Unchained - Will FTX Reboot? Here’s John Ray’s Internal Deadline for Making a Decision - Ep. 513

Starting point is 00:00:00 Hi everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started having Crypto eight years ago and as a senior editor at Forbes was the first mainstream meter porter to cover cryptocurrency full-time. This is the June 30th, 2023 episode of Unchained. Ever wanted to use defy without being tracked? Railgun is a leading defy privacy solution on Ethereum, BSC, Arbitrum, and Polygon. Shield your funds and use them private. privately in your favorite Defi apps, while Railgun's cutting-edge zero-knowledge system encrypts your data from public view. Yes, that includes dextrating.

Starting point is 00:00:41 Visitrail.org or use the Railway app at Railway.xy-Z. Secure your crypto accounts with a secure email service. Proton mail is end-to-end encrypted, meaning that no one, not even Proton, can access your emails. Go to proton.com. With the Crypto.com app, you can buy, trade, and spend crypto in one place. Download and get $25 with the code Laura. Link in the description. Today's guest is Thomas Brazil, founder of 507 Capital.

Starting point is 00:01:11 Welcome, Thomas. Hey, Laura. Thanks for having me. There's been so much news regarding FTCS this week. Let's start with a bombshell of a lawsuit by FTCS against Daniel Friedberg, who served as the chief compliance officer in FTXUS, as well as the general counsel of what the lawsuit said was, quote, Bankman Freed's so-called crypto hedge fund Elameda. What did the lawsuit reveal and why was it so shocking? Let's see. Where do I start?

Starting point is 00:01:40 Okay, thanks for having me on again. Let's see. So the lawsuit was pretty damning because it sort of shows a real pattern of historical activity. And also, as you would have assumed, it takes more than one person to, let's not say perpetrate crowd, but have such a big apparatus of activity that's less than all above board. And so you see that in this, this, what's called an adversary proceeding, or AP as it's called in bankruptcy court, basically a lawsuit to recover funds against Daniel Freeberg. And, you know, it's interesting.

Starting point is 00:02:15 I mean, the biggest bombshell is probably the, you know, the length of which this gentleman went to probably cover the tracks through the whistleblower payoffs. There were some whistleblowers were paid off as well as like help basically obfuscating who was the ultimate, you know, sort of owner of bank accounts to be able to hide the fact that there was money slushing around between Alameda and FTX. So those are pretty, pretty, you know, some of the stuff in there is pretty damning. I mean, they're basically saying that he backdated agreements by wet sign, what, like, what signatures on, on documents versus eSign, which is pretty bad. What's interesting is the way, if you read the adversary

Starting point is 00:02:59 proceeding. It's written in a very clever way, which doesn't call it a fraud. It calls it breaches of fiduciary duty. I think that's very purposely done, basically to be able to have a lower bar to meet to be able to actually litigate this person and potentially other people that were involved. There were some unnamed parties like law firm one law firm two. I assume the former law firm you worked at as well as, who knows, maybe Seller and Comeral or maybe another firm. But there's definitely some other parties that are probably going to see some activity. And this is like the first rung of lawsuits regarding this activity that's that's named in that absurd proceeding. Okay. Yeah. And his former law firm was Fenwick and West. And I just wanted to note,

Starting point is 00:03:45 this actually also solved a little bit of the mystery around North Dimension, which was that Washington-based Bank. And from the lawsuit, it's pretty clear, oh, this was spun up to obfuscate the fact that Alameda, you know, was receiving all these customer deposits and was using them. And they even like made up all these fictitious, a fictitious story about what the purpose of North Dimension was with fake website, et cetera. Right. Yeah, because they didn't want to have to disclose that customer funds and non-customer funds were being commingled. Comingled, right. I know I would say the other thing it shows, if you, if you look at that AP if you read some of the paragraphs, you'll see a very, there's very interesting statement.

Starting point is 00:04:32 I can't remember the exact paragraph. I could go look up you want, but there's a paragraph where basically say he was paid in serum tokens as part of some sort of compensation structure that was, they think, fraudulent, and they want to claw that back. And that's interesting because I think there were a lot of, let's call it, connected or potential insiders that were compensated in that way. And I think they should be worried because clearly this is. one of the first lawsuits we're seeing out of the estate where John is calling those kind of

Starting point is 00:05:02 payment for services transactions out and wants to claw back that money. And I wanted to also note that the, you know, backdated signature, that was used to, you know, show that this certain agreement had been in place around the setup between Alameda and FTX and their accounts. and what they did was then they gave that to the auditors. And then those audited financials were what were used for the Series C, $400 million rounds. So all of this, you know, it was just sort of this House of Cards that was being crazy. Luckily, those are 510B claims.

