The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), on August 8, 2022, sanctioned virtual currency mixer Tornado Cash. OFAC alleged that it had been “used to launder more than $7 billion worth of virtual currency since its creation in 2019 [, including] over $455 million stolen by the Lazarus Group[,]” a Democratic People’s Republic of Korea (DPRK) state-sponsored hacking group that OFAC identified for sanctions in 2019, in what the agency characterized as the largest known virtual currency heist to date.[1]

Continue Reading OFAC Takes Action Against Virtual Currency Tornado Cash in Novel Application of Sanctions Authorities

Something big happened the Celsius bankruptcy case last week. The filed by the Office of The United States Trustee (“UST”), a part of the US Department of Justice, has filed a motion asking the Court to appoint an examiner in the Celsius chapter 11 case. According to the UST, an examiner is needed because of: (1) the dozens of customer letters to the Court, (2) multiple pre-bankruptcy lawsuits and regulatory actions, (3) questions about decisions made and actions taken, (4) the state of cryptocurrency markets, (5) a lack of visibility into Celsius, (6) Celsius’ illiquidity, and (7) the divergent interests of stakeholders.

If the UST’s motion is granted, the examiner may look into, some or all of the following:

  • Cryptocurrency – how much does Celsius hold? Where is it? Who owns what?
  • Commingling – what customer assets were commingled and what is the consequence of that?
  • Intercompany loans – why were large intercompany loans made?
  • Underwriting – what underwriting of third-party loans occurred?
  • GK8 – why was GK8 acquired?
  • Tether loan – why was the Tether loan liquidated when it was?
  • Taxes – have all taxes due been paid?
  • Mining operations – what mining and other equipment does Celsius owned or otherwise hold?  Is it cost-effective to continue?
  • Management – did the Celsius management and board of directors satisfy their duties?
  • On the eve of bankruptcy – who got crypto from or paid by Celsius close to bankruptcy, who did not and why?
  • Securities laws and regulations – were unregistered securities sold in violation of securities laws?
  • Hedging – what was hedged and what should have been hedged?
  • Pledging – whose digital assets did Celsius pledge? To what end?
  • Stories – what were customers and potential customers told? What should they have been told?
  • Market upheaval – how did changes in crypto markets impact Celsius? Should those changes have been expected?
  • Licensing – did Celsius obtain necessary licenses and other governmental approvals?
  • Other – any other issues raised by the judge or another party.

The UST believes a publicly filed examiner’s report will give visibility that is both lacking and needed. The motion says, “Given the unique nature of these cases, a public report which provides transparency as to the debtors’ business model and operations, their investments, their lending transactions, and the nature of customer accounts is essential….”

The UST hopes an examiner would also consider what causes of action the creditors committee might be authorized to pursue on behalf of the bankruptcy estate and thereby customers, creditors and potentially equity holders.

Keep reading and watching. The examiner motion is scheduled to be heard on September 14, 2022 and objections are due on September 7, though those dates may change.

Voyager filed its Disclosure Statement and First Amended Plan (Plan) on Friday, August 12. A primary purpose of a Chapter 11 plan is to define how creditors’ and customers’ claims are proposed to be treated. For a business such as Voyager’s, the plan would be expected to include how customers’ claims will be treated. A disclosure statement typically describes the plan, the debtors’ history, events leading to bankruptcy, and for debtors that intend to operate after bankruptcy, includes projections of its future under the plan (along with a liquidation analysis to compare the plan with a liquidation of the debtors).

Calling Voyager’s Plan a shell is an overstatement to anyone who has ever searched for crustaceans by the seashore. It does not indicate what customers or creditors will receive. It does not indicate what Voyager’s future will or may hold, since the bidding process is still underway and there is no way to know whether there will be one or more “white knights” or if Voyager will seek to keep existing management in charge.

Continue Reading Voyager Holdings—Disclosure Statement and Plan Leave Customers and Creditors Asking “Who’s on First?”

