The United States has objected to a proposal by the cryptocurrency exchange Bittrex to return customer cash and cryptocurrency as part of a process to wind down its operations in the country. Bittrex’s US arm filed for bankruptcy protection in May weeks after exiting the country over regulatory challenges.
In the same month, the cryptocurrency exchange sought permission from the bankruptcy court in Delaware to pay its customers their crypto holdings in line with terms agreed with customers and to avoid costly litigation. Previously, the exchange argued that courts have permitted payments such as for critical services before a firm’s bankruptcy plan confirmation hearing.
US Calls Bittrex’s Plan ‘Premature’
However, in a motion filedyesterday (Wednesday), the US government countered the proposal, describing it as ‘premature’ as ‘confirmation is months away’. It noted that if Bittrex sought to avoid litigation expenses, then it ought to have filed a motion seeking compromise authority or permission to settle the dispute without going to trial.
Furthermore, the government dismissed Bittrex’s argument that courts previously authorized payments for critical services, noting that the ‘critical vendor’ standard does not apply to the case.
“This is not the case here. Instead of reorganizing, the Debtors [Bittrex] intend to liquidate and shutdown their exchange,” the government’s counsel noted. “The Debtors shall soon have no business and no future customers, vendors, or creditors.”
The US government’s opposition to Bittrex’s proposal for customer withdrawals follows a violations settlement of $29 million reached with the cryptocurrency exchange in October last year. The US Treasury Department’s Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN) had charged the Seattle-based exchange with violating federal sanctions by permitting crypto transactions from sanctioned jurisdictions including Iran and Sudan, between 2014 and late 2017.
In April, the US Securities and Exchange Commission also charged Bittrex and William Shihara, its Founder and former CEO, with the illegal operation of a national securities exchange, broker and clearing agency. It said services offered under the businesses generated about $1.3 billion in revenue for Bittrex. The securities watchdog further accused the exchange of instructing its crypto issuers to evade US securities law.
US Objects to Debt Classification
Meanwhile, the US government in its opposition to Bittrex’s proposal disapproved of the exchange’s plan to ‘subordinate certain regulatory claims’ and create ‘classes of customers, general creditors and subordinated creditors’.
“The United States objects to any subordination of the OFAC and FinCEN Debts and reserves its rights with respect to other issues of classification of claims,” it wrote in the court filing.
According to Bittrex’s court filing in May, the US branch as of March 27, 2023, served more than 600,000 customers spread across 46 states in the country. Furthermore, the arm holds $250 million and $50 million in customer cryptocurrency and cash, respectively, the exchange’s attorney Susheel Kirpalani told the bankruptcy court last month, according to a CoinDesk report.
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This article was written by Solomon Oladipupo at www.financemagnates.com.
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