Starting point is 00:05:42 So it'll be behind creditors. I should say because I assume that then someone that's a, that participated in that round would say, well, that was fraudulent inducement because you had an audit opinion that was basically bogus because you gave them fake information, and so I want to sue you. When those claims usually go under creditor claims, they're called what are called 510B claims or basically lawsuits on account of like securities transactions or securities fraud, just to boil it down, which is coming up in other cases too.

Starting point is 00:06:09 Because, you know, crypto is the security, is it not? You know, when we first started talking, it was like, oh, only these things are securities. Now it's like, well, now everything's a security, except for maybe Bitcoin and Ethereum. But I digress. And then last thing, you sort of hinted in this. So does it, do you think that this will eventually implicate Fenwick and Weston, if so, how? Honey, pocent. No.

Starting point is 00:06:34 Very likely that some sort of action would be brought against them. We don't know what the teeth of it would be. I mean, you know, these are very, as my bankruptcy lawyer loves to say when I get, you know, jump to conclusions on something. This is a fact-intensive question. And so it will matter what the facts are. if Finwick did protect themselves and really this guy was very rogue, I find it hard to believe because he was there, I guess, from 17 to 20 and then transitioned from 20 to FTC.

Starting point is 00:07:07 So clearly he was doing transactions while he was a partner for Finwick and impressed Sam or Sam's father, it would sound like from reading the AP. And if that's the case, then if he was a partner at the firm and doing stuff that was 10 amount of fraud, then, you know, law firms or, you know, I should say partnerships are liable for the actions that are partners. And so there's a very hard lawsuit for someone like a Finwick to, to defend. Okay, but it would be dependent on whether or not he had committed those actions while he was there. Yeah, while he was a problem. Okay. Yeah, it would depend on, like, what actually occurred while he was a partner, you know, and he would have to be as his activities

Starting point is 00:07:46 as a partner at Fenwick. And then he could post, when he went to FTX, what did the partners that he was liaison, liaising with at Finwick, what were they, you know, what did they actually sign off on? What did they help out with? How involved were they? But it's hard,

Starting point is 00:08:02 it's hard for me to believe that there wouldn't be some, some teeth to some, some lawsuit there. But you never know. All right. So now let's also talk about another lawsuit that FTX

Starting point is 00:08:14 made against K5 Global. Who is that? And why is FTC suing them? Yeah, you're going to know better And then I don't know, these are, I guess, connectors, best, most connected people of all time, I guess Sam said. My understanding is the guy was like a former, you know, talent agent, was quite connected in Hollywood and, you know, with celebrities and things like that. And I guess Sam thought they could be useful for FTX. So, you know, originally when I had someone call and talked to me about this transaction way before this adversary proceeding was filed, it was described as, hey, they invested.

Starting point is 00:08:50 in the LP of K5, you know, as like an investor in their fund, and they bought part of their general partnership. That's the way the transaction was described. But that is not the way the adversary proceedings reads like they basically were paid $300 million out of the gate for doing nothing. And then they invested in certain portions of LPs, but really did not get much of an equity interest with very little due diligence. And I guess in total of something like $700 million on very light due diligence with very little assets to show for it. And I think that's also part of John Ray, the liquidator's sort of storyboard in his mind here is the debtor was insolvent way before, I was dipping into customer assets,

Starting point is 00:09:36 way before these transactions were done. And therefore, these are textbook fraudulent transfers or conveyance. And we want to basically unwind these transactions and we want our money back. Yeah, and a similar one would be the embed financial clawback, which, you know, that happened, I think, last month. But again, it's a case where FTCS apparently paid $240 million. And it's worth maybe not quite even a million. And, yeah, so. But I mean, these are typical.

Starting point is 00:10:07 I mean, you'll see this kind of stuff in bankruptcies where you'll see these fraudulent transfers prosecuted. I think the issue is it's good to see John and the team basically just good. going through the file and prosecuting things as they get enough information together to, in their mind, bring a legitimate action for creditors. So it's great to see all this stuff. I mean, look, I don't, you know, if you're on the other side of it, it's not great. But some of these things, you know, they're real defrauded creditors here that deserve answers, at least, if not money back for some of these alleged investments. In a moment, we'll talk about the potential for FTCS to restart the exchange. But first, a quick word from the sponsors who make this show.

