel. Mr. Califano, it is good to see you again. Welcome. We wanted to thank the court for making time for us this afternoon.

We also wanted to thank Ms. Rickendurfer and Ms. Leaney from the Office of the U.S. Trustee. We've worked with the Office of the U.S. Trustee in respect to questions and comments that they've had about the debtors' business and the first-day motion. And I'm pleased to report that we believe we've resolved all of these U.S. trustees' concerns raised for purposes of today's hearing. Okay. And we will, of course, continue to work with the U.S. trustee during the course of this case. Very good. We also received comments from the SEC with respect to the first day motion, and we believe we've resolved all of their concerns again today for purposes of today's hearing.

For today. For today. We live one day at a time. We have a consensual hearing today. We will submit revised orders with the court reflecting those terms, and Ms. Liu will address some of them as part of her presentation. Sure. I think that there was an inquiry with respect to scheduling as well. Did the court give you a second day hearing? I believe we had March 4th at 1.30 or 2.30 p.m. Thank you. Thank you for accommodating us. Happy to oblige.

So we have four motions before the court today, first day motions. My colleague, my colleague. clearly Gavin Andrews will present the epic claims and noticing agent retention application at docket number 17 as well as the credit creditor matrix motion at docket 11 and Ms. Lou will present the wages motion from docket 20 and the Treasury management motion at docket 21. Before I begin I'd like to make a few more introductions to the court. Your Honor, we have with us in court today the debtor's CEO Chris Amani. Mr. Amani is our first day declarate. is our declarant today.

Yes. Welcome, sir. Is available if your honor has any questions for him or any parties do. I have read the declaration several times. I am reluctant to ask any particular questions. You may become an expert in time. But I am prepared to be educated. That is, but we will try to educate you.

And we also have in the courtroom, Michael Leto, who's a managing director at Alvarez and Marcel. And he is a separate declarant for us as well today. Mr. Letto, good to see you. I'd like, if there are no objections, I'd like to move into evidence. First, the declaration of Mr. Amani, which is filed a docket number 18. Very good. I would ask, are there any objections to the admission of Mr. Amani's declaration for purposes of the relief sought at this hearing? And given some of counsel's comments and the issues that are, I think, previewed in the declaration,

I would reiterate my standard approach, which is to emphasize that when relief, when a first Day declaration is admitted. It's essentially on limited or no notice to parties, and it is the court's position that it is exclusively for the relief that's being sought today, and to the extent that in the future relief is being sought, it's not deemed

or seen to be conclusive findings of fact, et cetera, by the court. I think that's obvious to all parties, but since the issue has been raised to me at least once or twice, and I think this would be an appropriate point to note that again, Mr. Imani's testimony and his extensive description of the nature of the

business and the enterprise are being offered today as part of the factual predicate for the relief sought. Are there any objections? Your Honor. Ms. Richard Huffer, good afternoon. Good to see you. Good afternoon, Your Honor. Linda Richard and Dr. for the United States, Trustee. No objection. I appreciate the comments from your author. I just want to make clear that we are reserving the right, perhaps the cross-examine or raise issues with respect to the same when it's sort of the second day here for final orders and I think your

reservation anticipates precisely my admonition which is that the second day hearing is a completely new hearing and the record is is developed for that purpose miss short good to see you good afternoon your honor for the record to be sure for the SEC the SEC would also just like to make the same reservation to cross-examine his ceremony that reservation is noted all right In the absence of any opposition, Mr. Amani's declaration is admitted. Is there any party that intends or expects today to cross-examine Mr. Amani regarding the contents of his declaration? Very well.

Again, for purposes of today, Mr. Amani's declaration is admitted without contradiction. Ms. Berkovich, you may proceed. Thank you, Your Honor. And if there are no objections, we would like to move into evidence. The declaration of Mr. Leto filed the docket number 22. And again, I would ask, are there any objections to the admission of Mr. Letto's declaration? subject to the same considerations the court noted a moment ago. Very well, Mr. Le-

Your Honor, I would just thank the same reservation. Of course, and that reservation is noted both for the SEC, the United States' trust, and frankly any other party in interest that wishes to be heard at the second day hearing or thereafter. In the absence of objection, Mr. Leto's declaration is admitted. Is there any party that intends or expects to cross-examine Mr. Letto today regarding the contents of his declaration? Very well, Mr. Leto's declaration is admitted. likewise without contradiction you may proceed thank you your honor it was a team

effort to get us here today there are a number of people in the courtroom and joining us the adilin who had put hard work into this getting to this case together so those are all the introductions and with that I'd like to present some slides with some backgrounds before we do that I'd like to just check in with the Office of the United States trustee and Ms. Richender for good afternoon I as always appreciate your office's engagement with the debtor in advance and I'm certainly pleased to hear that at least thus far matters seem to be resolved for purposes of today. Has your office

sent out a notice for a formation meeting? Yes, Your Honor, we have. You may have noticed if you look at the petition. It was a rather limited list of creditors and we also had a lot of bouncebacks with the email addresses. So we have since been provided by debtor with new attention email addresses and I believe that are intends to file an amended list of creditors adding at least two more we have been able to already send out questionnaires to the additional creditors and use the revised email addresses we've received we had asked for responses by Thursday for the first group and Friday for the second group yeah I'm gonna wait and see if we receive anything that would give

plenty of time before the second day hearing but we are looking to form a committee of course very good just don't know what type of response we may receive well and again the timing as outlined by miss Berkovich certainly affords a sufficient opportunity to get through that process and we'll reconvene on the fourth if not in advance of that so if there are if there are parties interested then you'll do your thing that's correct your honor and And there are various, I think, potentially gatekeeping issues, but those are for, we don't need to address those today, but Your Honor may have guessed one or two of them. What are we doing with the Singapore Corporation in Delaware?

And in addition, where is the, I'm going to forget the exact language, and I should remember because I was on the LTL team, but the immediate financial. distress of the debtor at this point in time I know that Judge Walrath at one point in time wrote about a company facing a verdict I think it's been since then that the Third Circuit has rolled in LTL going through circumstances where there's the two-step process but there also was the issues concerning the liability itself and so you know wait to see what evolves here and there's a history here with this company and that's why we have the SEC Council here with us today and I mean these are points that I have raised in my discussions with Mr. Shapira again I don't think that they necessarily need to be dealt

with today I only raised them because and I forgot to check the name of the case your honor had a case be I had a case before your honor where we had an issue about corporate authority to file the bankruptcy case in the first instance? Yeah. Where Your Honor eventually ruled, they did not have authority, so the court didn't have jurisdiction ever the case? That was the physic IQ case. And I specifically found that I had jurisdiction.

They just lacked any corporate authority to file. They have corporate authority. Excuse me, Your Honor, I got it backwards. You're right. They lacked corporate authority. That's right. And I guess I just took a step further than because they didn't have corporate authority way around the court.

But the concern. there had been if your honor remembers the interim first day order regarding the debt and the way we view it I don't think that there's any interim relief that's no there's the Treasury Management motion but there's not a borrowing there's not the grant that it liens and the other mechanics but if we go much further down this path miss Berkovich is likely to file a brief and otherwise filibuster well you may consider you may consider the shot over the bow made well and your honor I just said I just wanted to give everyone a heads up

officially and it is for the very reason that we don't see the release that's being granted today as in any way affecting the position of creditors vis-a-vis each other as what happened in FIS IQ once we had the the secured well the secured lender ended up with the liens on the assets so noted and in fact I think it was almost a year ago remember it was February which we had that issue so but just didn't want that to go on notice Your Honor and I'm sure that came to your attention in reading the first day declaration thank you all right we're spending a lot of time talking about stuff

we're not doing today yes yes I think miss Richland Durker for raising those issues and I actually think during the course of my presentation I'll have some answers and it will be pretty clear why we're here and why we should be here so we have a presentation we did email it to chambers Jesse Kittnick had it on his computer and could have put it up in the screen And they also have a hard copy. I'll take a hard copy if you've got it. Sure.

