Despite objections from the Securities and Exchange Commission (SEC) and Texas regulators, a New York bankruptcy judge recently approved the sale of Voyager Digital’s assets to Binance.US.
In his decision confirming the $1 billion acquisition, Southern District of New York Bankruptcy Judge Michael Wiles noted that cryptocurrency companies operate in a highly uncertain regulatory environment.
"Regulators themselves cannot seem to agree as to whether cryptocurrencies are commodities that may be subject to regulation by the CFTC, or whether they are securities ... subject to securities laws, or neither, or even on what criteria should be applied in making the decision," Wiles wrote in his March 11 opinion after a 20-hour hearing. "This uncertainty has persisted despite the fact that cryptocurrency exchanges have been around for a number of years."
investvoyager.com, binance.us/ edited in Canva
Voyager Digital declared itself defunct last year after Three Arrows Capital defaulted on a multimillion-dollar loan. Binance.US intervened in December 2022 after an initial offer by FTX to buy Voyager collapsed. FTX subsequently followed Voyager Digital into bankruptcy.
"Everyone committed to the rule of law should read J. Wiles’ Voyager decision," tweeted Coinbase Chief Legal Officer Paul Gewal on March 15. "These are remarkable statements from a federal court with no skin in the game other than calling things as they are."
Among those objecting to Voyager’s plan of reorganization was the SEC, which filed a limited objection based on an investigation into whether Voyager Digital had violated anti-fraud provisions under federal securities laws.
"If an asset was initially offered in violation of SEC rules, the purchaser may not be able to transfer ownership without further breaking the law," SEC attorneys wrote. "Voyager’s disclosures around the deal with Binance.US don’t adequately address the possibility that these transactions may be prohibited."
But Wiles reprimanded the federal agency for lodging unsubstantiated allegations.
"In this particular case, some account holders and some other parties have referred me to newspaper or magazine articles, or to a recent letter sent by a group of U.S. senators, all raising questions about how Binance.US does business and perhaps more questions about how its affiliated companies do business," Wiles wrote. "Despite the questions that have been raised, however, I must note that I have been offered absolutely no actual, admissible evidence – I mean literally zero admissible evidence – that would support an accusation that Binance.US is misusing customer assets or is engaged in misbehavior of any kind at all."
Texas Assistant Attorney General Abigail Ryan, representing state regulators, also objected, citing concerns that the outcome of pending litigation would be diluted and that the handling of customer data would be vague if the transaction were approved.
Wiles rebuked Ryan for comparing “apples to oranges” and presenting the state’s preferences as objections.
"I am in the unenviable position of having to make a ruling about the proposed transaction in the face of hearsay accusations of potential wrongdoing in an industry where other firms have apparently engaged in real wrongdoing while having absolutely no evidence indicating that there is any good basis for the questions about Binance.US that have been raised," Wiles wrote.
Wiles also took issue with the state of Texas' issues with Binance.US' terms of use. The state argued it was not informative enough regarding Binance.US relationship with Binance.com.
"However, I note that the Disclosure Statement contains many direct links to those terms of use, and all of the arguments about provisions that Texas thinks customers should know are taken directly from the terms of use to which customers were directed," Wiles wrote. "This is not an argument about actual disclosures, and about actual information available to customers, so much as it is a contention (made in hindsight) that the Debtors should have put greater emphasis on specific provisions that Texas thinks are important, instead of just referring customers to the places where the terms could be found.
"I do not find this to be a proper or reasonable objection ... this is not really a complaint that there was a failure to disclose material information, so much as it is a belated complaint by one party that the Disclosure Statement did not give as much emphasis to particular information as the complaining party would have preferred."