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FTX Litigation; Core Scientific Funding; and 3M Scolding

Written by Robert J. Gayda | Dec 30, 2022

Below is our initial take on recent bankruptcy-related developments:

FTX Customers File Class Action to Lay Claim to Dwindling Assets | Reuters

A class action lawsuit filed by FTX users is asking bankruptcy court to allow them to be repaid first and claiming that former FTX executives intentionally misappropriated customer money to fund risky decisions and lavish lifestyles at the crypto firm.

S&K Take: Several similar lawsuits have trickled in in the past week or two. The complaint alleges that whatever assets exist belong to customers. So this would really be a two-prong approach—first you figure out who the assets belong to, and second you go about recovering all of the assets that you can. Celsius adjudicated some customer property rights, but that decision really isn’t relevant to FTX, as the FTX user agreements were typically more customer friendly. We have a long way to go in this one, and a dispute between the Bahamian liquidators and the US debtors on deck for Jan. 6.

Bitcoin Miner Core Scientific Approved for $37.5 Million Bankruptcy Loan | Reuters

Core Scientific, one of the largest American bitcoin mining companies, received court approval to fund its Chapter 11 bankruptcy with a $37.5 million loan from existing creditors.

S&K Take: Existing creditors provided a DIP loan to Core Scientific, putting their money behind the sentiment that the believe in the restructuring. The Debtors say that they would consider other options, so it seems like they are in a good spot—reasonable financing in hand and the potential to improve on it. Whether the business is viable remains an open question.

U.S. Judge Penalizes 3M, Bars It from Shifting Liability in Earplug Litigation | Reuters

Last week, a U.S. judge prevented 3M from shifting its liability claims of defective earplugs to a bankrupt subsidiary, after almost 250,000 lawsuits were filed claiming the faulty earplugs caused injuries to current and former U.S. military members.

S&K Take: We haven’t talked about 3M in a while. Existing litigation against 3M (which is not in bankruptcy along with its subsidiary Aearo) was permitted to continue. A Florida District Judge vilified 3M for its efforts, including in connection with its “Texas Two-Step” that it called a bad faith effort to evade liability. Strong words (there were others) for sure. 3M has appealed from this judgment.