Thanks. And can we give Mr. Kittnick privileges, and we can move forward? I have observed before that the practice has evolved to the point where bankruptcy lawyers can't order appetizers without a PowerPoint. Yes, yes. We were holdouts for a while, but I think people now expect the presentation. I blame Kirkland. So give the people what they want, right? That's what we're here for.

I think I'm the people and nobody asked. Okay. No, it is, noted. Hopefully you'll find this illuminating fewer words than the 40-point declaration for sure. We'll start with a roadmap overview. We like to tell the court who we are, who we are, why we're here and where we're going. So starting, who is TFL? Terraform Labs, or TFL is a company specializing in the development of open source software and blockchain technology.

Just waiting a moment for the PowerPoint to catch up. Its primary business is developing and supporting the software used to create and run the current Terra blockchain network, which we generally refer to as a Terra blockchain, and numerous tools, protocols, and applications that operate on the Terra blockchain, making transactions on the network easier, faster, and more user-friendly. In early on May 2022, TFL's initial blockchain, which we call Terra Classic, failed, following the collapse of its native tokens, Luna Classic, and UST. After TFL consulted with members of the Terra community, and with their support, TFL relaunched the new Terra blockchain in May of 2022 and introduced an entirely new token, which we'll call

Luna and an airdrop those into the wallets of the holders of Luna Classic at the time of Luna Classic collapse. The terror community, which you'll hear a lot about today, includes hundreds of thousands of individuals. 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. Thereby attract and developers to build useful applications on it. To that end, TFL is introduced and is in the process of creating several new exciting software applications that we'll talk about today. Let's talk about what TFL is not, because there's been a lot of crypto cases.

out there and you'll find that this company is different from the one downstairs. Yes, exactly. Maybe if you were a juicy bankruptcy issue, it may be sorry to disappoint, but I think that's actually, makes it easier. So TFL does not currently issue or sell digital tokens for value. The SEC's action does involve TFL's sale of tokens years ago, but not its current activities. And TFL is not and has never been a trading platform for digital currencies like FtX, for example. TFL does not have and never had customers in the way that digital asset companies do.

For example, Celsius networks. And TFL does not make loans of cryptocurrency assets like Genesis did. TFL product users do not have accounts with TFL, and TFL has never held and does not hold any customer. fund. Instead, more simple, TFL is a software development company. It doesn't operate to gain profits in the traditional sense. Rather, it expects to reinvest all the revenue that it earned into the business and back into the Terra blockchain ecosystem for the benefit of the Tara community. But it is a corporate enterprise. I read that in the declaration, and I'm It's almost like the description is almost a public interest corporation or a public trust.

It does seem like a not-for-profit or whatever, but that's the way that the business purpose is. It's the community votes on it, and the purpose is to expand the blockchain. Can I ask, in the most general terms, it seems more of an ethic than a restriction on the business. This is how it's being modeled in order to achieve this result and build this community rather than sell as many widgets or get as many people to sign up for Amazon Prime as you could. Is that a fair characterization?

That's right. And you can see the company benefits from reinvesting those profits back in and building up the terror blockchain. And so it does emerge the benefit of the company. There is a sense of maximizing value by improving the terror blockchain. Okay. You're right. It's an ethic. They don't think about, let's, you know, gain.

dollars in cents to put in our pockets. It's to put it back into the ecosystem and back into the blockchain. Okay, I understand. Okay. So why is TFL here? So TFL is a defendant in an action that the SEC commenced and is currently pending in the district court for the Southern District of New York. In late December, so less than a month, or I guess now, just a month ago, the district court granted summary judgment to the SEC on certain claims. In finding that TFL and its founder and former CEO, Doe Kwan, offered and sold unregistered securities by issuing TFL's native tokens to investors. So it's already been a finding that TFL engaged in long-doing.

The trial is scheduled for March 25th on the remaining claims, which are the securities fraud claims, and the district court is expected to enter a final judgment shortly thereafter. After the trial. After the trial. So I just wanted to make sure I understood procedurally. So summary judgment has been granted by Judge Rakoff? Yes. Okay.

Matters that remain in dispute are headed to trial next month or March. And at that point, there is the prospect of a judgment being, a money judgment being entered with the consequences that are described in the declaration. Do I have that timing right? So there's, it wasn't 100% clear. I thought that that was it. but again part of the concern or part of my uncertainty was whether or not there was an expectation of an immediate issuance of a money judgment by the Southern District in advance of the trial but the summary judgment just answered the question as to certain issues of liability okay I understand so given given the existing ruling however it's possible maybe likely that the liability exposure outstrips the value of the assets so this is a this isn't LTL and this isn't the other case that Ms. Rich and Defer mentioned, we have a judgment

against us that will be converted into a money judgment that puts us into financial distress. For now, for now, where? It's not over yet. Okay. So where is TFL going? So after the judgment is entered, we will appeal the district court decision to the Second Circuit Court of Appeals. TFL believes it has very strong arguments that the district court. district court summary judgment decision should be reversed and I'll discuss

that a little bit obviously not an issue that we're asking this court to decide but we need to be able to pursue the appeal for the benefit of the company and again I think that the declaration was clear on this but I want to confirm the debtor is not seeking to use the stay to stop the litigation in the southern district it intends to move forward with the with the trial in March is that correct Yes, Your Honor. Okay, I may proceed. So TFL sought Chapter 11 protection to protect its assets from value-destructive creditor

enforcement action, which would come, ensure the ability to appeal to the Second Circuit, maximize value for all stakeholders, including creditors, or 60 employees, and hundreds of thousands of people that have a stake in the success of its blockchain, enable operations in the ordinary course of business, including continuing and expanding our Web 3 offering. and if necessary, treat similarly situated creditors similarly through a restructuring plan. In short, TFL is using Chapter 11 to pursue the appeal while continuing its business. Absent the protections of Chapter 11, the SEC could eventually enforce its money judgment before resolution of the appeal, which would be value-destructive to all stakeholders, including,

in our view, the very same token holders that the SEC is for. reporting to protect and its action, we believe our path is more value, maximizing and protective of them. So today, TFL is focused on the future of the business and the Terra community, including developing and releasing exciting cutting-edge technology and application to maximize the value of the blockchain. The key players here on the management team, I'll go a little bit out of order, but I'll Chris Amani, here on our met, the Cajan Bernstein, who is the Vice President of the People,

and Peter Shea, who's the General Counsel, those three members of senior management are based in the United States. And then we have Mike Brown, the Chief Technology Officer, Mark Chan, the head of ecosystem, Edward Limp and Javier Su. The board of directors consists of Mr. Amani, we have Mr. Matiel again. For Singapore company, you need to have a resident director in Singapore. I understand. part of our he's an employee but also a director and the third director is also a US person John DuBelle and we put some about his background I saw that I saw that we did form a special committee pre-petition and we'll talk about the

investigation but mr. DuBelle is on the special committee and you see here the advisors that TFL assembled to get it through its process and to make sure that there are appropriate controls and to the law and bankruptcy law during the course of this Chapter 11 case. With that, I will go to the company background. At this point, people have different levels of understanding about cryptocurrency and blockchains. I'm happy to go through the 101, or we can skip over it if you got it.

