Bankrupt cryptocurrency exchange Bittrex is facing a legal challenge from the United States as it seeks to return customer funds in cash and cryptocurrency. The U.S. government, owed millions for sanctions violations, filed a court document on Wednesday opposing Bittrex’s proposal. This development adds another layer of complexity to Bittrex’s efforts to reimburse its customers while addressing outstanding sanctions issues with U.S. authorities.
Bittrex’s U.S. arm filed for bankruptcy on May 8, following allegations of operating an unlawful securities exchange. Additionally, the company had previously reached a settlement of approximately $30 million with the Treasury over facilitating business transactions involving customers from Iran, Cuba, and Crimea. In an effort to streamline the process and allow customers to withdraw their holdings without litigation costs and delays, Bittrex requested court approval just four days later.
U.S government opposes preferential treatment, highlights ownership justification
The U.S. government, owed $5 million by Bittrex’s Financial Crimes Enforcement Network (FinCEN), opposes granting preferential treatment in the bankruptcy case. In its court filing, the government argues that “siloing creditors into subordinated classes outside of the confirmation hearing is improper.” The government further contends that Bittrex has not provided sufficient justification for determining ownership of cryptocurrency assets before confirming the bankruptcy plan.
Lawyers representing Bittrex have previously stated in Delaware court that the U.S. arm of the exchange holds $50 million in customer cash and $250 million in customer crypto. Additionally, the Maltese operating company, which also filed for bankruptcy, possesses $120 million in customer cash and crypto. These figures indicate that both entities have adequate assets to fulfill customer withdrawals.
Government intervention influences crypto bankruptcy plans
This legal challenge from the U.S. government echoes previous interventions that have had a significant impact on crypto bankruptcy plans. One notable example is the proposed acquisition of defunct crypto lender Voyager’s assets by Binance, which was ultimately abandoned due to delays caused by the Securities and Exchange Commission (SEC). The SEC expressed concerns about certain provisions in the agreement that could have exempted the parties involved from potential breaches of tax or securities laws, leading to the SEC filing a lawsuit against Binance.
A hearing to discuss Bittrex’s plan to enable customer withdrawals is scheduled for June 14. This pivotal moment will determine the fate of Bittrex’s efforts to reimburse its customers while addressing outstanding sanctions issues with U.S. authorities.