wassielawyer

wassielawyer

11-11-2022

16:06

1/ Chapter 11: Electric Boogaloo As I predicted, FTX has now filed for a Chapter 11 in the US. The filing includes FTX Intl, Alameda and most interestingly - FTX US. So here is a hentai anime penguin in a suit to walk you through what it means for FTX and users.

2/ Now I had previously done a thread on Chapter 11 when Voyager went into the process. The gist of it is essentially the same - so I will quickly skim through the general stuff and look at the issues that are relevant to FTX's situation.

3/ Filing for a Chapter 11 provides FTX with the protection of an automatic moratorium. This means that creditors cannot enforce debt claims or enforce rights against any security or collateral without the permission of the court. It is often used to provide 'breathing room'.

4/ I, and many other lawyers familiar with such situations like @gonbe (see link) suspected from the start that any deal with Binance would be more likely to come out of a Chapter 11 rather than an 'acquisition of FTX'.

5/ This is because when a company goes into a Chapter 11 process, you can cherry pick the assets and liabilities that you want to pick up. As I had covered in my other thread, FTX has a ton of shit that no sane acquirer wants right now.

6/ In a Chapter 11 process, potential acquirers can look through FTX's assets and only acquire the assets that they actually want. Such assets could be (1) customers / goodwill, (2) technology, (3) remaining crypto assets, (4) licenses) and (5) recoverable loans.

7/ So if a player were to actually consider 'bailing out' FTX customers, it makes far more sense doing it out of a Chapter 11 process because you get to leave behind whatever you don't want in the burning dumpster fire which @SBF_FTX created.

8/ The best case scenario now for customers is a 'Voyager-type deal' which is ironically exactly what FTX-Alameda had offered - a buyout of FTX's customer liabilities and its current cryptocoins (and potentially other 'good' assets) while leaving the flaming trainwreck behind.

9/ The inclusion of FTX US is interesting because FTX US, FTX Intl and Alameda are "structurally separate" (even tho FTX Intl and Alameda were fucking in every hole) and according to Sam - FTX US' business was great and totally not affected by the FTX Intl-Alameda shitshow.

10/ According to the FT company chart - FTX US was pretty ring-fenced away from the shit SBF was doing with FTX Intl and Alameda. It sounds to me (and reports were) that it was the 'crown jewel' being used to sweeten any potential bailout deal. Hopefully this still is the case.

11/ But the structure chart may not tell the full story, especially since BlockFi has now paused withdrawals. BlockFi initially said that its exposure was to FTX US and not to the rest of the FTX-Alameda group but perhaps there was more exposure than expected.

12/ Perhaps even though the immediate counterparty was FTX US, the financing or credit support was coming in from Alameda / FTX Intl? We can only pray that FTX US is still valuable - and that SBF meant it when he was reportedly looking to sell FTX US to plug the FTX Intl hole.

13/ I actually view Chapter 11 in this case as a good thing because it freezes the company and stops any shenanigans on the side (the Bahamas loophole, TRON facility etc) and gives it some time to actually find a sensible solution to this mess.

14/ It is also very reassuring that SBF is not staying on as CEO of the company (he could have in a Chapter 11) and is instead leaving it to a professional. Chapter 11 is expensive but the alternative (loopholes and questionable deals) would have drained far more value.

15/ Now I have been asked about claw-back a number of times and honestly I don't know the answer in this case. In most cases, I would have said yes - if you withdrew funds during a certain lookback period you would have been liable to a clawback.

16/ But this scenario is weird af because technically title to your coins was meant to have stayed with you (unless you gave FTX permission to use it). So you aren't actually a creditor to FTX unless FTX fails to return your coins to you. Which means if a customer withdrew...

17/ funds, they were never a creditor of FTX (they were simply taking back what was always theirs) and so is that still really a preferential distribution? Technicalities here - but technicalities which are relevant and will be bottomed out sooner or later.

18/ A few words on the TRON facility as well. I have no idea how this works legally and it likely introduced a lot of complication to the process since FTX was already insolvent at the time. It would have been far better for @justinsuntron to arrange a deal like that now.

19/ So what are we expecting? Well we aren't getting funds back tomorrow that's for sure. There is a world where customers can start withdrawing in the not-too-distant future IF a Voyager-like deal is reached. And I genuinely believe this is possible.

20/ It would have been near impossible for @cz_binance to buy FTX outside of a Chapter 11, given FTX's potential regulatory liabilities and shady transactions. It is now incredibly doable for him to buy out customer liabilities and clean FTX assets and leave the shit behind.

21/ He could also take the Alameda loan with him and look to liquidate Alameda's assets to recover whatever capital investment he put in. Ideally, we avoid a liquidation of FTX Intl and FTX US which is where the user funds are at because this is the nightmare scenario where...

22/ we receive next to nothing. The hope is that CZ and/or other parties (according to the Voyager filing there were many interested parties in Voyager) execute a deal as outlined above. Tho the deal is def now nuked, Voyager users were going to get 72c on the dollar. Not bad.

23/ In any case - it will be a while before we hear anything from FTX - the new management is likely getting to grips with things and considering their options. Will look forward to reading their more detailed statements. Until then, we survive on leaks, rumors and copium.

24/ Apologies to all those DMing me if I have not gotten back - as you can imagine I have quite a backlog. At this point - all I can say is to hope for the best but prepare for the worst. I am a hentai anime penguin in a suit. None of this is legal, financial or moral advice.

25/ Also @cz_binance pls give bailout. つ ◕_◕ ༽つ



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