I'll just skip over it for purposes of today. Okay. So we get to a company timeline. I think this is helpful. So Terraform was formed in 2000 each. in 2018. It launched the Terra Classic blockchain in 2019 and issued $1 billion Luna Classic in 2020 and introduced the U.S.T. Stablecoin, which became operational on the Terra Classic blockchain.

It's those two sales of those tokens that are the issue. Subject of the litigation. Yeah, subject of litigation. So, you know, 2020, there's the crypto winter of the collapse. particularly UST experienced a significant DPEG and the prices of both of those tokens collapsed. TFL went to the community and had a proposal to launch a new launching that was approved and it had an airdropped new LUNA, different from the LUNA Classic, the holders of LUNA and Classic and USD. Then in early 2023 several things happened. The SEC commenced its litigation.

Mr. Kwan resigned as both CEO and director, and Mr. Imani was appointed as CEO and director. So management changes last spring. Mr. Kwan, I saw in footnote 20. Mr. Kwan is currently in Lentenegro in custody, correct? Correct. So noted. You may proceed. And then something exciting happened in 2023.

The company approached the community with a proposal. I'm looking to this later on how to improve the blockchain. The community voted in favor and agreed to grant the company 150 million LUNA out of the community pool. As the summary judgment decision was approaching, TFL hired Wyle. At the end of December, we got the summary judgment decision, and then January TFL hired Alvarez and Marcel's financial advisor. Wong Partners is assisting the company of Singapore, governance and vice.

We brought John Dubell on board, and then the board is approved, and the company filed the chapter 11th petition on January 21st. Okay. And you see here the trial is expected to commence in two months. So again, TFL's goal is to foster of self-sustaining digital network

with a vibrant and flourishing community of users. TFL does this through developing tools and applications on the blockchain that drive economic activity to it. We have a workforce of 60 employees and contractors in more than 15 countries, including many, in the United States. And these are mostly software developers.

Okay, so we talk a lot about the terror community. Who is the terror community? So we've got over half a million stakeholders as measured by wallets with 37,000 monthly active users measured by unique wallets. The users own the Luna token, and they utilize the various applications that the debtor and others have developed.

And some of them stake. So there's a decentralized governance process on the blockchain. Community members can submit proposals, democratically vote on proposals, and implement various proposals, if approved by the requisite vote. So again, for example, as I mentioned,

in October of last year, TFL proposed, and the community approved the proposal to provide TFL with 150 million LUNA tokens from the community to support a project that TFL outlined that we put in the declaration to grow the blockchain and fund other developers that contribute to its operation. So out of those 150, there's 100 million that went to TFL's treasury, and 25 million were earmarked for strategic partnerships and community project initiatives. Those 125 vests over five years, and then there's 25 million non-investing.

They're immediately for liquidity funds to be matched with TFL's projects. Treasury and deployed opportunity. So anyone actually can create new applications and protocols with our blockchain, not just TFL, and all that makes it more useful. And this funding will help others come to the blockchain. 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. Yeah, I think the declaration covers a lot of it, and I don't think I'm going to get any smarter this afternoon. Let's talk about the organizational structure unless we need to cover some of the software. Again, it's helpful to me to walk through this. This is not a typical brick-and-mortar kind of company.

And so I think I'd like to understand the organizational structure, and then we can talk about where we go in here. Sure. Assets and liabilities. So we've got the organizational structure. We have just one debtor here, Singapore entity. Yes, it's a Singapore entity, but its management is in the U.S., its primary creditor is in the U.S., its advisors, are in the US and I think that's enough step I think it's clear why we're here there

are four subsidiaries two are dissolved one is in the process of being dissolved the main operating subsidiary is proximity panorama this is an entity that the company acquired in November or December of last year that has exciting software and IP that works really well with the company's application so there's already been a lot of synergies there and the company thinks that it'll bring value. So back to the corporate structure. And is the Korea entity, Terraform Labs Korea, that's an operating entity, is that correct? Or is that dissolved?

No, that's in the process of being dissolved. It just hasn't been formally, it's like stuck in the court or something. Okay. It's not an entity that the company uses. So the company's assets are the various digital assets held in Treasury. or through the wallets, the TFL controls. You know, after the SEC commenced this litigation,

all of the companies' banks froze the bank accounts and some of the exchanges froze the digital asset account. So those are locked. The company, it's very unusual. Company has no cash. You don't see a cash management motion. You see a treasury management motion. I read the Treasury management motion a couple times.

One, you know, one thing we're hoping is that through the chapter 11 case and we'll be able to go to banks and convince them that we are a company that they should be banking with us or we should be banking with them. There's larger law from retainers than normal partly because of our cash situation. It helps fund professional fees. There's 57 million in fiat currency. Fiat is what people referred to, like U.S. dollars. Dollars.

Yeah, exactly. Not crypto. Is that functionally a prejudgment attachment or something in the Singapore court? Your Honor. If you can come on up to the podium. That amount was deposited in the court's registry as part of its request to lift a Bereva adjunction that had been filed expartee. Okay. And it is under the jurisdiction of that court pending further proceedings there.

That's correct. Very good. All right. Good to see you against, sir. Sure. And, you know, the company is considering what to do with respect to that action in terms of getting recognition in Singapore or seeking to stay or move forward or seeking to have some of that money released because the company believes that the amounts in custody exceeds the exposure

for reasons that we put in the declaration. One question I did have, is there any companion proceeding or insolvency proceeding initiated in Singapore by the debtor or is that intended or expected? where does that stand? The company is considering whether it needs, and we don't know yet. Okay. There's none existing at the moment. Very good.

The company has invested over the years over $50 million in 12 limited partnerships in LLC, effectively adventure investments in various technology fields. More than half of those are Delaware, limited partnerships or Delaware LLCs. And the company has some IP. A lot of its IP is open source, but it does have valuable IP through the proximity acquisition. Those are the assets, the liabilities. We don't have funded debt. So on the LLCs and the LPs, so those are simply investments that the company has made in unrelated corporations, right?

Unrelated corporations. That are doing their thing and to the extent that there's value to their investment. then the debtor benefits from that and to the extent there's not so be it but these are effectively just investments correct okay I understand on the liability side no funded debt we have contingent litigation liability in the SEC enforcement action that's our biggest potential debt potential liability in the Singapore action under the venture investments there are additional capital contributions that the company is obligated to make.

Obviously the company will decide whether it makes sense to do so in their business judgment and come before the court before paying any amount. And then there's intercompany claims which the companies in the process are reconciling. Okay. Okay. So again, I'll be brief here because we've covered it in the beginning. But we are here because of the SEC filing. The key issue is whether

these tokens are securities. If they're not securities, then the SEC doesn't have jurisdiction over them. Again, it's an interesting issue, Your Honor, no one is asking this court to decide that it's, you know, the company's view is that these are not securities. These securities laws were adopted in 1930s before computers were even invented, and the SEC, therefore, doesn't have jurisdiction over cryptocurrencies or any other things. type of currency. Congress has actually considered recently proposals to regulate cryptocurrencies either by the SEC or by the CFTC, but Congress has not enacted those bills. And until recently, the SEC did not assert jurisdiction over cryptocurrencies.

