US officials appeal protections for Voyager execs in Binance.US sale

March 15, 2023 Coin Telegraph

The DOJ disagrees with the legal protections given to those involved in the Voyager-Binance.US sale saying the court “improperly” exceeded its authority.

United States officials want to remove a provision included in bankrupt lender Voyager Digital’s plan to sell its digital assets to crypto exchange Binance.US that would prevent them from legally pursuing anyone involved with the sale.

In a motion filed on March 14 in a New York Bankruptcy Court, U.S. Trustee William Harrington and other government attorneys argued: “the court improperly exceeded its statutory authority" in approving a the pardoning.

They requested the court's approval of the sale be delayed for two weeks to allow them to file an appeal.

Tomorrow just got interesting. #Voyager #VGX #Binance #Bankruptcy #DOJ pic.twitter.com/23bqIWpX2M
— VGX Heroes (@VGX_Heroes) March 15, 2023

The provision protects those involved in carrying out the sale from being held personally liable for its implementation, which the court approved on March 7 after it was found that 97% of Voyager customers favored the plan, according to a Feb. 28 filing.

While U.S. officials are not objecting to other parts of the proposed sale, they argue the provision would impede the government's “ability to enforce its police and regulatory powers.”

Notice of Expedited Motion for Stay Pending Appeal filed by US Department of Justice in @investvoyager Bankruptcy

Looks like the exculpation provisions (legal protections for certain individuals) is the main thing holding up the dealhttps://t.co/a40FyPcoLa pic.twitter.com/zplip3eJob
— Shingo Lavine (@shingolavine) March 15, 2023

On March 6 the Securities and Exchange Commission (SEC) also objected to the plan, particularly the “extraordinary” and “highly improper” exculpation provision, arguing the repayment token would constitute an unregistered security offering and that Binance.US is operating an unregulated securities exchange.

A hearing on the issue is set to occur on March 15 at 2:00 pm local time.

Based on the latest estimates, the plan is expected to result in Voyager creditors recovering approximately 73% of the value of their funds.

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Bankruptcy Filing

The SEC claims the transactions involved with redistributing the funds to impacted Voyager account holders will trigger U.S. securities laws.

The United States Securities Exchange Commission (SEC) won’t be allowed to fine executives involved in Voyager Digital should it end up issuing bankruptcy tokens to help repay impacted customers, bankruptcy judge Michael Wiles has said.

The comments from Wiles came on Mar. 6, the third day of hearings regarding a plan by Voyager to issue a repayment token and sell $1 billion of assets to Binance.US.

The SEC earlier argued that the repayment token would constitute an unregistered security offering, while Binance.US is operating an unregulated securities exchange.

In a supplemental objection statement, it also objected to a legal protection which stated that no U.S. agency, including the SEC, will be able to bring “any claim against any Person on account of or relating to the Restructuring Transactions.”

Essentially, this means that executives and restructuring advisers involved in Voyager’s bankruptcy would be shielded from lawsuits if they implement the bankruptcy plan, as long as it is court-approved.

*The SEC’s Mar. 6 supplemental objection statement to Voyager’s Chapter 11 Restructuring Plan. Source: Stretto.*

While the SEC described these provisions as “extraordinary” and “highly improper,” Wiles explained that giving the SEC such authority would “leave a sword hanging over the heads of anybody who’s going to do this transaction,” according to a Mar. 6 Bloomberg report, stating:

“How can a bankruptcy case or any court proceeding function with that kind of suggestion?”

SEC lawyer Therese Scheuer argued however that the legal protections are so broad that Voyager employees and lawyers would have permission to violate securities laws. After debate, Voyagers lawyers agreed to narrow the scope of legal releases, according to Bloomberg.

The trading platform officially filed for bankruptcy on Jul. 5 in an attempt to restructure the firm and “return value” back to over 100,000 customers.

The court has been considering a restructuring plan to bring Voyager out of Chapter 11 bankruptcy which would first announced on Dec. 19.

The plan would see crypto exchange Binance.US acquire its assets for $1.02 billion — an option Voyager said at the time represented the “highest and best bid for its assets.”

