Case 20-12836-JTD Doc 75 Filed 11/23/20 Page 1 of 7
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ______In re: ) ) Chapter 11 CRED INC., et al.1 ) Case No. 20-12836 (JTD) ) (Jointly Administered) Debtors. )
EMERGENCY MOTION OF JAIME SHILLER, TAKASHI YANAGI, WU CHI KING, JOSEPH RICHARDSON, THOMAS CALVERT, CLINT COWEN, ROBIN HOUCK, TODD WISEMAN, MATTHEW DIXON, JONATAN ASHUROV, DANIEL BECKER, TEPPEI MIYAUCHI, JEAN VACCA, XIAN SU, AND EMMANUEL BEAUFILS TO COMPEL THE DEBTORS TO MAKE DEMAND OF CERTAIN CRYPOCURRENCY EXCHANGES TO FREEZE THE TRANSFER OF CERTAIN ACCOUNTS THAT MAY HOLD THE DEBTORS’ ASSETS
Jaime Shiller, Takashi Yanagi, Wu Chi King, Joseph Richardson, Thomas Calvert, Clint
Cowen, Robin Houck, Todd Wiseman, Matthew Dixon, Jonatan Ashurov, Daniel Becker, Teppei
Miyauchi, Jean Vacca, Xian Su, and Emmanuel Beaufils (collectively, the “Movants”), hereby file
this emergency motion to compel the Debtors to make demand of certain cryptocurrency
exchanges to freeze certain accounts that may hold the Debtors’ assets (the “Motion”), and upon
in support of the request herein, the Movants hereby state as follows:
JURISDICTION AND VENUE
1. This Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and 1334.
This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2).
2. Venue of this proceeding and this Motion is proper in this District pursuant to 28
U.S.C. §§ 1408 and 1409.
1 The Debtors in these chapter 11 cases, together with the last four digits of each Debtor’s federal tax identification number, are as follows: Cred Inc. (8268), Cred (US) LLC (5799), Cred Capital, Inc. (4064), Cred Merchant Solutions LLC (3150), Cred (Puerto Rico) LLC (3566). The Debtors’ mailing address is 3 East Third Avenue, San Mateo, California 94401.
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BACKGROUND
3. The Debtors operate a financial technology platform through which customers
transfer cryptocurrency to the Debtors—generally through a loan agreement or financing
agreement.
4. On November 7, 2020, the above-captioned debtors (the “Debtors”) each filed
voluntary bankruptcy petitions. On November 8, 2020, the Debtors filed the declaration of the
Debtors’ co-founder and Chief Executive Officer of Cred Inc., Daniel Schatt, in support of
Debtors’ Chapter 11 petitions and first day motions (the “Schatt Declaration”) [Docket No. 12]. In
the Schatt Declaration, Mr. Schatt stated the reason for the filing of these cases was a confluence
of events, including:
a. In March 2020, the former Chief Capital Officer, James Alexander, failed to
appropriately issue new securities for the Debtors, which resulted in Cred
Capital never receiving certain capital;
b. In July 2020, the Debtors discovered that Mr. Alexander had absconded with
$3 million of bitcoin that had been loaned to the Debtors;
c. The theft of 800 bitcoin worth over $10 million of bitcoin by an imposter hired
by the Debtors; and
d. Costs devoted to litigating against Mr. Alexander.
5. On November 8, 2020, the Debtors also filed the declaration of Drew McManigle, founder and Chief Executive Officer, Macco Restructuring Group, LLC. (the “McManigle
Declaration”) [Docket No. 16]. In his declaration, Mr. McManigle states that the Debtors have
approximately $67,839,000 in assets, including loans and assets under management, and over
$136,499,000 in liabilities. See McManigle Declaration, Exhibit B.
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6. The Movants are claimants who had transferred to the Debtors certain bitcoin with a collective value in excess of present value over $50,000,000 USD. Each of the Movants has standing to be heard pursuant to 11 U.S.C. § 1109(b).