As we’ve previously noted, customers and other creditors of Voyager Digital Holdings face a deadline to file official “proofs of claim” setting forth the amounts they assert that Voyager owes them. The deadline is 5:00 p.m. ET on October 3, 2022. Information regarding the deadline, filing requirements, and procedures is available in the bankruptcy court’s order that established the deadline.

            The court-approved proof of claim form for customers can be found here.

            Proofs of claim can be filed electronically here.

Continue Reading Voyager Bankruptcy Shows a Smorgasbord of Digital Assets

The bankruptcy court in the Voyager case issued an order authorizing that funds held in two specific accounts (FBO accounts) at Metropolitan Commercial Bank, which are administered by Voyager, are held for the benefit of and belong to Voyager’s customers. As a result of this order, the bank and Voyager may honor customer requests for withdrawals of such cash as of the date Voyager filed for bankruptcy.

Continue Reading Some Voyager Creditors May Get Cash Back that is Held at Bank

Customers and creditors of Voyager Digital Holdings face a deadline to file official “proofs of claim” setting forth the amounts they assert that Voyager owes them. The deadline is 5:00 p.m. ET on October 3, 2022. Information regarding the deadline, filing requirements, and procedures is available in the bankruptcy court’s order that established the deadline.

Continue Reading Voyager Creditors—Deadline Set for Filing Bankruptcy Proofs of Claim

The Voyager Digital Holdings bankruptcy cases, along with the Celsius Network cases, provide a unique opportunity for parties to acquire assets and/or operations of each company. The bankruptcy court approved bidding procedures in an order issued in the Voyager cases that outlines the entire process and steps to be followed by anyone interested in submitting a bid. 

In the Celsius Network case, the bankruptcy court hearing on August 8 will consider the Celsius motion to establish a very similar process that will trail Voyager’s sale process by approximately one month.

Continue Reading Voyager, Celsius, and Possible Bidding Opportunities

Non-fungible tokens have been widely adopted across a variety of industries. The fast-developing NFT ecosystem of technical and commercial innovation is aimed at the promise of bridging physical world concepts of uniqueness and scarcity with the digital world. As with all forms of technical innovation, NFTs pose unique legal challenges to participants in this ecosystem. In this white paper, we explore this groundbreaking technology by providing an overview of NFTs from a commercial and technical perspective and addressing various legal considerations.

Weekly Blockchain Focus

  • Zelenskyy Signs Virtual Assets Bill Into Law, Legalizing Crypto in Ukraine
  • Japan Sets Penalties on Crypto Exchanges in Case of Violations of Sanctions on Russia
  • SEC Rejects Spot Bitcoin ETF Proposals From NYDIG, Global X
  • Bipartisan Praise for Biden’s Executive Order on Crypto
  • Crypto Apps break 100M Downloads in Fourth Quarter
  • EU Parliament Committee Votes Against Proof-of-Work Ban and Supports Alternative Amendment on Crypto Assets

Further Reading

  • Andreessen Horowitz Hires Michele Korver, Former FinCEN Chief Currency Advisor
  • CNBC: Senate Banking Committee holds hearing on crypto and illicit finance
  • The Block: ConsenSys raises $450 million Series D at $7 billion valuation
  • The Washington Post: Sarah Bloom Raskin withdraws nomination for Fed vice chair for supervision

Continue Reading Blockchain Week in Review: Week of March 28, 2022

Weekly Fintech Focus

  • Treasury Releases National Risk Assessments
  • SEC Probing NFT Market
  • Russia/Ukraine Sanctions Overview
  • Summary of Industry Responses
  • BitConnect Founder Flees India After Being Indicted In $2B Ponzi Scheme
  • UK Government to Crackdown on Illegal Cryptocurrency Activity
  • Swiss City of Lugano to Make Bitcoin and Tether ‘De Facto’ Legal Tender

Continue Reading Blockchain Week in Review: Week of February 28, 2022