A cryptocurrency exchange, Bittrex, that faced financial leading to bankruptcy, is encountering a legal obstacle to its proposal aimed at reimbursing its customer’s funds and cryptocurrencies. The United States, which is still owed a significant amount of money due to sanctions violations, has raised a legal challenge against the proposal.
The bankruptcy filing made by Bittrex’s U.S. division on May 8, following allegations by regulators that the exchange was operating as an unauthorized securities exchange. In addition, Bittrex had to settle with the treasury for approximately $30 million due to its involvement in facilitating transactions for customers based in Iran, Cuba, and Crimea
Shortly after the bankruptcy filing, Bittrex made a request to the court, seeking approval to allow its customers to withdraw their holdings without the need for costly and time-consuming legal proceedings. However, as Bittrex owes the U.S Government $5 million, the Financial Crimes Enforcement Network (FinCEN) has objected to this proposal, stating that it would be unfair to show favoritism.
In its filing, the government argued that segregating creditors into lower-priority classes outside of the confirmation hearing is inappropriate. It further stated that the Bittrex companies have not provided sufficient justification for determining ownership of cryptocurrency assets before the confirmation of the bankruptcy plan.
Bitttrex’s U.S. division holds a substantial amount of customer funds, with $50 million in the case and $250 million in cryptocurrencies. Additionally, the Maltese operating company, which also filed for bankruptcy, has approximately $120 million in customer cash and cryptocurrencies.
According to legal representatives of the company, these assets are sufficient to fulfill customer withdrawal requests. This information was previously presented to the Delaware court. A hearing regarding Bittrex’s proposal to permit withdrawals is scheduled for June 14.
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