If successful, this wouldn’t mark the state’s first intervention in thwarting a crypto bankruptcy proposal
Bankrupt cryptocurrency exchange Bittrex’s plan to return customer funds in cash and cryptocurrency is met with a legal challenge from the United States. The U.S. government, which is owed millions for sanctions violations, filed a court document on Wednesday opposing Bittrex’s proposal. The legal battle unfolds as the exchange seeks to navigate the complex process of reimbursing its customers while addressing the outstanding sanctions issues with the U.S. authorities.
Following allegations of operating an unlawful securities exchange, the U.S. arm of Bittrex filed for bankruptcy on May 8. Additionally, the company had reached a settlement of approximately $30 million with the Treasury for facilitating business transactions involving customers from Iran, Cuba, and Crimea.
In an attempt to expedite the process and enable customers to withdraw their holdings without litigation costs and delays, Bittrex requested court approval four days later. However, the U.S. government, owed $5 million by Bittrex’s Financial Crimes Enforcement Network (FinCEN), argues against granting preferential treatment in the case.
In its filing, the government stated, “Siloing creditors into subordinated classes outside of the confirmation hearing is improper.” The Bittrex companies have failed to provide sufficient justification for determining ownership of cryptocurrency assets before confirming the bankruptcy plan.”
According to previous statements made by lawyers representing the company in Delaware court, Bittrex’s U.S. arm holds $50 million in customer cash and $250 million in customer crypto, while the Maltese operating company, which also filed for bankruptcy, possesses $120 million in customer cash and crypto. These amounts indicate that both entities have sufficient assets to fulfill customer withdrawals.
Previous interventions by the government have had a significant impact on thwarting crypto bankruptcy plans. The proposed acquisition of defunct crypto lender Voyager’s assets by Binance was ultimately abandoned due to delays caused by the Securities and Exchange Commission (SEC).
The SEC raised concerns that certain provisions in the agreement would have exempted the parties involved from potential breaches of tax or securities laws. Subsequently, the SEC filed a lawsuit against Binance.
A hearing to discuss Bittrex’s plan to enable withdrawals is scheduled for June 14.
Important: This article is intended solely for informational purposes. It should not be considered or relied upon as legal, tax, investment, financial, or any other form of advice.
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