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Starting point is 00:12:16 lending and perp trading platforms on multiple chains. Defy and privacy, together at last. Visit realgun.org or use the railway app at railway.xy-Z to find out more. Back to my conversation with Thomas. This week there was another major development, which was that FTCS is looking to restart the exchange. If that were to happen, or I guess now they're sort of exploring it, how do you think that whole process will go? Well, if you look at some, first of all, a few reporters have given me a little intel on what they hear. And then in addition to that, I've been looking at John's fee applications.

Starting point is 00:12:57 And I would say it does look like they're exploring it, clearly in earnest. I think what you're going to have is the estate right now in Porella, which, or I think it's Porella and maybe Jefferies, but the investment bankers for the debtor are taking in basically offers. like, you know, tell us what you really want to do. We'll consider it. I don't think there's like a formal process like, because there's nothing, there's no motion before the court. So the debtors basically just take at this point, taking an offers unsolicited and kind of

Starting point is 00:13:25 saying like, look, tell us what you want to do. Do you think you can provide us services? Let's talk about what we can do. I don't know if you want me to go into this now, but when I spoke with John in person at a debt wire event in New York, he was pretty candid that, hey, we're going to look into all this stuff. But at the end of the day, like, I don't really, you know, I don't really care if we restart or not. I just want to get 100% repay for creditors. And I'm going to do try whatever means I can to get that. And so I think, of course, they're entertaining it. If someone's going to

Starting point is 00:13:57 make a few hundred million dollars cash in the balance sheet and we'll run everything and, you know, there's, there's high confidence around that. I think he's going to be very open to that. So the process right now is a little ad hoc. It's not very like streamlined. If you get an, what a happen, Laura, is if you get one bid, very similar to Celsius, that kind of sets the tone for the structure that people want to see or what the estate's willing to accept, then you'll see people reading that offer and saying like, oh, that's really good. We can do better than that. And so you'll see topping offers on that. And I think the reason, when I say offers, there's no what's called an auction going on, like to reboot. The reboot would be through a bankruptcy plan.

Starting point is 00:14:35 So when I spoke to John and, you know, this was a conversation in confidence, but I think it's good to share it, and I think he wouldn't mind me sharing it, which is he said that he wants to get a file on record, a bankruptcy plan on file by July 31st. That's 30 days from now. So they're clearly taking in all the bids they can get. And if they can get a credible offer, that'll be part of a plan. And then there'll be opportunity for people to jockey and offer better offers and things like that. But he had basically said he wants a plan on by July 31st, and he wants a confirm plan by 2024, July 21st, July 31st, 2024. So.

Starting point is 00:15:16 And just to be clear about what you're talking about, the plan for restarting the exchange or for the whole- Or organization or liquidation. Yeah. Oh. So it's kind of like he's going to, they're going to decide, they're going to kind of, well, they're not going to decide because you need a confirmed plan, but they're looking at this now and they anticipate either getting a plan on file with a restart,

Starting point is 00:15:39 you know, it'll take months to get all the stuff confirmed. But like a bare bones outline of what a restart would look like by July 31st or a plan of liquidation. Now, once the plan of liquidation is even approved, Laura, it'll take years to go through all those lawsuits that have been filed. They're going to go on for years. Those people have money. They have competent counsel. They'll defend themselves in court. There'll be lots of discovery and depositions and whatnot.

Starting point is 00:16:08 But that's what, that's the outs. he gave me and, you know, frankly, meeting him in person was great. I was kind of blown away at his candidness and kind of blown away at how aggressive I think he's going to be for creditors, which, you know, I love to see. Yeah. Anything else to say about his personality? He seems smart, but he knows what he knows. He's a bankruptcy trustee. His background was he was an attorney before he did this. He got involved. I can't remember the first case he got involved in, but he walked me through. I mean, I wasn't around for Enron because I'm just too young.

Starting point is 00:16:43 Enron was a great, great case. They had high recoveries. He did what's called OSG, which was a large, um, um, uh, large shipping company. That was 100% repay case.

Starting point is 00:16:55 And he really is intent on trying to make FtX 100% repay case. That's what he said to me. I believe him. And he seems pretty hard-nosed on it. He's also quite candid and irreverent, which I actually like because it means he doesn't take himself too seriously. And he gets on with the work. you know, you know, a lot of foreign jurisdictions because we're not just involved in things like

Starting point is 00:17:12 FDX. We're involved in all the cases. You know, you'll meet, you'll meet liquidators and administrators of the states that are incredibly slow, incredibly passive. And you kind of think like, well, why aren't you at least exploring this? And now, to be fair, he has the benefit of he has a lot of dollars to work with because it's a huge estate. But it's refreshing to see somebody being as aggressive as he is in terms of prosecuting the items before here. And if he gets a plan on even a bare-bones rough outline of a plan by July 31st, I think that is an amazing achievement given where it started. One thing that I wanted to understand, you know, because you're saying that he wants to do 100% recovery. So obviously this week also, it was reported that FTCS has