7. Counsel, working with information provided by Movants and a crypto analytics firm, has identified 21 cryptocurrency exchanges/services which have processed at least 8,502 bitcoin transactions. The present value of the bitcoin processed through these accounts has a present value in excess of $150,000,000. These exchanges/services include but are not limited to:
e. Coinbase f. Bittrex g. BitMex h. FTX i. Xapo j. Uphold k. Okex l. Bitfinex m. Binance n. Ren o. Bitstamp p. Houbi q. Gemini r. Bitpanda s. Kraken t. HitBTC u. Deribit v. Crypto.com w. Luno x. Bixin y. CoinPayments.net
8. There are twenty one exchanges/services, which counsel based on information provided by Movants have identified include five (5) primary exchanges based in the United States
(collectively, the “US Exchanges”).2 While Movants cannot ascertain how much of the
2 The Exchanges that are based in the United States are Bittrex, Inc., Coinbase, Inc., Xapo, Inc., Gemini, and Payward Inc. d/b/a Kraken.
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cryptocurrencies remain at these exchanges, on information and belief, insiders of Cred hold
accounts at these exchanges and the exchanges/services are aware of accounts that are linked to
the missing Cred cryptocurrencies that remain at their exchanges/services. The exchanges/services
are the primary means for converting cryptocurrencies into US dollars/fiat.
9. On November 18, 2020, Krzysztof Majdak and Philippe Godinea (the “Original
Movants”), filed a Motion for Entry of an Order Pursuant to 11 U.S.C. § 1112(b) (i) Dismissing
the Cases; (ii) Converting the Cases to a Chapter 7 Liquidation; or (iii) Appointing a Chapter 11
Trustee [Docket No. 62](the “Motion to Dismiss”). The Motion to Dismiss is scheduled to be
heard on December 9, 2020. The Movants are considering whether to join the Motion to Dismiss
and the relief sought therein, in whole or in part.
10. In the meantime, the Movants are aware that some, but not all, of the cryptocurrencies that were allegedly taken from the Debtors (the “Debtors’ Crypto”)3 can be traced
to certain accounts with the Exchanges.4 Specifically, the Exchanges processed at least 3,529 bitcoin belonging to the Debtors, presently worth $63,500,000. Specifically, the US Exchanges processed at least 3,529 bitcoin belonging to the Debtors, presently worth $63,500,000. Upon information and belief, the Debtors have not taken any action - either prior to or since the Petition
Date - to notify any of the Exchanges that the Debtors’ bitcoin/cryptocurrencies are/were in those accounts and make demand that the Exchanges freeze those accounts holding the Debtors’ bitcoin/cryptocurrencies pending a further determination as to ownership.
3 The Movants understand that there may be issues with respect to whether the bitcoin that were in the Debtors’ possession are property of the Debtors’ estates under Section 541, if that the Debtors were simply bailors for the actual owners who pledged or loaned their bitcoin to the Debtors. Such designation is not relevant to the issues raised by this motion, and the definition used herein is solely for the purpose of identification 4 The Movants are willing to disclose the tracing analysis and non-public address information to the Debtors, the United States Trustee, and this Court, if necessary, but believe public disclosure would not be in the best interests of the estates or their creditors.
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RELIEF REQUESTED
11. The Movants hereby request on an emergency basis that the Debtors’ be required to serve upon the Exchanges a demand that such exchanges freeze accounts believed to hold the
Debtors’ Crypto and any related accounts that currently possess related transactions to known related parties of Cred including all insiders of the company.
12. It is utterly incomprehensible that the Debtors have not made demand to preserve assets that were transferred from the Debtors in April 2020 and can be easily liquidated. Moreover the failure to make such demand is nothing short of gross mismanagement and negligence because, absent such demand, the bitcoins held in those accounts can be transferred at any time, and with such transfers, those amounts may never be recovered. To be clear, Debtors must have done a similar analysis and based on the publicly available information of the blockchain must know where some if not all of the missing assets are.
13. The relief sought herein will not prejudice the estates or any other party in interest.
Rather, it is intended to do something that the Debtors are either unwilling or unable to do: identify
Cred insiders who possess large amounts of the stolen cryptocurrencies, preserve the assets of the estates for the benefit of creditors; and identify where the missing $100,000,000 is. Further, the rights of all parties with respect to those identified accounts are expressly subject to this Court’s jurisdiction.