It has also refused industry requests to issue regulations clarifying the scope of its authority. But recently, the SEC has brought a series of enforcement actions against different companies, including TFL and others. And frankly, federal courts have disagreed about the scope of the SEC's authority over crypto token. We cite here are Ripple Labs opinion. So what happens when there's disagreement over matters

of great concern is the company is going to appeal the judgment. I guess we have the SEC's position here. They do believe that these are securities under the Howie case. We learned about in law school. I haven't thought about it since then, but it's interesting and involved orange groves, but not not for example. currency and we do not believe that the offer and sale of tokens constitute an investment

contract as required by HAPA. Skip ahead a little bit. We are going to pursue an appeal in the Second Circuit and this is an important matter for the company. If the Second Circuit agrees with TFL, it will be able to continue its business as a going concern. If not, we're going to seek appeal all the way up to the Supreme Court. the size of the potential money judgment that is not likely to satisfy such judgment,

nor would it be able to post a supersedes bond required to appeal. That would enable the SEC to enforce its judgment, which would be disastrous for the company and the stakeholders, including the holders of the Luma tokens. As I mentioned earlier, we're not seeking to use the automatic state to prevent the SEC from continuing to litigate the enforcement action to judgment. We understand that that's subject to an exception to this day. We're not seeking to expand that. But we are relying on the exception to the exception

that would prevent the SEC from enforcing its action. So the protection of the automatic state is beneficial for the company. It will allow us to continue to conduct our business, avoid the immediate risk of cessation of its operations through enforcement, pursue its right to appeal, and protect the state assets. And I'm nearly done.

The company has recently taken steps to improve its governance. I know that some of this, most of this, and there is a special committee that's already been active in conducting investigations into various items that are laid out here, including claims and causes of actions against current and former directors and shareholders. Last slide, path forward, by utilizing the Chapter 11 process and the tools of the Bankruptcy Code is team, GFL hopes to emerge as a reorganized and stronger enterprise for the benefit of all stakeholders. Does Your Honor have any questions? I don't. Before we turn to the motions, though, I would hear from anyone that wishes to be heard.

I appreciate getting context from the Office of the United States Trustee a few moments ago, but I certainly – the SEC came up. Your name was mentioned a few times, or your organization is short. Good to see you. Welcome back. Thank you, Your Honor. Good to see you as well, for the record, to reassure for the U.S. Securities and Exchange Commission.

Your Honor, with me on the line is Willi Lott to Grow from the Securities and Exchange Commission. Roger Lansman and Chris Carney, who are handling the district court litigation, are also in the line by Zoom, and additional SEC staffers are also joining this hearing by Zoom. Very good. Well, welcome all. Thank you, Your Honor. If I may, I would like to first give a brief status report on the SEC's action against

Terraform. It might be helpful to provide a little bit of context, as this appears to be the reason they filed for bankruptcy. And then, Your Honor, I'd like to highlight for the court some concerns that we have regarding the bankruptcy case. Your Honor, as Ms. Berkovich has noted, the SEC sued the debtor and its former CEO

in the Southern District of New York, alleging the debtor offered and sold unregistered securities and engaged in a fraudulent scheme that led to the loss of $40 billion in market. value. On December 28, 23, the district court ruled in favor of the SEC, finding that the debtor offered and sold certain crypto assets, including U.S.T., and Luna Classic, as unregistered securities. A jury trial in the fraud charges is scheduled to start March 25th. Roger Landisman and Chris Carney are attorneys in the Division of Enforcement handling the district court litigation. They have not

filed their government certifications, Your Honor, under the local rules, but are also in the district court. the line with me and can provide further detail regarding the district court action if your honor will commit I would certainly permit and again I think council has heard me give this speech before this is a first day hearing I certainly am not going to stand on ceremony as to either affiliation with local council or the filing of the certifications of there are parties that wish to be heard either remotely or in the courtroom as always I will hear from anyone that wishes to be heard and again I I've been given a lot of context from the declaration, from Ms. Berkovich's comprehensive

presentation and colloquy with the United States trustee. And to be, I want each side to be clear. I welcome the context. This is both a complex business and product, for lack of a better term. But in some ways, the structure of what's in front of me is actually not terribly complex. complicated, and I would welcome any party that wishes to address the court, but understand, and I think everyone does, that I am focused exclusively today on the relief that's being sought, so parties' rights are fully reserved, and to the extent that I'm being advised by

counsel at the podium or otherwise, it is for purposes of context. It doesn't hurt, but there's often a sense of discomfort. when the other side is explaining everything about where it is that we, how it is we got here and where it is we're going to go. And I understand that dynamic pretty comfortably. But no, to the extent that you or your colleagues wish to touch on some of these issues, understand the course, I'm not trying this litigation, and the debtor has represented that it intends to move forward, and there has been substantial description and discussion of that litigation. So to the extent that I would benefit from being educated a bit on it, I'm all ears.

I think, Your Honor, we do have a bit more detail that may be helpful to the court in addressing some of the relief that the debtors seek today. And we do have some concerns about the relief being sought today, specifically the Treasury Management motion. Okay. Thank you, Your Honor. I'll turn it over to my colleagues. Very good. Thank you, Your Honor. and I'll try and be brief and not go over too much of what was already discussed,

but try and highlight some things that we think are particular importance, as well as provide some additional concerns that we have about aspects of this or about a VETC case that may impact the Bay Park C case. It is previously discussed on December 28, 2000. 2003, as Raycoff in the Southern District of New York, agreed with the SEC and held that as a matter of law, Terraform engaged in unregistered offers and sales of what the debtors have described as Luna Classic, or their original Luna tokens, as well as another token, MIR, which are securities. In that action, what is pending for trial at the end of the

of the March, at the end of March, the SEC also alleged that defendants violated the anti-fraud provisions of the Securities and Exchange Act. The SEC alleged two different frauds. The first fraud is that defendants allegedly, fraudulently told people that their blockchain was used to settle real-world transactions. It was not. And the second fraud is that defendants allegedly told people that another one of their tokens called UST would suppose to equal $1 and was pegged to the U.S. dollar by an audit, was pegged to the U.S. dollar by an automated algorithm when it was not. Judge Rakoff has described the SEC's evidence as compelling and damning. And without going and repeating too much about the case,

I also wanted to mention that the SEC has concerns about Terraform's business and particularly the use of Luna 2.0. As noted, Judge Rakoff found Terraform liable for violating the Securities Act for unregistered offers and sales of their original Luna tokens or Luna Classic. When Luna Classic collapsed in 2022, Tariff and DoPON created new Luna tokens known as Luna 2.0, which it currently holds a significant sum of according to the debtor's filings. Just like Luna Classic, Luna 2.0 appears to derive value from the use of the blockchain. Moreover, in accordance with the debtor's filings, the success of Luna 2.0 will be tied to the

debtor's success. The debtors say in its papers that it is not currently issuing or selling crypto assets for value. The business they seek to reorganize as may not be in compliance with the securities laws, as it appears to us that they are seeking to replicate the business for which the district court found violated of the federal securities laws by trying to fund its operations for years with Luna. If you have any questions, I'm happy to answer them or otherwise I'll turn it back over to Ms. Schoier.

