Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I Heard podcast,
Speaker 1: and I'm Stacy Marie Ishmael, Managing editor of Crypto for
Speaker 1: Bloomberg News. It's Thursday, December one. If there's one group
Speaker 1: of people in crypto who are booked and busy this year,
Speaker 1: it's bankruptcy loyals. In two alone, we've seen bankruptcy filings
Speaker 1: from the hedge fund, Three Arrows Capital, the lenders Celsius,
Speaker 1: the broker Voyage of Digital, and even more recently Sam
Speaker 1: Bankman Freeds ft X Ecosystem and another crypto lender known
Speaker 1: as Block five. According to court documents, the various parts
Speaker 1: of f t X could have more than a million creditors,
Speaker 1: people or entities who owed money in some way, and
Speaker 1: ft X had even committed to buying the assets of
Speaker 1: Here's Your Digital in an auction, which of course is
Speaker 1: no longer possible. In other words, as with the Three
Speaker 1: Hours bankruptcy, which arguably precipitated the chaos at Celsius and Voyage,
Speaker 1: the fall of FTX is having a similar domino effect.
Speaker 1: Here to break down the latest bankruptcy developments is Bloomberg
Speaker 1: reporta and editor Jeremy Hill at some point, one of
Speaker 1: these bankruptcy judges will have to be the unlucky first
Speaker 1: to say money is this, cryptocurrency is money or vice versa,
Speaker 1: and that will have some bearing on how crypto is
Speaker 1: treated in future bankruptcy cases. Jeremy, welcome back to the podcast.
Speaker 1: Why don't you reintroduce yourself to our audience, right, I'm
Speaker 1: Jeremy Hill. I'm a reporter and editor on the distress
Speaker 1: set and bankruptcy team here at Bloomberg News, and lately
Speaker 1: I've been writing a lot about crypto possible, more than
Speaker 1: you were expecting, maybe a little bit more. Now we've
Speaker 1: had you on the show before when there were some
Speaker 1: previous bankruptcies, it seems like there's been way more than
Speaker 1: than we had. I mean, I don't normally associate like
Speaker 1: distress debts stuff with having to work on weekends, but
Speaker 1: you know, welcome, welcome to crypto. What have been some
Speaker 1: of the things that have been keeping you busy? Well, yeah,
Speaker 1: you referenced are earlier bankruptcies. Those were Voyager and Celsius.
Speaker 1: These are names that were like pretty big for what
Speaker 1: they were, and they were super notable because they were
Speaker 1: some of the first real big crypto lending company collapses.
Speaker 1: But just a couple of weeks ago, we got the
Speaker 1: big one, the really big one perhaps FTX Sam Bankman
Speaker 1: Freed's Crypto Empire filed for Chapter eleven bankruptcy under chaotic circumstances.
Speaker 1: And as someone who's been covering federal insolvency court for
Speaker 1: a few years, I can tell you I have never
Speaker 1: seen a filing as chaotic as this. No one was ready,
Speaker 1: nothing was there now, Okay, I love the idea of
Speaker 1: a court filing being chaale, Can you tell us a
Speaker 1: little bit more which as you as you are reported,
Speaker 1: who's who reads these literally for your job is going
Speaker 1: through and reading this? What were some of the things
Speaker 1: that jumped out for you? Well, the big thing was
Speaker 1: the lack of information. Right. Usually when a company files
Speaker 1: for bankruptcy, they come prepared with a slate of what
Speaker 1: we call first emotions. This is really boring stuff. These
Speaker 1: are requests made to a federal judge in the US
Speaker 1: to continue doing things like pay employees, keep paying your
Speaker 1: insurance companies, keep paying utilities so that you can keep
Speaker 1: the lights on in the office. These are typically lined
Speaker 1: up a couple of weeks in advance because it's just
Speaker 1: like a lot of lawyering to do, you have to
Speaker 1: write the papers and make sure that everything is spelled right.
Speaker 1: When FTX filed, it was just the petition, right. They
Speaker 1: filled out this form that says we are ft X
Speaker 1: and one hundred related entities. We have somewhere between ten
Speaker 1: billion and fifty billion dollars. It's really clear. There's literally
Speaker 1: a checkbox, it's the largest one on the sheet that
Speaker 1: says ten billion to fifty billion dollars assets and the
Speaker 1: same for liabilities. That's all we had for several hours,
Speaker 1: and then hours turned into days, So you know, Jeremy,
Speaker 1: one of the weirder parts about this filing, speaking of Enron,
Speaker 1: was something that John j. Ray the Third himself said. Right. So,
Speaker 1: John J. Ray the Third, the new CEO of fd X,
Speaker 1: he opens his first day declaration, the statement designed to
Speaker 1: introduce the judge to the case, by saying, never in
Speaker 1: my career have I seen such a complete failure of
Speaker 1: corporate controls and such a complete lack of trustworthy financial information.