14. Finally, time is of the essence. Because the Motion to Dismiss is not scheduled to be heard on December 9, 2020, there is a need to put all parties on notice immediately. Absent such seasonable relief, the damages that may be suffered by the Debtors, the bankruptcy estates, the Movants, and other creditors of the Debtors may be significant and irreparable.
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RESERVATION OF RIGHTS
15. The Movants expressly reserve and preserve all rights and claims against the
Debtors, their insiders, employees, agents, or advisors, with respect to the underlying negligence in failing to preserve the Debtors’ assets.
NOTICE
16. A copy of this Motion for Expedited Relief is being served upon (i) the Debtors,
(ii) the Debtors’ counsel, (iii) the Office of the United States Trustee, (iv) the Original Movants,
(v) each of the Exchanges, and (vi) all parties having entered an appearance in these Chapter 11
cases.
CONCLUSION
17. For the above reasons, the Movants respectfully request that the Court enter an
order in the form hereto (i) granting the Motion, (ii) directing that the Debtors issue a notice
substantially in the form attached as Exhibit A to the Motion to each of the Exchanges, or
alternatively, allowing Movants to provide notice to the listed exchanges/services with additional
detailed information of the missing cryptocurrencies, and (iii) granting to the Movants such other
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and further relief as is just and proper.
Dated: November 23, 2020 MORRIS JAMES LLP
/s/ Jeffrey R. Waxman Jeffrey R. Waxman (No. 4159) 500 Delaware Avenue, Suite 1500 Wilmington, DE 19801 Telephone: (302) 888-6800 Email: [email protected]
-and-
David C. Silver, Esquire. SILVER MILLER 11780 W Sample Road Coral Springs, Florida 33065 Phone: (954) 516-6000
Counsel to the Movants
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EXHIBIT A Case 20-12836-JTD Doc 75-1 Filed 11/23/20 Page 2 of 3
November __, 2020
VIA ELECTRONIC MAIL ONLY Coinbase, Inc. Legal Department E-mail: [email protected]
NOTICE OF THEFT OF PERSONAL ASSETS -- REQUEST FOR ACCOUNT FREEZE
Dear Sir/Madam:
This firm serves as counsel to Cred, Inc. (“Cred”), a cryptocurrency lender incorporated in Delaware but based with its headquarters in San Mateo, California. On November 7, 2020, Cred and its affiliated companies (collectively, the “Debtors”) each filed for bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware (Case No. 20-br-12836, et al.). A copy of Cred’s Bankruptcy petition is attached hereto, and copies of all pleadings may be viewed on the Bankruptcy Court’s website: https://ecf.deb.uscourts.gov/.
I am writing to put you on notice that as a result of fraudulent transactions by insiders/related parties at Cred and/or thus far unidentified third parties, a portion of the Debtors’ assets have been misappropriated and have been processed to wallet addresses maintained at your exchange by people other than Debtors (the “Addresses”). Upon Court Order, we will provide an exemplar of addresses that deposited the misappropriated cryptocurrency into wallet addresses on your exchange. Please accept this letter as notice that any cryptocurrencies that remain in these Addresses at your exchange are the proceeds of a potential crime and are assets of Debtors’ estate pursuant to Section 541(a) of the Bankruptcy Code and/or personal property of the creditors of Cred. Debtors intend to recover all property of Debtors’ estates from the owner(s) of any addresses that received my clients’ funds (the “Address Owners”).
We are putting you on notice that all or a portion of the cryptocurrency located in the Addresses is property of Debtors’ estate; and that Debtors will be seeking the return of Debtors’ assets. We ask that you immediately initiate your heightened security protocols and enhanced due diligence and that you freeze these accounts pending resolution of the dispute. If needed, you should file Suspicious Activity Reports with the appropriate legal authorities.
I trust that you will keep frozen any and all crypto assets your exchange holds on behalf of Debtors and their estates while the recovery process works its course. If any crypto assets are released from the accounts of the Address Owners without an Order of the Delaware Bankruptcy Court, Debtors, their estates, and any underlying claimants may take any appropriate action against your exchange.