Starting point is 00:18:00 concluded it owes customers $8.7 billion. And I wondered, how is that being calculated or denominated Is that like a conversion? Because obviously a lot of this must be an actual crypto asset. So is that just based on current prices? Or like, do you know how that number is being come up with? We do not. I would say we don't, a lot of the, and speaking for people that are distressed people in the market,

Starting point is 00:18:25 the whole market doesn't really know where they're coming up or how they're coming up with those numbers. Hey there, one quick note. After we wrapped, Thomas realized what I was asking here. And he explained that the $8.7 billion, number is based on crypto prices the day of the bankruptcy filing, which was November 11th, 2022. We think there's a lot of, I don't want to say the word shit coin.

Starting point is 00:18:48 I just said just did. But a lot of alternative, alternative, all projects that are considered in there. I guess chiefly among them is all of the basically locked salana. And it'll be a big question mark. I mean, John even asked me like, Tom, what should I do with all the locksalana? Oh my God, John, way above my pay grade. So I think even the estate is one of those things where they're not really sure what to do right now. They can't just sell it because I guess there is a huge lock schedule on it.

Starting point is 00:19:16 And so I think that $7 billion, there's a lot of locked up stuff. I mean, one of the things John said to me that I thought was quite interesting. And again, I think this is newsworthy. That's why I'm sharing it is, you know, he said not only does he anticipate getting to 100% recovery by trying to increase the numerator, but really it's by decreasing the denominator. And so I think he really means it. And one of the things he highlighted was KYC-A-M-L on the denominator, meaning all the claimants, like who hasn't been K-Y-C-D-ML,

Starting point is 00:19:46 like who's got funny money floating around on our exchange. And I think that's a big, I think it's going to be a big issue with claimants. And one of the other things he highlighted was people, treasuries with really alt-alt-p projects that have treasuries that are with FDX and now have claims. Instead of dollarizing those claims like you would traditionally do, I think he was basically saying to me, like, I'm just going to get that person back their crappy coins. And so I think if you're in serum or in, you know, some of the alternative projects, oxy or something. Yep, Maps and oxy. I think those are things that you want to be very careful about as a claimant. Now, that's good

Starting point is 00:20:26 for creditors as a whole. So those are some of the things he had said. And wait, just to understand the KYC aspect, are you saying that if you were a customer of FTX and you had not done KYC at the time it was functioning, then you're kind of out of luck there? Or are you saying that? No, no, no. I think he's going to do his own. He's going to say they didn't do a good enough job. Got it. Okay. Because not only does he want to do KYC, AML, but also like sources, like source of funds. Like where did you get the 30 million from to begin with? Oh. Yeah. Okay. I just think that'll be an issue for some claimants. For sure.

Starting point is 00:21:03 For sure. So I was also wondering, what do you think are the odds that they will try to relaunch FTX? You know, the thing is, we buy claims. I never want someone to think I'm like chilling for my, for like, oh, it's all going to be death and destruction. And so you should sell me the claim for nothing. So it's hard for me to say without someone. So take it with a grain of salt. I think the odds are pretty low.

Starting point is 00:21:27 But look, if somebody comes up with an unreasonable bid, like, hey, I'll pay $250, $250 million. Let's relaunch. Everybody that's a creditor is going to get 60 cents on the dollar and they're going to get 80% of the new co-equity and we're going to get 20% for our $200 million that we pump in. Like, sure, let's do it. I just don't think looking back at Voyager and looking back at Celsius with some of the offers were, I just don't think you were going to get there. Why would someone not pay a lot for some of those customers and then pay a lot for FDX?

Starting point is 00:21:58 I mean, I guess some people say, oh, FDX is a lot more profitable because it just had, I don't know, like better customers and all the offshore derivatives were profitable. Maybe, maybe, maybe, but also, like, I've met a lot of U.S. claimants to have international claims. And guess what? They should not have been able to open accounts. That is not what you're supposed to do. Like, if I'm in the States, I'm not supposed to be able to open up account with a broker that's not registered in the States. Like, that's not, you know, so I met a lot of those companies and they got some of this planing to do. All right. So are you also then saying that you feel that recoveries for customers will go better if they don't relaunch?

