A proposal by bankrupt crypto exchange Bittrex for returning customer cash and crypto faces a legal challenge from the U.S., which is still owed millions for sanctions violations, according to a Wednesday court filing.
The firm’s U.S. arm filed for bankruptcy on May 8 after regulators accused it of operating an unlawful securities exchange and after it reached a settlement worth around $30 million with the Treasury for allowing business from customers in Iran, Cuba and Crimea.
Four days later, the company sought court permission to let customers withdraw their holdings without the expense and delay of litigation. The U.S. government, whose Financial Crimes Enforcement Network (FinCEN) is owed $5 million, says it’s not right to play favorites.
“Siloing creditors into subordinated classes outside of the confirmation hearing is improper,” the government’s filing said. The Bittrex companies “have not demonstrated why the issues of ownership of cryptocurrency assets needs to be determined prior to the confirmation of the [bankruptcy] plan.”
Bittrex’s U.S. arm holds $50 million in customer cash and $250 million in customer crypto. The Maltese operating company, which also filed for bankruptcy, has $120 million in customer cash and crypto, and both have enough assets to honor withdrawals, lawyers representing the company have previously told the Delaware court.
Previous interventions by the government have proved decisive in scuppering crypto bankruptcy plans. An offer from Binance to buy the assets of defunct crypto lender Voyager was abandoned after delays caused by the Securities and Exchange Commission (SEC), which argued the fine print would have absolved those involved from breaches of tax or securities law. The SEC has since sued Binance.
A hearing on Bittrex’s plan to allow withdrawals will be held June 14.