Speaker 1: The important thing to underscores that this is the dude
Speaker 1: who oversaw the liquidation of Enron, the massive accounting scandal
Speaker 1: where most everything was made up and there were a
Speaker 1: lot of lies. Just because this is not a video podcast,
Speaker 1: I need you alls understand that Jeremy was just like
Speaker 1: not even reading that quote off of anything. It was
Speaker 1: just seared into his brain from the weirdness of it all,
Speaker 1: that was terrific. Among the other bunkers, things that we've
Speaker 1: discussed as it relates to this case is like, what
Speaker 1: is going on with the hidden creditors. There are these
Speaker 1: laws in Europe related to customer privacy on the Internet.
Speaker 1: I don't understand them fully, but a big part of
Speaker 1: the argument here is ft X as customers all over
Speaker 1: the world, and if they were to disclose the names
Speaker 1: of these big customers, if they're in Europe, they might
Speaker 1: be violating laws somewhere else. So the judge said the
Speaker 1: very first hearing, he's sort of hand waved and went
Speaker 1: that sounds complicated. Will revisit that. For now, you don't
Speaker 1: have to list out your creditors, but there's a big
Speaker 1: presumption of transparency in US bankruptcy court. So we'll be
Speaker 1: back on December six, back in the Delaware courtroom, where
Speaker 1: an arm of the Justice Department is expected to argue
Speaker 1: that the creditor list should be made public. You know,
Speaker 1: maybe there'll be some sort of settlement where they redact
Speaker 1: like physical addresses or something. Now this reminds me of
Speaker 1: I think it was early October when Celsia his creditor
Speaker 1: list was made public, and it was like pages and
Speaker 1: pages and pages, and there's tens of thousands of pages
Speaker 1: of essentially people's names and their addresses and I think
Speaker 1: their account balances. And there was a sort of a
Speaker 1: similar outcry in some circles about about privacy. Usually if
Speaker 1: a company goes bust, so like let's say pick random
Speaker 1: company that I'm not going to name because I don't
Speaker 1: want get sued for defamation. If large company goes bust
Speaker 1: and I am a customer, does my name somehow end
Speaker 1: up in court? Like why is it that these customers
Speaker 1: or these people are ending up there? Is it because
Speaker 1: they're also creditors? That's pretty much it. In a normal situation,
Speaker 1: you might end up with your information out there if
Speaker 1: you file a claim, like if you're able to refund
Speaker 1: or something, but just being a customer of a bankrupt
Speaker 1: company usually doesn't put any of your information at risk
Speaker 1: of being exposed. But in this case, the customers ended
Speaker 1: up being the creditors. And since this whole process is
Speaker 1: about finding a way to uh figure out a fair
Speaker 1: repayment plan for creditors, you necessarily have to turn over
Speaker 1: some information. That's just a part of the deal. Those
Speaker 1: customers slash creditors represents billions of dollars in potential claims. Right, Like,
Speaker 1: this is as large as you say, this is a
Speaker 1: large bankruptcy. This is extremely large. I mean, we don't
Speaker 1: even to my knowledge, have a complete list of or
Speaker 1: a complete accounting of the number of customers. I have
Speaker 1: seen the lawyers say possibly more than a million. I've
Speaker 1: seen millions. I've seen hundreds of thousands. This thing is
Speaker 1: such a mess. It's unclear exactly how many people were
Speaker 1: talking about here, right, And going back to the incredibly
Speaker 1: well named John j Ray, the third one of the
Speaker 1: things he said is he couldn't even figure out who
Speaker 1: was on payroll. Yes, it was difficult to determine how
Speaker 1: many employees there were, what the terms of their employment were,
Speaker 1: where they were located. Boy, Yeah, as you say, not
Speaker 1: a lot of information. We'll be right back with more
Speaker 1: from Bloomberg Reports and bankruptcy expert Jeremy Hill. Now you
Speaker 1: mentioned Celsius and Voyager at the top. There's been this
Speaker 1: sort of weird ripple effect of the f t X
Speaker 1: bankruptcy in which they were also trying to rescue the
Speaker 1: assets of Voyager at one point. What happened there well
Speaker 1: that that's a really sad story for Voyager customers, because
Speaker 1: the lawyers did a pretty good job of figuring out
Speaker 1: some sort of a plan. The plan involved selling the
Speaker 1: company and its assets to sam Bank and free It's
Speaker 1: f t X. They seem to hold out hope for
Speaker 1: a while when reports of ft X is insolvency were
Speaker 1: coming out. The company Voyager didn't say much about whether
Speaker 1: the sale would still go forward. But now they've confirmed
Speaker 1: that there's no deal with f t X, so they've
Speaker 1: sort of reopened the sale process. We know that a
Speaker 1: company called Cross Tower, which I understand operates a crypto exchange,
Speaker 1: is considering bidding once more for Voyager as well. If
Speaker 1: there was another company called Wave Financial. Nothings final yet,
Speaker 1: I'm sure there are lots of late night phone calls
Speaker 1: going on right now, so many late night phone calls,
Speaker 1: so many lawyers, so many legal fees. And then just
Speaker 1: in the past couple of weeks, we've also seen Block five,
Speaker 1: which is another crypto lender file for bankruptcy. One of
Speaker 1: the things about the Block five filing that I thought
Speaker 1: was interesting is that they tried to position themselves as
Speaker 1: being like the opposite of ft X in some ways.