Starting point is 00:22:41 Or what do you think will be the better scenario for recoveries? So, yeah, that's a good question. And there's just like when you start talking about restructuring and bankruptcy, it's like the recovery is always the liquidation value is like the lowest. And then of course, like restructuring where you have a going concern is always a higher valuation. But the question is, is do you add risk to your recovery if you do a reorganization? And that's the only thing I worry about.

Starting point is 00:23:09 We would be all for, and I think a lot of stress investors have no problem with a plan sponsor that puts in real money and wants to take it over. and wants to give a lot of the new co-equity to the creditors. And so people could even have the opportunity to make not only 100% repay, but a few times their money over time if they listed on the NASDAQ and it ends up being basically the, I mean, it'd be weird, it would be a NASDAQ listed company that can't operate in the States, but whatever.

Starting point is 00:23:36 It's clearly a higher value. The question is, again, more risk. It's the same thing coming up in Celsius, which is there's a plan sponsor, but it adds risk to be giving them the reins. some of the capital that would just be liquidated out to you to capitalize the Nucco. All right. Well, the other thing that happened was that the price of FTT jumped on the restart potential. So do you think that FTT would have any role if FTCX were to restart?

Starting point is 00:24:03 No. And I think it's a mistake that people are trading in it. No. The answer is no. I mean, Celsius is an issue, right? Celsius came up like they're kind of restarting it. But what's happened in Celsius? Nothing.

Starting point is 00:24:19 Now, we can talk about dollarization and like what value you should place on your FTT token. Should you get the petition A value? Was that price manipulated because of the lock schedule, blah, blah, blah. But in terms of like the actual economics you would get in a restart, why would FTT be cut in at all? You know, stranger things have happened, but I think it's a very low probability in a bad trade. other than you're a market maker and you're making so much money off the ups and the downs that you just don't care.

Starting point is 00:24:50 Yeah, yeah. Well, also because of its role in the collapse of FTX, I think you're right that it probably would not have a role. But there's an upcoming important date called the customer bar date. What is that and why is it important? Yeah, I'm glad you mentioned it. It was approved recently.

Starting point is 00:25:08 Let me tell you the exact date. So we have it here for the record. So the customer, bar date is yeah 929 so that would be September 29 2009 excuse me 2023 so by September 29th you have to file your proof of claim and there's some issue with what the what the debtor is reportedly says your claim amount is or you have some additional lawsuit you think you're your owed money you need to get that on file by that date it's super super important that people do that once you have a late filed claim you behind all the other creditors.

Starting point is 00:25:46 And so, yeah, it's just very, very important that if you have not filed a proof of claim or for whatever reason when you got an email from Kroll and the numbers were wrong or you didn't agree with them or you didn't like characterization or something, you need to file your proof of claim with Kroll, with the court by that date. So it's super important for people to know about it. And it also, what it does is it puts a line in the sand. because then we know exactly what all the liabilities are. Because after that date, you basically cannot really file claims.

Starting point is 00:26:20 You can file late claims. I mean, it's just pointless to do so, really. All right. And then the last thing I wanted to ask you about was that last week, Bloomberg, Dow Jones, the New York Times, and the Financial Times filed an appeal against the order to redact the identities of FTC's customers. And in a message where you flagged this to me, you just wrote super interesting. Why do you say that?

Starting point is 00:26:44 So it's interesting because I feel bad for the judge here because he granted something that should have not been granted. So if you look at the standard for allowing redaction under the bankruptcy code, you are not allowed to redact like credit information just because you want to. Like there are basically two standards you have to meet. It has to be either what's called imminent harm or like I don't know what the exact phrase is, but basically like commercially sensitive information. So you have to argue one of those two points. And the judge has to agree with you for you to grant you the relief. I mean, that's the way. So one of the things I wanted to add at the very beginning of this is, you know, bankruptcy courts are courts of equity.

Starting point is 00:27:21 So the judge has a lot of power to do what he wants. But there's also the bankruptcy code that he still has to follow. And to meet the standard of redaction, you have to do those two things, either imminent harm or commercial incentive information. The debtor hasn't done that at all. And I feel bad for claimants because maybe the bankruptcy code is old. and stale and needs to be refreshed and needs to be updated by Congress. But we have the law, the law says what it says. This judge is probably going to get overruled on appeal because now you've got, it was Bloomberg and Dow Jones and someone, but the actual party bringing it was

Starting point is 00:27:56 like the association for free press or something. I mean, if you're familiar with them, but it's some sort of like free press, like nonprofit or legal nonprofit that's bringing it. And, you know, they're not wrong. I mean, it's hard for me to fathes. them how they meet even one of those standards. And they're likely going to win at the appellate level. And, you know, I don't want all the creditors to be docs. It's not my, not what I like to see. But then they should have made a better record of like meeting the standard because they didn't. The judge just was like, oh, Kirkland, you want to do this? Rubber stamp. What else you got for me? And it's a symptom of what goes on in bankruptcy court, unfortunately. I think it's interesting.

