Crypto Bankruptcies Pile Up After FTX’s Collapse

as Block five. According to court documents, the various parts of f t X could have more than a million creditors, people or entities who owed money in some way, and ft X had even committed to buying the assets of Here's Your Digital in an auction, which of course is no longer possible. In other words, as with the Three Hours bankruptcy, which arguably precipitated the chaos at Celsius and Voyage, the fall of FTX is having a similar domino effect.

Here to break down the latest bankruptcy developments is Bloomberg reporta and editor Jeremy Hill at some point, one of these bankruptcy judges will have to be the unlucky first to say money is this, cryptocurrency is money or vice versa, and that will have some bearing on how crypto is treated in future bankruptcy cases. Jeremy, welcome back to the podcast. Why don't you reintroduce yourself to our audience, right, I'm

Jeremy Hill. I'm a reporter and editor on the distress set and bankruptcy team here at Bloomberg News, and lately I've been writing a lot about crypto possible, more than you were expecting, maybe a little bit more. Now we've had you on the show before when there were some previous bankruptcies, it seems like there's been way more than than we had. I mean, I don't normally associate like distress debts stuff with having to work on weekends, but

you know, welcome, welcome to crypto. What have been some of the things that have been keeping you busy? Well, yeah, you referenced are earlier bankruptcies. Those were Voyager and Celsius. These are names that were like pretty big for what they were, and they were super notable because they were some of the first real big crypto lending company collapses.

But just a couple of weeks ago, we got the big one, the really big one perhaps FTX Sam Bankman Freed's Crypto Empire filed for Chapter eleven bankruptcy under chaotic circumstances. And as someone who's been covering federal insolvency court for a few years, I can tell you I have never

seen a filing as chaotic as this. No one was ready, nothing was there now, Okay, I love the idea of a court filing being chaale, Can you tell us a little bit more which as you as you are reported, who's who reads these literally for your job is going through and reading this? What were some of the things that jumped out for you? Well, the big thing was the lack of information. Right. Usually when a company files for bankruptcy, they come prepared with a slate of what

we call first emotions. This is really boring stuff. These are requests made to a federal judge in the US to continue doing things like pay employees, keep paying your insurance companies, keep paying utilities so that you can keep the lights on in the office. These are typically lined up a couple of weeks in advance because it's just like a lot of lawyering to do, you have to write the papers and make sure that everything is spelled right.

When FTX filed, it was just the petition, right. They filled out this form that says we are ft X and one hundred related entities. We have somewhere between ten billion and fifty billion dollars. It's really clear. There's literally a checkbox, it's the largest one on the sheet that says ten billion to fifty billion dollars assets and the

same for liabilities. That's all we had for several hours, and then hours turned into days, So you know, Jeremy, one of the weirder parts about this filing, speaking of Enron,

was something that John j. Ray the Third himself said. Right. So, John J. Ray the Third, the new CEO of fd X, he opens his first day declaration, the statement designed to introduce the judge to the case, by saying, never in my career have I seen such a complete failure of corporate controls and such a complete lack of trustworthy financial information.

The important thing to underscores that this is the dude who oversaw the liquidation of Enron, the massive accounting scandal where most everything was made up and there were a lot of lies. Just because this is not a video podcast, I need you alls understand that Jeremy was just like not even reading that quote off of anything. It was just seared into his brain from the weirdness of it all,

that was terrific. Among the other bunkers, things that we've discussed as it relates to this case is like, what is going on with the hidden creditors. There are these laws in Europe related to customer privacy on the Internet. I don't understand them fully, but a big part of the argument here is ft X as customers all over the world, and if they were to disclose the names of these big customers, if they're in Europe, they might

be violating laws somewhere else. So the judge said the very first hearing, he's sort of hand waved and went that sounds complicated. Will revisit that. For now, you don't have to list out your creditors, but there's a big presumption of transparency in US bankruptcy court. So we'll be back on December six, back in the Delaware courtroom, where an arm of the Justice Department is expected to argue

that the creditor list should be made public. You know, maybe there'll be some sort of settlement where they redact like physical addresses or something. Now this reminds me of I think it was early October when Celsia his creditor list was made public, and it was like pages and pages and pages, and there's tens of thousands of pages of essentially people's names and their addresses and I think their account balances. And there was a sort of a

similar outcry in some circles about about privacy. Usually if a company goes bust, so like let's say pick random company that I'm not going to name because I don't want get sued for defamation. If large company goes bust and I am a customer, does my name somehow end up in court? Like why is it that these customers or these people are ending up there? Is it because

they're also creditors? That's pretty much it. In a normal situation, you might end up with your information out there if you file a claim, like if you're able to refund or something, but just being a customer of a bankrupt company usually doesn't put any of your information at risk of being exposed. But in this case, the customers ended