No, I don't have any questions. Thank you for your comments. Ms. Schoer. Thank you, Your Honor. Your Honor, the debtor has said that it filed for bankruptcy because of the SEC action, but I'd just like to provide a little bit more background on the filing. Prior to the bankruptcy case, the SEC repeatedly asked Terraform for information regarding $70 million, which was transferred to Denton's in the past month. The staff was told that Terraforms. would provide this information by January 22nd,

but rather than provide the information about the $70 million in pre-petition transfers, terraform filed for bankruptcy on January 21st. Among our concerns with the bankruptcy case is whether the petition was properly filed. Obviously, we're still very early on, but based on the declarations, the debtor has been discussed by the Office of the United States Trustee,

the debtor appears to foresee possible financial problems down the road in the future, however, it doesn't appear to be in current financial distress. To the extent the debtor has solvency issues now, it may be because of the assets it transferred pre-petition. The SEC's claim is unliquidated because we obtained a judgment as to liability only, not as to amount, but according to the debtor's own filings, we appear to be their most significant creditor. The top creditor with a liquidated claim is listed at approximately $3,000. Because there are so few creditors here and those with liquidated claims are small, there may not be sufficient interest in a committee to investigate the $70 million

in pre-petition transfers or pursue other avoidance actions. And for the reasons discussed by my colleague, Mr. Landsman, it appears to us that the debtor may be unable to reorganize its business. And in addition, Your Honor, is also discussed by the Office of the United States Trustee, then you may not be proper in this district. It's worth noting, Your Honor, that the debtor contested personal jurisdiction and the district court action, and my understanding is they took that issue all the way up to the Supreme Court. The debtor's principal place of business

and place and incorporation is in Singapore. They don't appear to have, they don't have an affiliate that filed for bankruptcy here. So venue in Delaware may not be proper. This is one of the issues that we're looking into, Your Honor. I have some comments with respect to the treasure management motion, Your Honor. deal with them when we get to the motions but any other comments be sure no at this time

very good thank you mayor anyone else wish to be heard before we turn to the motions very good all right again I think there's been a lot of colloquy with the court that is helpful to provide context and I take it in that light I think we can then turn to the applications themselves and miss Berkovich I think you had given me a dance card but I don't have it written down so I'm happy to hear from anyone that wishes to present the motion well I'll have mr. Andrews come come good present the first two motions good afternoon your honor Gavin Andrews of wildcoachial managers on behalf of the data welcome your honor I'll keep this

brief but not in number four on the agenda is the application of retained epic as the claim to noticing agent that's at docket number 17 I your honor we did proceed some minor administrative comments from the UST, which I believe that order has been uploaded prior to hearing. I did receive a revised form of order and I did not have issues with that order. Thank you, Your Honor. Well, any other questions would like that to be ordered. Very good.

Very good. I would ask if anyone wishes to be heard with respect to the application to retain EPIC as claims and noticing agent. Very well. I'm going to grant the motion, as Mr. Andrews noted. This application was filed for purposes of having Epic provide the back office claims and noticing services for the debtor. The court is certainly familiar with Epic, and I'm satisfied that they possess the requisite resources and experience to perform the services that are necessary and required here. In addition, I believe that this case also implicates our local rules, which require in large cases that a debtor moved promptly to engage the services of a claims and noticing agent. That has occurred here. I've had an opportunity to review the application as well as the accompanying documents. I'm satisfied it's compliant with our local rules and consistent with relief that I have granted in prior cases. The motion is granted.

The order will issue. Thank you, Your Honor. Moving to item number five, that's the debt is motion requesting authorization to file portions of the creditor matrix and future filings with personal information under seal. That's at docket number 11, Your Honor. The personal information is home addresses of the employees. We believe disclosure would pose those individuals risk, potentially due to threats of violence. Some of the vetters personnel have received in the past,

and also in relation to portraying identity theft. Again, the United States trustee had some mining comments to the order, and I believe that has been uploaded to your chambers. and again if there are no other questions you're only we would ask that that word any very good I would ask if anyone wishes to be heard with respect to the debtors motion relating to its creditor matrix okay I have no issue with this motion mr. Anders I have a question and if you need to confer with your client or colleagues you're welcome to do so the motion is currently positive is is relief that's

standard in this jurisdiction and I think in many and it goes to the issues that you just raised primarily about concerns about identity theft and personal information being loaded. Historically, this wasn't a big concern because they were giant stacks of paper and nobody would got bothered to go to the clerk's office and dig that stuff out. Right now, given the availability of this electronically and even the service is frankly provided by the claims of noticing agent, it becomes exceedingly easy to do that. I and my colleagues have, I think, consistently approved this relief.

I've had a couple different crypto cases, and it may be that this company, is simply different. But in prior cases, there's been significant attention paid to customers, but I don't think you have customers. So, again, the last case that I had, which was actually a Bitrex, I believe, had a significant issue because they had millions of customers that participated on an exchange this debtor doesn't have that type of a business and doesn't hold that kind of information so those folks would not appear we wouldn't have a community like that on your creditor of matrix do I have that right I believe that's correct your honor yes very good okay well then the motion is

certainly narrow and scope and I would ask that anyone would be heard hearing no response I'm gonna grant the motion for the reasons that I stated a moment ago my colloquy with mr. Andrews I find that the relief requested is appropriate and warranted and consistent with that which I my colleagues have granted on many prior occasions the motion is granted and the order will issue thank you very much rona i'll turn you out to my colleague um this jessica little very good good afternoon your honor for the record jessica lew oguodgola mangi's proposed council for the debtor your honor the next item on the agenda is item number six it's the debtor's

employee wages motion filed at docket number 20 as my colleague noted we have been in conversations with the United States trustee and are fully resolved on comments received to that proposed order. It has been submitted to your chambers. But very briefly, the scope of requested relief for this motion is authority to pay all outstanding pre-petition accrued workforce obligations associated with the 60 employees and contractors that are working for the debtor currently or its operating subsidiary proximity. These amounts include obligations relating to employer portion of payroll taxes, employee benefits, and also outstanding pre-petition accrued amounts relating to leave benefits, then the medical plan,

and we also seek authority, just out of an abundance of caution, to continue to honor and pay amounts in the ordinary course going forward, and also continue business practices, programs, and policies relating to the workforce going forward as well. going forward as well. The aggregate amount of the relief sought to be paid relating to the pre-petition period is approximately $846,650, relatively minimal amounts. And I can also confirm that the debtor is not seeking to pay any single individual over the statutory priority cap of $15,150. And the same proposition applies to the contractors that you've identified at paragraph 25.

Correct. That's correct, Your Honor. And as noted in the motion, there are many reasons to make these payments. As you've heard and seen, this company exists primarily online, but for all of the physical employees around the world who do their jobs, show up every day, and provide a high level of specialized knowledge and skills in order to help the debtor do what it does, which is turn out interesting, exciting software products in order to,

aid in the adoption of the terror blockchain and aid in increasing user traffic to the blockchain. So for those reasons and to avoid immediate and irreparable harm to the business, we ask the court grant the wages motion on an interim basis. Very good. I would ask you anyone wishes to be heard with respect to the wages and benefits motion. Is Sure? Good afternoon, Your Honor to be sure the best securities exchange question for the record. I'm just very briefly, Your Honor. My understanding is that an an SEC card that has been added to the order. Thank you.

Given the timing here, the SEC hasn't had the opportunity to fully review the motion and just reserves the right to object to final entry to the order. And I would note that that that right is reserved without even making it specifically on the record, but

so noted, but as for purposes of today, you're satisfied with the language in the order. Very good. All right, does anyone else wish to be heard with respect to wages and benefits. Okay, I'm going to grant the motion and consistent with Ms. Lue's observations, I would make a comment I've made many, many times, which is that at the outset of a case, there's no constituency for whom I have greater concern than the employees that look to the company

for payment of wages and benefits. I've had an opportunity to review the application. It is comprehensive and thorough. It identifies a compensation and benefit regime that I would generally expect in a company of this size. And that I would also observe that, again, consistent with Ms. Luce's comments, the nature of this company's business is in the heads of the people that do the work for the company. And that's not a novel proposition in this day and age. But to me, a company that comes into a Chapter 11 seeking to reorganize or achieve some particular goal.