Starting point is 00:28:37 I think that they're likely going to win. You know, maybe the credit. end up hating like these news organizations for bringing this. But it's a real bedrock principle of the bankruptcy court and code, which is transparency. That's why like I love how transparent the process is. I've kind of turned a bit on this issue where now I do think that the customer's information should probably be redacted. But it doesn't matter what I think. The law does not support it in this instance.

Starting point is 00:29:03 So interesting to see that someone's actually appealing it. And who is repealing it is interesting. Yeah, so basically you're saying to keep it consistent with how all bankruptcies are done, like that's why you support it. Okay. Yeah. I mean, it's just the code doesn't support the redaction, even though I do feel bad for creditors because they feel like, hey, I never thought my information would be public. I'm into crypto, so I'm kind of probably into privacy. There's like a, you know, there's like a big, then diagram of overlap between privacy people and people are into crypto, but it's unfortunate. It's what the bankruptcy code says. To get the relief of the automatic

Starting point is 00:29:40 stay, you have to follow the rules. And one of the rules is providing transparent information. One of them is credit information as well. All right. Well, this has been hugely informative. Thanks so much for coming on Unchained. Thanks, I'm on. Don't forget. Next up is the weekly news recap. Stick around for this week in crypto after this short break. Join over 80 million people using Crypto.com, one of the easiest places to buy, trade, and spend over 250 cryptocurrencies. Spend your crypto anywhere using the Crypto.com visa card. Get up to 5% cash back instantly, plus 100% rebates for your Netflix and Spotify subscriptions, and zero annual fees. Download the Crypto.com app now and get $25 with the code Laura. Link in the description. Thanks for tuning in to this week's news recap.

Starting point is 00:30:36 Nevada regulators call halt on prime trust. This week, Nevada's financial institutions division, or FID, has taken stringent action against Crypto-Custodian Prime Trust. The regulator petitioned the 8th Judicial District Court of Nevada for a temporary restraining order and in order appointing a receiver due to Prime Trust's burgeoning liabilities. FID's actions arose out of concerns for a substantial deficit. between the firm's assets and liabilities, which as per the filing, risks irreparable harm to customers and the emergency crypto market. According to the filings, Prime Trust owed its

Starting point is 00:31:14 clients more than $85 million in Fiat, but possessed only about $2.9 million in reserves. Furthermore, the custodian was accountable to over $69.5 million in crypto liabilities, but held about $68.6 million worth. A pivotal issue was Prime Trust's discovery in December 2021, that it was unable to access users legacy wallets. At that point, it took to purchasing crypto with customer funds. In a statement, fireblocks, contracted by Prime Trust for crypto asset management, clarified that the inaccessible wallets were controlled by Prime Trust, not Fireblocks. FID's enforcement move came days after Bicco withdrew its plans to acquire Prime Trust, following a cease-sand-assist order by Nevada regulators due to a considerably deterioration.

Starting point is 00:32:02 period-rated financial condition. Both Prime Trust and FID have requested the receivership, showing a concerted effort to mitigate further financial distress. Bicko CEO Mike Belchie said that despite pulling out of the deal with Prime Trust, it is planning further acquisitions, predicting more industry consolidation in the coming months. Sam Binkman-Fried's legal motions to dismiss charges denied. FTCFinder Sam Bingman-Fried's legal defenses faltered this week. U.S. District Judge Lewis Kaplan refused his motion to subpoena documents. from former FTCS law firm Fenwick and West. Kaplan clarified that neither the law firm nor the FTCS debtors are part of the, quote, prosecution team.

Starting point is 00:32:41 Hence, the government is under no obligation to present documents not within its jurisdiction. The judge rebuff the motion as a, quote, fishing expedition that lacks specificity and relevance. Furthermore, Judge Kaplan denied Bankman Freed's request to dismiss most charges against him, labeling them, quote, moot or without merit. Bankman Freed, facing what would likely be a long prison sentence if convicted, had attempted to dismiss fraud charges, arguing that FDX customers suffered, quote, no economic loss from the alleged fraud. Kaplan dismissed this argument as incorrect both factually and legally, citing the multi-billion dollar deficit Alameda had on its balance sheet. This legal predicament arrives as Bankman Freed prepares to defend his actions based on Fenwick and West's advice, thereby proving his lack of criminal content. However, Kaplan's rulings seem to thwart these attempts, leaving the FDX founder in a challenging