The SEC objected to the sale on Feb. 22, claiming aspects of the restructuring plan could breach securities laws. The regulator was then criticized over its ambiguous reasoning for the objection in a Mar. 2 court hearing.

A Feb. 28 court filing found that 97% of 61,300 polling Voyager account holders were in favor of the current Binance.US restructuring plan.

*Account holder claims voting results: Source: Stretto.*

Binance US restructuring plan favored by 97% of Voyager customers

March 1, 2023 Coin Telegraph

Bankruptcy

An overwhelming majority of Voyager account holders want Binance US to buy out the firm’s assets.

A move by Binance US to acquire assets belonging to the bankrupt crypto lending firm Voyager Digital has been favored by 97% of Voyager’s customers.

A Feb. 28 court filing shows an overwhelming majority of Voyager Digital account holders are in favor of the buyout from the United States-based arm of the crypto exchange Binance.

Bankruptcy management firm Stretto conducted the balloting of Voyager customers which polled 61,300 account holders with claims against the embattled crypto lender.

Of that total, 59,183 voted in favor of the Binance US restructuring plan with just 3%, or 2,117 voters rejecting it.

The voters were divided into four classes including, account holder claims and three categories of those with “general unsecured claims.” The latter groups also voted in favor of the proposal.

In December, Binance US disclosed an agreement to buy Voyager’s assets for $1.02 billion. According to the press release at the time, the Binance US bid “aims to return crypto to customers in kind, in accordance with court-approved disbursements and platform capabilities.”

However, there has been a lot of pushback and numerous objections to the proposal by the American division of the world’s largest crypto exchange.

According to a Feb. 24 court filing, the Texas State Securities Board and the Department of Banking objected to the proposed deal.

It claimed the restructuring plan contain a number of “inadequate" disclosures. Some of these included not informing unsecured creditors that they may only get 24% to 26% recovery rather than the 51% they would receive under Chapter 7 bankruptcy.

The Securities and Exchange Commission (SEC) also objected to the move. A Feb. 22 court filing claimed the Binance US acquisition of Voyager assets could breach securities law.

On the same day, the Federal Trade Commission (FTC) started an investigation into Voyager Digital for its “deceptive and unfair marketing of cryptocurrency to the public.”

SEC files objection to Binance US bid for Voyager assets

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Binance

The SEC has moved to bar final approval of Binance.US’ $1 billion bid for assets belonging to bankrupt crypto lending firm Voyager Digital.

The United States Securities and Exchange Commission (SEC) has objected to Binance.US’ move to acquire over $1 billion of assets belonging to the defunct cryptocurrency lending firm Voyager Digital.

According to a Feb. 22 filing submitted to the U.S. Bankruptcy Court in the Southern District of New York, the SEC believes that certain elements of the asset restructuring plan of Binance.US’ acquisition could breach Securities Laws.

The SEC is formally investigating whether Binance.US and related debtors violated anti-fraud, registration and other provisions of the federal securities laws. The SEC noted particular concern around the security of assets through the planned acquisition.

The SEC argues information provided in the planned purchase of Voyager assets fails to adequately outline whether Binance.US or affiliated third parties will have access to customer wallet keys or control over anyone with access to such wallets.

Furthermore, the filing notes insufficient provision of safeguards to ensure that customer assets are not transferred off the Binance.US platform. The SEC also argues that Binance.US has not declared internal controls and practices ensuring the safety of customer assets.

The SEC is calling for Binance.US to address these issues by providing information regarding who has access to customer assets and the necessary controls after the deal is finalized.

The SEC is particularly focused on part of Binance.US’ initial plan and disclosure statement for its Voyager bid. The company will retain the right to sell cryptocurrencies belonging to Voyager to distribute to account holders, which is the main point of concern for the US regulator.

“However, the Debtors (Binance.US) have yet to demonstrate that they would be able to conduct such sales in compliance with the federal securities laws.”

According to the filing, various cryptocurrency transactions will need to take place to rebalance funds for redistribution to account holders, which the SEC believes may violate sections of its Securities Act.