Step one is ensuring that your employees are paid, and so this relief accomplishes that. As Ms. Liu noted, the relief does implicate bankruptcy rule, $6,003, and that it contemplates the payment of certain pre-petition obligations in the first few weeks of the case. For the reason stated, in the declaration, as well as the court's long experience, I'm satisfied that the Vettors reorganization would suffer the risk of immediate and irreparable harm in the absence of the relief requested. The motion is granted. The order will issue.

Thank you, Your Honor. The next item on the agenda is item number seven. That's the debtor's treasury management motion, which was filed at docket number 21. And I'm happy to walk through this motion in as much for as little detail as needed. But... My colleagues asked if I would ask you

if you brought the wallets with you. Yeah. So generally speaking, I would classify the relief in this motion in three broad categories, just to make it easy to digest. I do think that in many respects, as odd as the motion seems, because of the nature of this business,

it's actually fairly vanilla in the sense that we are simply seeking to continue to use the management system, the treasury management system that we are using pre-petition. Now, had the debtor had the ability to access bank accounts, then a component of this motion would have included cash management. as well. But given that the debtor had its access cut off pre-petition, it had to find other ways to support itself. And as you saw from the First Aid Declaration, the large majority of its assets are digital assets. And those digital assets are stored in existing

wallets and accounts that exist online on the blockchain. So as the first component of the relief, it's simply continuing our ability to store, transfer, stake, convert, and disperse those digital assets as we otherwise would in the ordinary course. And to continue using those existing wallets and accounts. And as you can imagine, there will come a time where occasion demands that we will need to open new wallets and accounts, and we would like to ensure that we have authority to do that as well. Ms. Lou, I just want to ask, I think that the motion speaks directly to this.

but anticipating I'm sure a discussion you probably had with Ms. Richendurfer, notwithstanding the difference in currency, which then leads to the difference in the mechanics by which it's held and where it's held, your point is this is a cash management system. Pretty much, Your Honor. And so one of the main considerations in a cash management system in a more typical case is ensuring that there are records that show where money goes and that it's – that that can be tracked and traced, et cetera. I think that the papers and the declaration speak to exactly that, but if you would confirm

that the debtor does have the ability to track transfers and explain to the court, to the world, et cetera, if asked, how money was used post-petition under this regime, that would be helpful. Yes, Your Honor. And I would say that there's actually two components to that. tracking there's an internal component which is the debtor's books and records and the debtor keeps books and records unlike some of the crypto companies that have filed I'm sad to say it is helpful for you to make that

point and they do have internal individuals responsible for maintaining those books and records this is an area of concern that was identified by the US trustees office and we have negotiated acceptable language for inclusion in the proposed Treasury management order that addresses this very issue that we would provide those records upon requests to the United States Pristee's Office. And so I can assure you that there should be no concern on that front. But in addition to that, I will point out that this is a company

that transacts in the digital world. And so every transaction is publicly available on the blockchain, and it will be there forever. Okay. I interrupted you. You may proceed. Sure. I was also going to mention that with respect to the Treasury

management component of this, there is a cash management component in the sense that we are endeavoring to try to open new bank accounts now that we are in Chapter 11. And to the extent that we are able to find a willing financial institution to partner with, then we are requesting authority to continue to use those bank accounts and open new bank accounts. And to the extent that we are able to gain access to the frozen bank accounts that exist in pre-petition, then we would obviously want to be able to make transfers out of those accounts. And if I'm correct, I think that the revised language that has been proposed in the most recent order

addresses the mechanics of that. Do I have that right? Yes. Actually, do you have – I just want to make sure you do have the red line with proposed language from the U.S. trustee's office. I may have left it on my desk. Do we have a copy? Yes.

I do have a copy of the red line. That would you like me to approach? Sure. So this is what was received by Chambers. I think a couple hours before the hearing. I think I left my copy on my desk. So I will note a couple of things that redline is a little incomplete. That is the red line that the United States' trustee's office provided to us

maybe it will be less than an hour before the hearing. And so luckily we were able to consensually resolve language, and there are going to be some edits to that language, which we will submit in a revised order to the court through certification of counsel. But that's all fine, and again, I appreciate the engagement between you folks and the United States trustee on this. I think the point that I was raising was language that's been added to paragraph four that I had seen that talked about providing the U.S. trustee with notice if we do, if you're able to get accounts or open accounts. And that's what I would typically expect.

I just wanted to make sure that it was in that. Yes. Yes. There will be no changes to that language. Okay. The second component of the relief sought in the Treasury Management motion, is the ability to continue processing intercompany transactions. This is primarily relating to supporting the operating expenses of proximity.

The wages motion covered the supporting of the employee obligations arising from proximity, but there will be additional operating expenses, fairly de minimis expenses, about $20,000 to $30,000 a month, and so we are seeking authority to continue to support that integral part of the debtor's business. Okay. In addition, I will say that there are some other components of relief that are intended to facilitate the debtors' continued access to funds or access to additional funds. And these components include the ability to continue to use Moon Rabbit as effectively a digital asset converter so that we can convert digital assets to Fiat currency as necessary. Exactly, exactly.

There's also the additional component of the language we built in addressing the Dendon's Vee advance, and to the extent that the debtors and Dendens are able to facilitate the transfer of excess funds from the fee advance back to the debtor, then the debtor would like the authority to be able to make those transfers and utilize those funds going forward for operating expenses. Lastly, I would say that there is language that also addresses the deposit placed with the Singapore High Court. and preserving our ability to, of course, file an application before the Singapore High Court, to seek release of all or a portion of the funds as may be necessary, so that we can bring that asset back into the estate as well. Okay.

Okay. And I would say that there's some additional relief relating to paying any obligations that arise in connection with all of the things that I laid out, to Your Honor, and then also seeking an extension of time to comply with Section 345B for obvious reasons here. Okay. If Your Honor has no questions, I think at this time we would say for the reasons set forth in the motion and based upon the evidence provided in the letter declaration, we would request entry of the Treasury Management order on an interim basis.

I will note, because I forgot the first time of the wages, wishing that we did agree to consensual language with the SEC as well for this order, which we have included in the proposed order that we will submit to, Your Honor. Is that language in the draft that I have, or is that still in flux? It should be in the draft that you have, Your Honor, but I think one of the paragraphs is in there, maybe not the other, so we just have to make sure we have both paragraphs negotiated with the SEC in the order for you. Okay. I have no questions at this time I'd like to hear first from the United States trustee and then I'll hear from

Mr. Schroer. Ms. Rich and Berfer. Good afternoon again, Your Honor. I have to say this is the first time and in my discussions with debtors' counsel they admitted that they were not aware of any other cases where every, all of the accounts were cryptocurrency accounts. I mean in FTX there's a wide mixture of accounts and unfortunately because, Ms. Arcaesian decides to retire, I'm in FTCX, so I know about that right now. That is not my problem written all over it.

Yes. Yeah, I don't disagree. I think, though, as I read the context provided by the Declaration and Ms. Liu's presentation, in the absence of the difficulties with the traditional banking entities, this company would have arrived, presumably, with all of these various wallets, but also with bank accounts and check. checking, et cetera, that it would have used to facilitate some of its operations. So it's more a function of circumstance than design necessarily that we're looking at this kind of unusual situation that I likewise have not seen it.

