Below is our initial take on recent bankruptcy-related developments:
As liquidators of FTX’s Bahamas business, FTX Digital Markets, had asked a U.S. bankruptcy judge to give them access to the U.S. unit’s accounts and data, FTX lawyers opposed this request and said that they ‘do not trust’ Bahamian authorities with data that could be used to draw assets from FTX.
S&K Take: Yet another big week in the FTX bankruptcy. We saw SBF arrested in the Bahamas, with just about every US criminal and regulatory authority charging him with defrauding customers on an unprecedented scale. The arrest came on the eve of SBF’s appearance before Congress, which raised eyebrows. Commentators internet-wide questioned why he wasn’t permitted some rope to (further?) perjure himself before his arrest, but alas, I don’t know if we will have an answer to that one anytime soon. Then we had serious fireworks (at least as serious as fireworks can get in Bankruptcy Court) between the FTX entities subject to the US bankruptcy and the FTX entities subject to proceedings in the Bahamas, which is the subject of the linked article. The US side alleges that the Bahamian side may have been privy to/in cahoots with SBF opening the FTX platform to Bahamian customers so that they could remove assets after the Bahamian liquidation was filed but before the US bankruptcy. All of this falls within a request by the Bahamian entities for access to the cloud. The US side is refusing based largely on the prepetition conduct and the risk that permitting access poses. Judge Dorsey suggested mediation, or, even better, an evidentiary hearing on the issue in January. That could be extremely interesting.
Mattress manufacturer Serta Simmons Bedding is preparing for bankruptcy as early as January after holding confidential talks with creditors over a restructuring plan. The company has seen demand drop as consumers cut spending.
S&K Take: Serta Simmons looks like it might be filing in the near term. This is particularly interesting because it would be the second big filing by a company that had previously executed what most call a “liability management” transaction, along with Revlon. Revlon has seen the challenge of its prior transaction, and we would expect the same in any prospective Serta Simmons filing.
AIG Financial Products, a subsidiary of AIG, filed for Chapter 11 bankruptcy this week, after halting most operations in 2008 after playing a central role in the start of the 2008 financial crisis.
S&K Take: This one is mostly cleanup, although the numbers involved are still staggering. AIG Financial Products had issued credit default swaps in connection with billions in subprime mortgages and was famously bailed out by the government in connection with the 2008 financial crisis. This bankruptcy would wind up what is left over, and was fomented mainly by litigation from former employees, who lost what I am sure was significant deferred compensation.
This week, a U.S. bankruptcy judge approved the sale of GK8, the crypto self-custody platform, to Galaxy Digital, the crypto-focused financial services firm, as part of the Celsius Network bankruptcy proceeding.
S&K Take: In Celsius news, the GK8 sale was approved by Judge Glenn, with all litigation claims to remain in the estate. If you’re on the Twitters, it seems as though many Celsius customers are unhappy with this outcome, however, since the proceeds will be held by the estate and potentially used to continue funding the bankruptcy. The blowback (and by that I mean Twitter commentary) was exacerbated when professional fees were publicized yesterday.