The regulator argues that the disclosure statement provided by Binance.US and other debtors does not address the possibility of these transactions being unlawful. It’s believed that this possibility could impact the estimated 51% recovery of funds that will be paid out to account holders and claimants of Voyager.

A footnote of the filing highlights the potential of Voyager buying and selling certain digital assets to rebalance asset holdings. The SEC flags the potential sale of VGX tokens that are issued by Voyager, which ‘may constitute the unregistered offer or sale of securities under federal law’.

The SEC also notes that Binance.US could be acting as an exchange under existing Exchange Act laws, which it is prohibited to do without the necessary registration as a national securities exchange or exemption from doing so.

The filing highlights concerns over the lawfulness and overall ability to carry-out planned asset restructuring through the acquisition and questions whether Voyager debtors will be able to recoup some of their assets following the bankruptcy of the firm:

“Creditors and stakeholders are entitled to know whether this transaction provides them a meaningful economic benefit, or whether this is just a $20 million sale of Voyager’s customer list to Binance.US.”

As Cointelegraph previously reported, Binance is looking to remedy previous regulatory and law-enforcement investigations in the U.S. The firm is facing the possibility of fines relating to previous compliance issues.

Binance is also dealing with regulatory action towards Paxos, which is responsible for issuing Binance’s US Dollar backed BUSD stablecoin. The New York Department of Financial Services (NYDFS) ordered the firm to stop minting BUSD tokens from Feb. 21. Paxos has countered claims from the SEC that BUSD is a security, after receiving a Wells notice from the regulator for failing to register the token as a security in the U.S.

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Voyager subpoenas FTX and Alameda execs as judge orders fee examiner

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Alameda Research

On behalf of Voyager, law firm Kirkland & Ellis subpoenaed four executives from FTX and Alameda requesting an enormous array of documents.

Lawyers representing bankrupt crypto broker Voyager Digital have served former FTX CEO Sam Bankman-Fried and other FTX and Alameda Research executives with subpoenas requesting information.

The subpoenas have a very wide scope, with Voyager’s lawyers seeking copies of any documents and communication between FTX entities and the Securities and Exchange Commission (SEC) or the Department of Justice (DOJ) according to the Feb. 6 filing.

Amongst a plethora of other requested documents, the lawyers also want to see information relating to the loan portfolio between Alameda and Voyager as well as FTX’s financial condition before and after it filed for bankruptcy on Nov. 11, 2022.

The other executives who were served subpoenas include former Alameda CEO, Caroline Ellison, FTX co-founder, Gary Wang and FTX’s head of product, Ramnik Arora — each was asked to provide the requested information by Feb. 17.

*Little is known about Wang (left) who co-founded FTX with Bankman-Fried, Ellison (right) has cooperated with authorities since the exchange's bankruptcy.*

The financial ties between Voyager and Alameda are deep, with Alameda seeking to recover $446 million it repaid Voyager. In a Jan. 30 filing, it argued because it had paid Voyager back within 90 days of filing for its own bankruptcy it can “claw back” the funds for the benefit of its creditors.

In response, Voyager claimed its creditors had suffered “substantial harm” after Alameda made a bid for Voyager’s assets that it was unable to honor, which cost Voyager $100 million and rendered Alameda’s claim subordinate to those of its other creditors.

Meanwhile, United States bankruptcy judge Michael Wiles said he would be appointing a fee examiner to look at professional fees in Voyager’s Chapter 11 case, according to a Feb. 7 Law360 report.

Congrats to Voyager creditors for several victories today

* Appointment of fee examiner
* Judge ordering release of full report
* Scrutiny on $10M transferred on eve of BK to pay legal fees for directors out of creditors pockets https://t.co/NCswHgc7z3
— Shingo Lavine (@shingolavine) February 7, 2023

Wiles reportedly suggested the professional fees incurred within the bankruptcy case were higher than he expected, and the argument provided by the U.S. Trustee had convinced him that a fee examiner would be beneficial.

Wiles did note that an examiner could end up costing the estate more than it would be able to save in other professional fees, however, and recommended a cap was put on the examiners own fees.

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Voyager Digital

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