up being the creditors. And since this whole process is about finding a way to uh figure out a fair repayment plan for creditors, you necessarily have to turn over some information. That's just a part of the deal. Those customers slash creditors represents billions of dollars in potential claims. Right, Like, this is as large as you say, this is a large bankruptcy. This is extremely large. I mean, we don't even to my knowledge, have a complete list of or

a complete accounting of the number of customers. I have seen the lawyers say possibly more than a million. I've seen millions. I've seen hundreds of thousands. This thing is such a mess. It's unclear exactly how many people were talking about here, right, And going back to the incredibly well named John j Ray, the third one of the things he said is he couldn't even figure out who

was on payroll. Yes, it was difficult to determine how many employees there were, what the terms of their employment were, where they were located. Boy, Yeah, as you say, not a lot of information. We'll be right back with more from Bloomberg Reports and bankruptcy expert Jeremy Hill. Now you mentioned Celsius and Voyager at the top. There's been this sort of weird ripple effect of the f t X bankruptcy in which they were also trying to rescue the

assets of Voyager at one point. What happened there well that that's a really sad story for Voyager customers, because the lawyers did a pretty good job of figuring out some sort of a plan. The plan involved selling the company and its assets to sam Bank and free It's f t X. They seem to hold out hope for a while when reports of ft X is insolvency were coming out. The company Voyager didn't say much about whether

the sale would still go forward. But now they've confirmed that there's no deal with f t X, so they've sort of reopened the sale process. We know that a company called Cross Tower, which I understand operates a crypto exchange, is considering bidding once more for Voyager as well. If there was another company called Wave Financial. Nothings final yet, I'm sure there are lots of late night phone calls going on right now, so many late night phone calls,

so many lawyers, so many legal fees. And then just in the past couple of weeks, we've also seen Block five, which is another crypto lender file for bankruptcy. One of the things about the Block five filing that I thought was interesting is that they tried to position themselves as being like the opposite of ft X in some ways.

They certainly did yes, and that that first day statements similar to the one made by the new CEO of ft X. We had an advisor for Block five who was recently brought in laying out, well, okay, we're bankrupt now because f t X went bust. That's a problem because they're supposed to rescue us. But rest assured we did not behave the way that they behave. We have great corporate governance, we have internal controls that monitor our spending, and we are super prepared. In fact, I mean, it

wasn't all bluster. They filed a Chapter eleven plan of reorgan zation on the very first day of the case. I tried to read that document. It's very hard to understand and actually Block fives in court right now as we're recording this, presenting uh these first day motions to the judge and explaining where the case will go from here, it does seem much more controlled than f t X. One thing about Block five and this advisor statement and about like we were doing everything right. They owe the

sec money. That's true. Yes, there's a there's a settlement thirty million dollars still to the Securities and Exchange Commission for being pretty much like naughty. At one point they had to pay a hundred million dollars in penalties originally that that that's my general understanding. But they did engage with the sec They were together in a room. They were not hiding on some islands somewhere. There's a lot of people hiding on islands right now, and definitely some

people hiding in places that made islands in Dubai. You know, you know who you are. Call us just one, I guess. Final set of questions, because you alluded to the fact that know so much about crypto is unusual. Are there any legal precedents that are either being set here that are potentially going to be set here that may affect

other elements of bankruptcy in the US. Here's something that I find very interesting in Block five's first day papers, buried in a what's called a motion for continued use of Cash Management systems Boring, there's a there's a line in there that says, roughly in paraphrasing, cryptocurrency is not money, and no US court or regulatory agency has said it

is money. It's just something that's important because bankruptcy rules sometimes reference quote money and how it is to be handled, and so at some point one of these bankruptcy judges will have to be the unlucky first to say money is this cryptocurrency is money or vice versa, and that will have some bearing on how crypto is treated in future bankruptcy cases. Huge I guess so well, Jeremy. It is always a pleasure. Thank you for making me feel

like I understand the low slightly better. Thank you for having me. You can find more of Jeremy's reporting on the Bloomberg Terminal and on Bloomberg dot com, and you can check out our twice weekly newsletter, which is also called Bloomberg cryptom. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app, Apple podcasts,

or wherever you get your podcasts. Send us your comments, questions, or suggestions for the show to Crypto at Bloomberg dot net. The supervising producer of Bloomberg Crypto is Vicky very Galina. Our senior producer is Janet Babin. Our producers are Mohammed Farouk and Sharon Barriro. Our associate producers are Ty Butler and Moses on Them. Desta wonder At is our engineer. Original music by Leo Sidron. I'm Stacy Maria Schmel. We'll be back tomorrow at the susp