Speaker 1: They certainly did yes, and that that first day statements
Speaker 1: similar to the one made by the new CEO of
Speaker 1: ft X. We had an advisor for Block five who
Speaker 1: was recently brought in laying out, well, okay, we're bankrupt
Speaker 1: now because f t X went bust. That's a problem
Speaker 1: because they're supposed to rescue us. But rest assured we
Speaker 1: did not behave the way that they behave. We have
Speaker 1: great corporate governance, we have internal controls that monitor our spending,
Speaker 1: and we are super prepared. In fact, I mean, it
Speaker 1: wasn't all bluster. They filed a Chapter eleven plan of
Speaker 1: reorgan zation on the very first day of the case.
Speaker 1: I tried to read that document. It's very hard to
Speaker 1: understand and actually Block fives in court right now as
Speaker 1: we're recording this, presenting uh these first day motions to
Speaker 1: the judge and explaining where the case will go from here,
Speaker 1: it does seem much more controlled than f t X.
Speaker 1: One thing about Block five and this advisor statement and
Speaker 1: about like we were doing everything right. They owe the
Speaker 1: sec money. That's true. Yes, there's a there's a settlement
Speaker 1: thirty million dollars still to the Securities and Exchange Commission
Speaker 1: for being pretty much like naughty. At one point they
Speaker 1: had to pay a hundred million dollars in penalties originally
Speaker 1: that that that's my general understanding. But they did engage
Speaker 1: with the sec They were together in a room. They
Speaker 1: were not hiding on some islands somewhere. There's a lot
Speaker 1: of people hiding on islands right now, and definitely some
Speaker 1: people hiding in places that made islands in Dubai. You know,
Speaker 1: you know who you are. Call us just one, I guess.
Speaker 1: Final set of questions, because you alluded to the fact
Speaker 1: that know so much about crypto is unusual. Are there
Speaker 1: any legal precedents that are either being set here that
Speaker 1: are potentially going to be set here that may affect
Speaker 1: other elements of bankruptcy in the US. Here's something that
Speaker 1: I find very interesting in Block five's first day papers,
Speaker 1: buried in a what's called a motion for continued use
Speaker 1: of Cash Management systems Boring, there's a there's a line
Speaker 1: in there that says, roughly in paraphrasing, cryptocurrency is not money,
Speaker 1: and no US court or regulatory agency has said it
Speaker 1: is money. It's just something that's important because bankruptcy rules
Speaker 1: sometimes reference quote money and how it is to be handled,
Speaker 1: and so at some point one of these bankruptcy judges
Speaker 1: will have to be the unlucky first to say money
Speaker 1: is this cryptocurrency is money or vice versa, and that
Speaker 1: will have some bearing on how crypto is treated in
Speaker 1: future bankruptcy cases. Huge I guess so well, Jeremy. It
Speaker 1: is always a pleasure. Thank you for making me feel
Speaker 1: like I understand the low slightly better. Thank you for
Speaker 1: having me. You can find more of Jeremy's reporting on
Speaker 1: the Bloomberg Terminal and on Bloomberg dot com, and you
Speaker 1: can check out our twice weekly newsletter, which is also
Speaker 1: called Bloomberg cryptom. This is Bloomberg Crypto, a daily podcast
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Speaker 1: Original music by Leo Sidron. I'm Stacy Maria Schmel. We'll
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