Starting point is 00:33:34 position as his October trial approaches. Coinbase challenges SEC's regulatory authority. Crypto Exchange Coinbase has pushed back against its ongoing lawsuit from the U.S. Securities and Exchange Commission. The company filed a motion to dismiss the SEC's lawsuit, arguing that the digital tokens under scrutiny do not classify as securities. Paul Greywall, Coinbase's chief legal officer, highlighted the SEC's divergence from established law. describing the lawsuit as, quote, an extraordinary abuse of process. Coinbase underscores that the SEC is overstepping its legal purview, emphasizing inconsistencies in the SEC's treatment of specific tokens

Starting point is 00:34:10 and indicating that six of the 12 tokens now in dispute had not faced previous objections from the regulatory body. In its legal defense, Coinbase stood firm that no securities transactions are occurring on its platform, thereby challenging the SEC's regulatory authority in the crypto space. Fidelity joins the Bitcoin ETF race. On Wednesday, Financial Services Giant Fidelity filed for a spot Bitcoin Exchange traded fund, or ETF, with the SEC, confirming an early report by the block. This move comes amid other major asset managers like BlackRock, Wisdom Tree, Invesco, Vanek,

Starting point is 00:34:44 and Bitwise filing similar applications. Arc analyst Yassine Almondra noted, quote, BlackRock's decision to file for a Bitcoin ETF signals that large institutional players are positive on the long-term outlook for the digital asset. This development has uplifted sentiment in the market, with the Bitcoin price reaching a one-year high. Gray-scale Bitcoin Trust or GBTC shares also hit a one-year high amid renewed hopes for the trust conversion into an ETF.

Starting point is 00:35:12 Moreover, CBOBZX Exchange revised its filing for the proposed ARC-21 shares Bitcoin ETF to incorporate a surveillance-sharing agreement, akin to a feature in Black Rock's planned-spot Bitcoin Fund, aiming to deter market manipulation and fraud. ETF expert James Seafurt, who was on Unchained last week, said, quote, this is big. It means SIVO and 21 shares slash ARC also believe this could be the key move for SEC approval. Ark is due August 13th and first in line.

Starting point is 00:35:43 If it is indeed the silver bullet, they would be approved first. Azuki faces backlash as Elemental's debut stirs up NFT controversy. In the world of NFTs, she really, Labs' Azuki collection faced a Rocky week. Azuki's newly released NFT collection, Elementals, was criticized for its striking similarity to its original Zuki NFT collection, leading to a significant slide in prices. Charlotte Fang, the creator of the popular Malady NFT collection,

Starting point is 00:36:11 expressed the community sentiment on Twitter, saying the new art was, quote, basically identical to the main collection. Acknowledging the community backlash, Azuki admitted they had, quote, missed the mark on their launch, emphasizing the need for better communication and execution. They wrote, quote, the mint process was hectic, the PFPs feel similar, and even worse, dilutive to Azuki. The company assured that the OG Azuki collection defined who we are, and it will always remain its top priority. The developers admitted that their ambitious goal led to the community's confusion over the tangible differences between the original and new collections.

Starting point is 00:36:46 The Elemental's offering generated around $37.5 million in sales within just 15 minutes, marking it as the most significant NFT offering in recent months. To listen to an extensive debate on the failed Azuki drop, don't miss this week's episode of the shopping block. Binance U.S.'s legal battle intensifies. Binance U.S. recently faced a setback

Starting point is 00:37:07 in its ongoing legal wrangle with the SEC as a federal judge dismissed the motion aimed to restrain the regulator from making what Binance deems misleading public statements. U.S. District Court Judge Amy Jackson noted the court's role wasn't to wordsmith, public declarations of either party, doubting that the SEC's actions would materially affect the case's proceedings. The complaint, launched by Binance U.S.'s lawyers, expressed concern over the

Starting point is 00:37:33 SEC's June 17th press release, which suggested that user assets were at risk of being commingled and potentially moved offshore. Binance U.S. claims these declarations, despite the regulator's lack of evidence supporting them, have already unnerved customers and banking partners, potentially tainting the jury pool. Simultaneously, amid this intensifying U.S. regulatory scrutiny, Binance is eyeing the Middle East for potential expansion. However, Binance retracted its licensing application in Austria, following its recent decisions to exit the Netherlands, Cyprus, and the UK, as it streamlines its European entities. Moreover, Germany's financial watchdog, Bofin, reportedly denied Binance's application for a crypto custody license.