I further trust that the evidence presented herein -- based on the work done to date -- will be more than sufficient to persuade a court or other legal authority that the Address Owners should return at least the identified cryptocurrency to my clients and may be sufficient to persuade the court that the full amount of my clients’ loss should be returned plus additional assets for recovery costs. TO BE CLEAR: WE ARE NOT ASKING YOU TO RETURN THE CRYPTOCURRENCY Case 20-12836-JTD Doc 75-1 Filed 11/23/20 Page 3 of 3
Coinbase, Inc. Legal Department November ____, 2020 - Page 2 of 2 -
ABSENT A COURT ORDER. WE ARE ONLY ASKING YOU TO FREEZE THE ACCOUNTS FOR A SHORT TIME TO ALLOW THE BANKRUPTCY COURT TO MAKE A DETERMINATION AS TO OWNERSHIP OF THE CRYPTOCURRENCY ASSETS.
In consideration of the foregoing, please confirm for me the following:
1) that you have received this letter;
2) that assets of the Address Owners are now frozen pending due legal process;
3) the identity of all accounts related to the Addresses which you believe, or which your records show, are under common control by any of the Address Owners;
4) that you will retain the details of any transfers made out of the Address Owners’ accounts since receiving the bitcoins; and
5) whether any of the cryptocurrency transferred out of the Address Owners’ accounts remains in any other accounts (and if so, whether you have frozen such accounts).
If there is any additional information that you would like provided, such as origination of the cryptocurrency or other meaningful information, I will endeavor to provide whatever I can without delay.
I look forward to hearing from you or one of your colleagues about this very serious, urgent matter. If you have any questions or need from me additional information, I am happy to work with you to do what is best for both your client and mine.
Respectfully Yours,
/s/ Counsel for Cred Inc.
Enclosure
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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ______In re: ) ) Chapter 11 CRED INC., et al. ) Case No. 20-12836 (JTD) ) (Jointly Administered) Debtors. ) D.I. _____
ORDER APPROVING EMERGENCY MOTION OF JAIME SHILLER, TAKASHI YANAGI, WU CHI KING, JOSEPH RICHARDSON, THOMAS CALVERT, CLINT COWEN, ROBIN HOUCK, TODD WISEMAN, MATTHEW DIXON, JONATAN ASHUROV, DANIEL BECKER, TEPPEI MIYAUCHI, JEAN VACCA, XIAN SU, AND EMMANUEL BEAUFILS TO COMPEL THE DEBTORS TO MAKE DEMAND OF CERTAIN CRYPOCURRENCY EXCHANGES TO FREEZE THE TRANSFER OF CERTAIN ACCOUNTS THAT MAY HOLD THE DEBTORS’ ASSETS
Upon the Motion of Jaime Shiller, Takashi Yanagi, Wu Chi King, Joseph Richardson,
Thomas Calvert, Clint Cowen, Robin Houck, Todd Wiseman, Matthew Dixon, Jonatan Ashurov,
Daniel Becker, Teppei Miyauchi, Jean Vacca, Xian Su, and Emmanuel Beaufils (the “Motion”)1
compel the Debtors to make demand of certain cryptocurrency exchanges to freeze certain
accounts that may hold the Debtors’ assets; the Court having jurisdiction to hear the Motion; the
Court finding notice was proper under the circumstances that such relief is in the best interest in
the Debtors, their estates, and creditors and parties in interest, it is HEREBY
ORDERED that the Motion is GRANTED; and it is further
ORDERED that the Debtors are hereby ordered and directed to serve upon the Exchanges
a demand substantially in the form attached as Exhibit A to the Motion, that the Exchanges freeze
those accounts believed to hold the Debtors’ Crypto, subject to further Order of the Court; and it
is further
1 Capitalized terms used by not otherwise defined herein shall have the meaning ascribed to such terms in the Motion.
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ORDERED that Movants can provide notice to the listed exchanges/services with additional detailed information of the missing cryptocurrencies
ORDERED that the Court retains jurisdiction over the subject of this Order.
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