Again, in the other crypto case that I had at the first day, I was asked to approve a dip facility in Bitcoin. And apparently it was an unremarkable thing. but so I and I understand I guess I mentioned at the outset I read this motion a couple of times to understand precisely what was going on but again I think it was helpful to break it down into the handful of categories that Ms. Liu provided yes your honor and we had an extremely helpful call this morning and I know that most of the participants here from the debtors representing the debtors were unfortunately in the train station getting ready And Ms. Leaning was in her car. I decided to go into work late, but we had a call around 8 o'clock that really helped walk us through this. Because one of our primary concerns Your Honor is transparency. With the bank accounts, we get the bank statements, we understand them, we know them. And that's one of the reasons why we added language in here about the record keeping

and also making information available to us so that we can see the transfers and the transactions. And on that, at least from my point of view, you're pushing an open door. That was my first question. Ms. Lou, and she certainly answered it satisfactorily. Yes, Your Honor, and that was as a result of our discussions this morning, and then we came up with the language that we could then put into here. There's still a couple of open items of information that we need to receive from the debtors,

and it's still part of, you know, Open Door, as you say, Your Honor. because we're trying to get a handle around who within the corporate structure controls which of the wallets and what assets as described in the first-day declaration are in which of these wallets. I mean, there is an exhibit that's attached here to it, that lays them out, and they're called different things. They're very different. There's also the legacy wallets, which I learned this morning can never be closed, because they exist forever. Don't know what's in those

wallets, though, and if they're not using them, then they should be, we respectfully suggest, should be transferred out, much like we would ask for a no longer use bank account to be closed out. My guess is that that's a discussion you should continue to have because I think your and my intuition

is going to suggest to the debtor that they should proceed with something that's probably an impossibility. But I think is not a today issue. Right. Okay. It's not a today issue, Your Honor.

I just wanted to say, mention that there are things that are still in flux that we're trying to get more of a comfort level with, if you will, Your Honor. And one of the reasons is it's been represented to us that Mr. Kwan and Mr. Shend, shareholders who still own this debtor, that they no longer have access to any of these wallets but and I do appreciate that but that's one of the reasons why we want to know who does have access and I know there's multi-level approvals that need to be given in order to do the transfers and we want we would like that information again to make sure that there is no way that the 92% shareholder or

anyone he may have given his information too can access and I know the debtor doesn't want that happening either And the other thing is, Your Honor, and we're still exploring this a bit, is that Moon Rabbit, excuse me, is not what I would call a true third party. It is owned by one of the officers of the debtor. And it's been represented to us what the flat sea is that they receive every month. And we'll gain some comfort with that, again, Your Honor, when we see the transfers as they occur, back and forth to Moon, the dentons fee advance again that is something we've requested information about I understand it's covered by a letter agreement which we've requested so we can see

because one of our first questions was well how do we know that dentons is really going to go pay that bill if you ask them to go pay that bill and so you know the retainers can be a tricky thing all firms can take different positions visa-vee a retainer that they've received and whether or not it's still debtors' money or their money. And I think that one of the last

ones, and I do apologize to debtors, this just recently came to our attention as we were getting ready to come over here. If you look on Exhibit D with the wallets that are listed, number 21 says

sex trust account. And debtors had advised us that this was frozen and what we're not exactly sure what's in there I think they told us was Bitcoin but we have read about there being an entity out there called hex and the founder of the company who seems to go by two names is in a lot of trouble with different authorities and everything that froze so a lot of that going around there is a lot of that going around in this industry so I don't know whether it's frozen because of the SEC action against terror form or if it's

because of what's going on with hex and just want to make sure that there are a safeguarding of debtors assets and again we just had a new trial attorney join our office who was sitting at council table with us it's good to see you again yes someone that you may that's I know that she is known to this court and Miss Boo has been joined with us and she is she loves to go explore things on the internet for us and so she is the one that found the information for us about hex just as we were getting ready to come over well I'll hear a couple things as to the information requests in dealing with this I will I will at least observe it

now the debtors commenced a chapter 11 case the debtor needs to deal with the United States trustee other stakeholders a committee have appointed the court And it's my expectation that there will be a productive exchange of information. Part of that exchange, today's hearing has demonstrated, there's an educational component to each of those. Again, Ms. Berkovich, you've done 1,000 cases. If we were talking about bank accounts at J.P. Morgan or at TD Bank or something else, we wouldn't be necessarily noodling over this.

The concern about where the money is, whether it's not. money and to whom it belongs and who has access to it are all completely legitimate questions, most of which I would hope and expect are solvable by productive engagement and experience teaches that the parties will go through that. I'm not telling you anything that you don't know if there's a breakdown in communications or there's information that is needed or their wheels start to come off. I would expect I'm not a big fan of letters and motion practice on mechanical things. Get me on the phone.

We have a hearing scheduled for about a month out, but again, the trustee has identified concerns just about functionally getting your arms around exactly what it is that you are overseeing in your statutory capacity. That makes perfect sense to me, and again, the record indicates from counsel that there's been an open dialogue that remains ongoing,

and I'm supportive of that, and I will foster that if there are problems you can expect that I would make myself available. Thank you, Your Honor. And I just wanted to, again, thank the debtors because they have been trying very hard to educate those of us who are new to all of this. I would note for any other comments? No, Your Honor, go ahead. Okay. I would note for the benefit of Ms. Liu and Ms. Berkovich that I think Mr. Amani, who you didn't see, but I did,

may have information responsive on the hex issue, whether that's a today issue or not, you're welcome to confer, but I'll leave that to you folks. Ms. Liu, did you wish to be heard? Yes, I first thank you for the offer to help the parties bridge any differences, if there are differences that end up existing between us. I did want to respond to just three points for purposes of clarity. The first is we are trying to be as transparent as possible, which hopefully you could tell from the papers that we filed.

But we are also, as you're probably experienced with this, balancing safety and security concerns, especially given the online and digital nature of the business and the transactions that are being conducted. And so I just want to reiterate that we will need assurances from the United States Trustees Office that if we do provide highly sensitive information that may impact the security of the United States. the company, including its accounts, that that information will be kept highly confidential. The second point that I wanted to make is that with respect to the Denton Speed advance, I didn't want there to be any ambiguity. The scope of the relief requested in the Treasury Management motion was that excess funds

would be returned to the debtor so that the debtor can pay its expenses. So I just want to be very clear about that. that there was an expectation that dentons would be paying operating expense bills directly. The third point I wanted to just raise is that with respect to the Hex Trust account, currently I believe I am getting a note on this, so I will applaud. I can confirm that our access to this account is frozen, and we welcome any help or aid that the United States Trustee's Office would like to provide us in helping us gain access to not only this account,

but other frozen accounts that we have. Ms. Schroyer? Thank you, Your Honor, again, for the record, Trees Schoyer for the SEC. Your Honor, we appreciate the debtor incorporating the carve-out language. Given the timing here, I did alert debtors' counsel that we may have, would likely have some additional comments.

And for the reasons discussed by Mr. Landisman, Your Honor, it appears that some of the relief set forth the Treasury management motion may not be in compliance with the securities laws. I think, you know, the SEC request that any relief provided to the debtor on an interim basis be as limited as possible. Specifically, we'd ask that the court not authorize any transactions involving the unit 2.0. I think I'd like to know if the debtor is intent. Let's do this.

Actually, I think we should take a five-minute break. Couple things. The parties have engaged productively the SEC and the United States trustee on this motion. There is language here. I've had an opportunity to review it. I have no issues with it. But again, this is a first day hearing, and if the SEC or the government has additional comments or observations, it would be better to have that discussion without me in the middle of it.

