The United States government has objected to Bittrex’s Motion for Entry to allow honoring customers’ withdrawal requests.
According to a filing in the United States Bankruptcy Court, the States has objected to a motion that allowed Bittrex to honor customer withdrawals.
United States Argues Against Allowing Bittrex Customers’ Withdrawals
Last month, Bittrex applied to the court to allow withdrawals of cryptocurrency assets by its customers or “critical vendors.” But the US government object to the filing for the following reasons:
- The critical vendor standard does not support the relief sought
- It is premature and
- It improperly attempts to subordinate creditors outside of a plan.
Exchange Cannot Pay Customers Ahead of Other Creditors?
In the filing, the government argues that Bittrex should not pay its customers ahead of other creditors. Among other creditors, it was revealed that Bittrex owes the US Financial Crimes Enforcement Network (FinCEN) $5 million.
Last year, the Treasury Department’s Office of Foreign Assets Control (OFAC) and FinCEN fined Bittrex $53 million for engaging in business activities with residents of sanctioned countries.
Lastly, the government argues that customers do not qualify as critical vendors:
“Critical vendors, without payment, would cease providing goods and services critical to the debtor’s operation, precipitating the collapse of the debtor’s business and making reorganization impossible
Instead of reorganizing, the Debtors intend to liquidate and shutdown their exchange. The Debtors shall soon have no business and no future customers, vendors, or creditors.”
The government wants the exchange to make its creditors whole through the bankruptcy plans instead of giving priority to customers. Due to the government’s objections, the question is raised whether justice would be served or customers would suffer.
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On March 31, the exchange announced it would leave the United States because of the changing regulatory climate. Yet it was still served with a Wells notice and eventually a lawsuit from the US Securities and Exchange Commission (SEC).
Bittrex US had to file for a Chapter 11 Bankruptcy on May 9.
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