On Wednesday, Judge Michael Wiles of the U.S. Bankruptcy Court of the Southern District of New York ruled that the $1 billion deal by Binance U.S. to purchase defunct crypto lender Voyager Digital’s assets should go ahead as planned. Judge Wiles declined the United States government’s appeal to block the acquisition, stating that the sale has to go through for Voyager’s customers to regain some of their lost assets.
Judge Denies U.S. Government’s Appeal To Stop $1.4 Billion Binance-Voyager Deal
After the initial ruling was made on March 7, the U.S. government appealed for a two-week stay on the Confirmation Order on March 14, stating that the restructuring plan cannot be realized due to its fraudulent nature. U.S. Attorney Damian Williams argued that the deal should be cancelled because it will clear Voyager and its staff of any wrongdoing for violating tax or securities laws.
However, Judge Wiles said the government’s accusations were “exaggerated” and in some way “mischaracterized” his judgments by relying on hyperbole and “straw man” arguments.
Wiles threw the accusations out the window, stating the previously approved deal would not lead to any such thing as claimed, and the longer the final decision lagged, the harder it would be for Voyagers’ customers to get access to their funds that have been locked on the platform since it declared bankruptcy last year.
The crypto lender filed for Chapter 11 bankruptcy in July 2022 after being impacted by the collapse of the former crypto hedge fund Three Arrows Capital (3AC), where it invested $661 million in company funds. 3AC declared insolvency in June following its exposure to failed cryptocurrency project Terra/Luna.
The company halted all services and locked up customer funds in preparation for its restructuring procedures. According to bankruptcy filings, Voyager owes between $1 billion and $10 billion to more than 100,000 creditors.
A month later, Voyager’s assets were put on sale by a committee of the company’s unsecured debtors. Disgraced billionaire Sam Bankman-Fried won the bid to purchase Voyager’s distressed assets in a $1.4 billion deal. However, the deal collapsed after Bankman-Fried’s crypto empire went bust in November.
In December, the committee put the assets back on the auction table. Binance U.S., the American subsidiary of crypto exchange Binance, secured a deal to purchase the assets, which will see customers receive 51% of the capital they deposited in the platform. The restructuring deal was voted in favour by 97% of the creditors’ committee.
Soon after, Alameda Research, a former hedge fund and one of Bankman-Fried’s fraudulent companies tried to stop the sale from going ahead. The Securities and Exchange Commission (SEC) raised questions on how Binance was able to broker a deal of such high volume and how it was able to fund the acquisition.
The financial regulator also claimed that Voyager’s VGX token was an unregistered security and that the transfer of assets from the company to Binance would be a violation of federal securities laws.
The Committee on Foreign Investment in the United States (CFIUS), an agency that oversees investments made by foreign entities in the U.S., complained that the deal would result in Binance, a foreign company, getting access to Voyager’s U.S. customers’ information. The Federal Trading Commission (FTC) was also investigating Voyager for deceptive marketing practices that put investors at risk.
Voyager settled its charges with the CFIUS and FTC but claimed that any objection to the deal in any shape or form would result in customers receiving a lower payout than what was promised.
Meanwhile, Binance is faced with its fair share of regulatory scrutiny. Federal agencies are looking into the business relationship between Binance and its subsidiary Binance U.S. It is alleged that Binance U.S., which is supposed to operate independently from its parent company, was controlled entirely by Binance. According to a report by Bloomberg, Binance U.S. executives hid the information from regulators to fend off any possible enforcement action against the company.
The company is also facing enforcement action from the SEC concerning its stablecoin, Binance USD (BUSD). Earlier last month, the agency ordered stablecoin issuers Paxos Trust Co. to stop issuing the asset as it was considered an unregistered security. Paxos denied the allegations but ended up terminating its partnership with Binance to mint and custody BUSD. Binance has since announced that it will diversify its stablecoin portfolio away from BUSD.
Creditors Eligible To Recieve Upto 73% Of The Value Of Their Funds From Voyager
On March 7, the Bankruptcy Court overruled the SEC’s allegations, claiming that statements made by the agency were not based on solid evidence but just its staff believing that there was wrongdoing on Voyager and Binance’s part. Judge Wiles also dismissed the SEC’s argument to maintain its ability to bring legal action against the company while the restructuring process was ongoing. The court gave Voyager permission to close its deal with Binance U.S. and issue repayment tokens to impacted customers.
The Binance U.S. purchase, which was supposed to go ahead on March 15, has now been extended to March 20, the day the U.S. government’s stay order is valid until. According to the latest estimates, Voyager creditors are eligible to receive up to 73% of their funds.