CRYPTO-BANKRUPTCY UPDATE: Sale of Voyager Digital Holdings Accounts to Binance.US Approved Over Multiple Objections; Appeal Filed

By: Michael L. Moskowitz, Esq. and Melissa A. Gusyenov, Esq. 

Last week, Bankruptcy Judge Michael E. Wiles, sitting in the United States Bankruptcy Court for the Southern District of New York (SDNY), approved a request by Voyager Digital Holdings Inc. (“Voyager”) to sell its customer accounts to Binance.US (“Binance”). Judge Wiles’ decision came after four days of hearings and numerous objections from several parties-in-interest, including state and federal regulators and investors.  See In re Voyager Digital Holdings Inc. (Case No. 22-10943) (Bankr. SDNY). The plan approved by Judge Wiles may result in a distribution to customers of approximately 73% of their claims. The actual payout is dependent upon the price of cryptocurrency at the time of distribution.

Included in the myriad objections was the SEC’s concern that Binance operates as an unregistered securities exchange and the possibility the proposed payout plan could frustrate subsequent efforts to regulate cryptocurrency markets, as it protects professionals against future lawsuits for implementing a court-approved bankruptcy plan.

Judge Wiles was not persuaded by such objections, stating with respect to the former that he would not delay the proposed transaction because the SEC may take enforcement action at some point in the future. In addition, the Court disagreed with the latter argument, noting it would not be feasible for any debtor to exit bankruptcy if the individuals could face legal action for implementing a plan that was approved by a bankruptcy court.  

Late last week the Department of Justice filed a notice of appeal, thereby putting Voyager’s plan to sell its assets and transfer its customers to Binance.US for $1.3 billion in jeopardy.

Considering the growing volume of SDNY crypto-bankruptcy cases, we predict that several precedential holdings will be announced in 2023. These holdings should in turn offer more clarity and certainty to future SDNY crypto-bankruptcy filers, creditors, and other parties in interest within the DeFi ecosystem.

Falcon Rappaport & Berkman LLP will continue to follow the evolving case law and provide updates to its clients and colleagues.

DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship.  This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm.  Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.