Starting point is 00:38:14 BlockFi faces liquidation amid allegations of fraud. Embattled crypto lender BlockFi is on the brink of liquidation as the company's creditors press for a resolution to ongoing bankruptcy proceedings. Creditors have accused CEO Zach Prince and his management team of fraudulent activities and delay tactics, particularly in connection with loans issued to Alameda research. BlockFi grappling with a restructuring plan and lawsuits that could significantly influence client recoveries exceeding $1 billion may now face liquidation at the hands of creators demanding action. The creditors stated, quote, it is time for the court to order an end to the burn and thereby end the extortion tactics. Block V's fate now hinges on the decision of around 100,000 eligible creditors

Starting point is 00:39:01 who will vote on the proposed restructuring plan by July 28, 2023. Three Arrow's capital founders face $1.3 billion recovery claim. The founders of Three Arrow's Capital, or Three AC, Sue Zhu and Kyle Davies, are on the sharp end of a $1.3 billion recovery claim by the fund's liquidators. The co-founders are accused of incurring debt while 3AC was insolvent, following the collapse of Luna and its stable coin UST, which led to significant losses. Reportedly, creditors of the now defunct hedge fund are owed a whopping $3.3 billion. Quote, Zhu and Davies are accused of causing three arrows to take on significant leverage, after the hedge fund suffered big losses, stated an insider, as per the Bloomberg report. The latest twist is that Tenio, the appointed liquidators, are pursuing Zhu and Davies in a British

Starting point is 00:39:51 Virgin Islands court to recover the losses. Sui Foundation battles allegations over locked staking rewards. The Sui Foundation, the entity behind the layer one blockchain sui, is under fire following allegations from a Twitter account, DFI squared, that it sold locked staking rewards on Binance. Defi squared claimed to have evidence that Sui misrepresented its token emission numbers and sold tokens meant to be non-circulating. Despite this, the Sui Foundation has refuted these claims, stating that the gradual increase of Suey's token supply aims to add liquidity to the ecosystem. It insisted that neither staking rewards nor other tokens from locked and non-circulating staked

Starting point is 00:40:30 sui have been sold on Binance or elsewhere. The disputed transactions were tied to a May 31st incident where D-Fi squared alleged that 2.5 million sui tokens ended up on Binus' hot wallet. The Sui Foundation responded that the transaction was a payment subject to contractual lockup and pledged to publish a detailed token release schedule soon. Six Engineers want to revive Terra. A team of anonymous developers, self-titled the Six Samurai, have come forward with a plan to revive the Terra Classic blockchain. The reposals aim to restore the value of Terra Classic's native token, Loon C,

Starting point is 00:41:07 and increase blockchain decentralization. Quote, Loon C has limitless upside potential and we want to help realize it by leveraging our skills to bring value to the blockchain and all its investors in order to accomplish a true revival of the ecosystem. The team stated,

Starting point is 00:41:23 key proposed strategies include reducing node sync times, establishing a Terra-USD test net, and creating community subpoles for better financial management. Time for fun bits. Bitcoin's above 30K. Woo-hoo!

Starting point is 00:41:37 Ginny from Unchained gives us her take on the latest price action. Okay, so Bitcoin is over 30, which is honestly so brave of it to admit. Some attribute this to news that BlackRock has filed for a spot Bitcoin ETF. And it's not just BlackRock. A lot of traditional finance companies are getting into crypto now, which is just like put your own oxygen mask on before helping others, okay? But even with the high price, crypto's fundamentals have been all over the place this month. For example, its market depth is low, which sounds like it should be good news,

Starting point is 00:42:05 considering it's been kind of a hard week for things going too deep, but it's not actually. Depth refers to a market's ability to absorb large buy and sell orders. Because it's been low, big purchases changed the price a ton, so the banks have been able to influence the price of Bitcoin more than they normally could. Also, the retail traders aren't back. Honestly, as someone who once bought 0.7 Ethereum on Gemini, I have a hypothesis why. Maybe it's because my money is trapped in there. But a lot of people are worried about this traditional finance takeover.

Starting point is 00:42:32 As CNBC reported, it's not a market for normal. normal consumers. Well, it's crypto. It never was. Thanks so much for joining us today. To learn more about Thomas and the latest developments around FTX, check out the show notes for this episode. Unchained is produced by me, Laura Shin, without from Kevin Fuchs, Matt Pilchard, Zach Seward, Juan Aranovich, Sam Shreman, Jenny Hogan, Jeff Benson, Leandro Camino, Pamajumdar, Shashank, and Margaret Couria. Thanks for listening.

Unchained - Will FTX Reboot? Here’s John Ray’s Internal Deadline for Making a Decision - Ep. 513

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