In Podcast Interview, Partners Ken Aulet and Louisa Watt Discuss Crypto Bankruptcies

Partners Ken Aulet and Louisa Watt appeared as special guests on “The Future of Money” podcast to discuss what happens when a crypto company goes bankrupt.

The Feb. 22 episode, hosted by Henri Arslanian, focused on the bankruptcy of crypto exchange FTX and what’s next for creditors.

Aulet, who is co-leading the Firm’s representation of the Official Committee of Unsecured Creditors in the Chapter 11 case of crypto lending platform BlockFi, said it’s becoming clear that crypto doesn’t fit neatly into the standard Chapter 11 process, which assumes claims are going to be valued in dollars.

“That doesn’t really work for crypto companies because crypto investors want their Bitcoins back, they want their Ethos back, they want to continue to have the value of any appreciation in their assets,” he said. “And while financial bankruptcies like Lehman Brothers have a presumption that you’re going to try to return financial instruments in kind, Chapter 11 doesn’t, so there is a real risk that claims will be valued in dollars as of the filing date, which may not really accord with people’s expectations of how their claims should be valued. That’s a great reason to file a claim if you want to contest.”

Watt, whose practice focuses on bankruptcy claims and trading in the U.K., explained how the Chapter 11 process differs outside of the U.S.

“It’s fair to say that all regimes will have their own specific insolvency process and obviously we’re talking about a lot of different companies in each of these different crypto bankruptcies,” she said. “There are various regimes that may apply, but often they will go with the regime that will fit better for that particular debtor. And the Chapter 11 process can be used to help those companies consolidate under one particular process. I think Chapter 11 is viewed as the poster child for the way to conduct bankruptcy proceedings.”