A corporate restructuring and bankruptcy BLOG

    FTX Scratch and Claw(back), J&J Didn’t Call Banc, SVBF vs. FDIC, and Custody Battle

    What's News
    March 24, 2023

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

    FTX seeks to claw back $460M from Bankman-Fried-backed VC firm | Cointelegraph

    FTX is looking to recover $460M from venture capital firm Modulo Capital, which had received the investment from FTX’s sister trading firm Alameda Research in 2022. The settlement agreement will need to be approved by bankruptcy Judge John Dorsey, with a hearing set for April 12. While this would be a major clawback in the case, it would still only represent less than 7% of FTX’s current shortfall in assets compared to its outstanding claims.

    S&K Take: The FTX estate is scratching and clawing (back) to recover everything they can for creditors. This deal is most definitely a step in the right direction. The deal brings $404 million back into the estate and has Modulo waive its claim for $56 million held on the FTX platform. Nice win for the Debtors. What did Modulo get? FTX is walking away from its equity stake in the company. One might ask, why did SBF invest in this firm? Well, the rumors are included in the article.

    J&J Fails to Win Rehearing of Talc Unit’s Bankruptcy Case | The Wall Street Journal

    After a federal appeals court rejected Johnson & Johnson’s request to use chapter 11 bankruptcy to freeze its current talc product lawsuits, the company has now said it will seek the US Supreme Court’s review on the case. Without intervention from the Supreme Court, J&J would be forced to defend the pending personal injury claims.

    S&K Take: One more chance left for the LTL bankruptcy case after this decision. The Third Circuit denied LTL’s request for a rehearing en banc, meaning LTL’s last recourse is to appeal to the US Supreme Court. That would be a fascinating argument, although it is far from a guarantee that the USSC would grant certiorari.

    SVB Financial’s First Bankruptcy Hearing ‘Wasn’t Really So Routine,’ Says Legal Expert | CoinDesk

    In its first bankruptcy hearing this week, SVB Financial Group, the parent company of Silicon Valley Bank, claimed the FDIC improperly froze over $2B in funds when it took the bank into receivership on March 12. SVB Financial says the funds are needed to pay its creditors, while the FDIC disagrees and says the former holding company may be on the hook for costs associated to the bank failure.

    S&K Take: A very interesting issue is percolating in the SVB bankruptcy. Appears as though a showdown is on the horizon between the FDIC and SVB Financial’s bankruptcy estate over $2.1 billion in cash. If the $2.1 billion were property of the bankrupt entity, it would certainly make the case go much more smoothly. We will keep an eye on this one as it develops.

    Celsius custody account holders can receive 72.5% of their crypto, says bankruptcy judge | Cointelegraph

    On March 21, US Bankruptcy Judge Martin Glenn approved an agreement allowing Celsius custody account holders the right to get back 72.5% of their crypto holdings. This is contingent upon the holders approving the settlement, which also states that claimants cannot “pursue any litigation, including seeking relief from the automatic stay, turnover, or other claims or causes of action.”

    S&K Take: Finally some finality for Celsius customers, although this is only for customers of the custody business. And only if they take the deal. The agreement would allow custody holders to recover 72.5% of their prepetition holdings, although they would be waiving litigation claims and the like. The distribution would be split into two separate tranches with one slug being paid out immediately and the other coming at confirmation or at year end. My guess is that this is less than what custody holders expected when the Judge ruled in their favor (i.e., that the custody assets were customer assets and not Celsius assets), but that is how the crypto cookie has crumbled.

    The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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