SNEAK PEEK

• Bittrex bankruptcy sparks U.S. government objection to the customer repayment plan.
• Bittrex possesses sufficient assets to honor customer withdrawals despite the bankruptcy.
• Past government interventions have disrupted similar crypto bankruptcy plans.

In a dramatic development in the world of cryptocurrency, the bankrupt digital asset exchange, Bittrex, has unveiled a plan to return the trapped funds of its clients. However, this proposal is facing a significant legal hurdle. 

As revealed in a court filing this Wednesday, the U.S. government, which is still owed millions due to sanctions violations committed by the platform, is mounting a challenge against Bittrex’s recovery plan.

Bittrex Files for Bankruptcy

On May 8, Bittrex’s U.S. arm filed for bankruptcy following allegations of running an unauthorized securities exchange. This development follows closely after a hefty $30 million settlement with the Treasury for sanction violations. Essentially, Bittrex had permitted customers from Iran, Cuba, and Crimea to transact on their platform.

Soon after declaring bankruptcy, Bittrex proposed a bold move. In an effort to spare customers the headache and delay of litigation, the company petitioned the court to greenlight customer withdrawals. However, this plan hasn’t sailed smoothly. 

On the contrary, the U.S. government, particularly the Financial Crimes Enforcement Network (FinCEN), voiced its objection. FinCEN, still due to receive $5 million from Bittrex, argues against this preferential treatment.

Government Stratifies Creditors Outside the Courtroom

Indeed, the government has a point. Dividing creditors into subordinate classes outside the confirmation hearing doesn’t follow the conventional bankruptcy proceedings. Bittrex, according to the government, hasn’t justified the urgency of determining cryptocurrency asset ownership ahead of the bankruptcy plan’s confirmation.

Despite this contention, Bittrex insists it has sufficient resources to honor withdrawals. The U.S. arm boasts $50 million in customer cash and $250 million in customer crypto. Similarly, the Maltese operating company, also bankrupt, holds $120 million in customer cash and crypto.

However, history warns us to tread lightly. Government interventions have previously thwarted similar cryptobankruptcy plans. Binance’s attempt to acquire defunct crypto lender Voyager’s assets is a case in point. The SEC impeded the deal due to the potential absolution of tax or securities law breaches. Subsequently, the SEC initiated legal action against Binance.

As we look forward to the June 14 hearing on Bittrex’s withdrawal proposal, one can’t help but wonder how this episode will shape the regulatory landscape for crypto exchanges.

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• Source: https://investorbites.com/bittrexs-customer-payback-plan-halted-by-u-s-government/