So I would be happy to give you a few moments to have that discussion. A couple other things that, again, I think should be apparent, but bear repeating. The sensitivity concerns Ms. Liu just touched on about the nature of the debtor's business and the, frankly, highly confidential and sensitive information that may be relevant to the responses for information from the United States trustee. To me, that seems apparent. But this is not uncloud ground. The United States trustee commonly gets sensitive information. And part of the reason that I suggested, if there are issues with respect to the exchange of information that the dialogue starts to falter,

I don't want letters from the parties. I want you to get me on the phone. And to be honest, if circumstances warrant a Chambers conference, that some of these discussions are not on the record, may be appropriate because there are consequences. The United States trustee is trying to do a job, but in many ways the job and the framework of that job doesn't necessarily fit neatly with the nature of this company that's in front of me. Again, this is not the only case of this nature that's before the courts or even in my court.

So I hear you on the issues, and the court will be sensitive to those issues and will balance those considerations. I'm likewise aware that the SEC appears today, as, again, as Ms. Schoyer noted from her point of view or her view is that they're the largest contingent creditor in the case. I get it, but that also, a fundamental nature of a Chapter 11 case is often that stakeholder is a stakeholder and a creditor, but is also a litigation adversary and pending litigation. So those are considerations I'm aware of. I make no comment on how the discussion plays out from here just to observe that if it does start to go off the rails, I would expect to hear from the parties on these issues. Parties want information. The debtor is obliged to provide certain information, but the debtor is entitled to ensure that its interests, and those of other stakeholders are not harmed by the exchange of that information.

And one of the luxuries I have in this job is able and experienced professionals that have done this particular dance before, and I would expect counsel to be able to handle most. of that and again I'll be available to assist that process if it starts to go sideways why don't we take five minutes you can have your discussion about any open issues on the form of order and then we can reconvene stand in recessed please be seated is Lou how we doing your honor for the record Descalo on behalf of the debtor we are in discussions with the SEC and I think we have a resolution that can work So we do need some time, however, to type up the language and then get it in front of the SEC and have them run it up the proverbial chain to make sure it's okay with them.

However, we do want to try to get the interim treasury management order entered. So I have a proposal for you, and if that doesn't work, then we have an alternative as a backup. So our proposal is that we take a very short second break because I understand. we may be your last matter for today. God bless. And unfortunately, we are going to potentially keep you here a little longer, but I would like to try to resolve the issue. I have no problem with that.

We can come back at like maybe 430, 4.45. Sure. Okay. Let's do 430. Okay. Well, I think Ms. Scheier needs... Let me ask you a question in terms of timing. Yeah, because you've got to go up a chain.

Again, in a typical case, we'd be talking about not a cash management, but we would be talking about a dip order and whether or not that order needs to be entered today in order to fund payroll or something else. Is that what we're talking about? Is there an urgency that requires an order entered today because as a practical matter, the markets are closing and the wires are occurring?

Right, and we obviously don't have the wiry issue here. We are in the process of fairly advanced talks with a potential banking partner obviously would love the ability to move forward with that if we can and then we may have some vendor obligations coming to but I'm looking over that Mr. Lurdo to see if there are any yeah I think I'm look I'm I'm open I would be happy to to have the parties revise and send an order if there's if there's not a difference between today and tomorrow morning but I'm I'm indifferent Right. But I think, let me hear from Ms. Schroier. Yes, so I just wanted to say that our backup plan is that we can try to work through the language

and submit it hopefully if we are able to come to a consensual resolution tomorrow, or we take you up on your invitation to call you to try to resolve the issue so that we can get the order entered. Ms. Shor? Thank you, Your Honor. So the debtors have proposed certain language. you know, I will have to run it up the chain. I don't know at this stage, whether it will be acceptable or not. But certainly happy to try and see what we can do in half an hour.

Yeah, well, let me ask. There are a bunch of ways to skin this cat. I'm here till five. I would be happy to allow you that opportunity. I guess the one question I'm asking in terms of process is, the basic question, is there an urgency to having, an order with my signature on it this evening. If something is sent in under certification tonight or tomorrow morning, I've already

reviewed what you have given me. There is zero chance I will have any issue in terms of agreed reservation or protective language that the United States, that the Securities Exchange Commission has agreed to with the debtor. So that order is going to get entered. It's just a question, frankly, of I know parties may be traveling, et cetera. We want an order tonight, you're going to hand me a marked up order. That's pretty old school.

We haven't done that in a while. But that would be fine. Or if the parties want to confer, and again, I'm sensitive to Ms. Schroyer's comment that some of her colleagues are on the phone and likely are going to want to see that language just to make sure that there's nothing that they're concerned about. So I'm really at your pleasure. Do you want to reconvene in 40 minutes, or do you want to put to, you want to, uh, presume that the word smithing can get done, we'll take it under certification. And if not, then we'll get on the phone and we'll talk about whatever the open issue is.

Your Honor, if this is going to hold over until tomorrow, that is perfectly fine with us. I think we can... Okay. Why don't we do this? Unless there's an objection, I will do the following. Before me is what has been called the Treasury motion. I am prepared to grant that motion. I'm satisfied that the relief requested is appropriate and warranted. As Ms. Lou noted, it did fall into five buckets and that structure was actually helpful for me to understand. And from the colloquy with Ms. Rich and Dürfer, it's clear that we're kind of looking at this at the same way, which is a cash management motion and

a bank account motion, which is typically not controversial. We don't have a bank account here, although I think you're telling me you're hoping you do, and that may be part of the language that the parties are going to noodle through, but sort of a three-body problem. We've got too many moving parts. The relief request is certainly appropriate. The debtor needs to be able to operate and to fund whatever operations it does, and the mechanics of that process are laid out in the motion and are appropriate. To the extent that there are issues, they relate primarily to requests for disclosure and education from the part of the United States trustee, and then from the SEC, I imagine most of it is just essentially a reservation. to ensure that their rights aren't prejudiced by entry of an order in this proceeding

that might have an impact that's not necessarily intended or expected or acceptable to the SEC. That's a drafting exercise. But the motion itself is granted, subject to the parties finalizing the language. And as I said, if I understand the scope of the dialogue that you're having, the chances that I would stand in the way of that or have issues with revisions that you are currently nudity, noodling through are about zero. If there is, and again, I appreciate the urgency of this. So, again, if there is a problem that is insuperable,

then get me on the phone. And we'll be able to noodle through. Because again, we are talking about an interim order that is appropriate and necessary, but needs to have sufficient safeguards in it to reflect the interim nature of it and the rights of the parties that are affected. Yes, we appreciate that, Your Honor.

I do want to clarify for the record, and that I think the SEC's concerns run a little broader than just a reservation of rights, this new concern that was raised at this hearing. So we are trying to resolve it, but it deals primarily with respect to the use of the Luna 2 digital assets. So I think we can, again, I think we'll hopefully get there, but I didn't want you to think that it was akin to wordsmithing of the original reservation of rights that they proposed. No, and I appreciate your clarification. It was actually, that was kind of my reaction when Ms. Schoyer identified the concern.

It seemed to me that that should be a discussion that the party should have offline and not necessarily in front of me. And I'm happy to allow that discussion to continue. But it would seem to me that resources are best served by rather than having you do it in the hall unless you want to, I would look for that under certification or, if need be, to deal with the... the parties if there's an issue. But in terms of the record for purposes of today, the motion is well-founded and would be granted subject to preparation of a satisfactory form of order, all rights being reserved until that order is either agreed to or ruled upon by the court after a hearing. Okay? Thank you very much, Your Honor. That's wonderful. Very good, Ms. Lou. So that covers us for the Treasury motion.

Ms. Berkovich, do we have anything else this afternoon? Thank you, you and the court for your time this afternoon. All right. With that, we will stand in recess. I'll look for the certification. I think the other orders may have already been entered. If not, that'll happen this afternoon. I appreciate everyone's time and the education,

and I will look forward to seeing you in just a few weeks' time. With that, we stand in recess. Thank you, Counsel.