International law firm McDermott Will & Emery secured a favorable agreement on behalf of the bankruptcy estates of Voyager Digital Holdings Inc. (Voyager). The claims were settled between Voyager and FTX Trading Ltd. (FTX) and its affiliated debtors and debtors-in-possession, resulting in $445 million in creditor recovery.

Voyager filed for chapter 11 bankruptcy on July 5, 2022, and FTX filed for bankruptcy on November 11, 2022. During its business, Voyager regularly provided cryptocurrency loans to an FTX entity, Alameda Research, Ltd. (Alameda). Before FTX filed for bankruptcy (but while Voyager was undergoing its own bankruptcy), Alameda paid the balance of its outstanding crypto loans to Voyager, totaling approximately $445 million.

Following Voyager’s chapter 11 filing, it entered into an asset purchase agreement with a different FTX entity, West Realm Shires Inc. (WRS). WRS agreed to purchase all of Voyager’s assets, but the deal was left dormant, as FTX filed for bankruptcy less than two months later.

On January 30, 2023, FTX filed an adversary proceeding in its own bankruptcy proceedings against Voyager seeking to avoid and recover the $445 million it repaid to Voyager as alleged preferential transfers. Following the filing, Voyager was required to hold $445 million in reserve to cover a potential judgment in favor of FTX.

On June 30, 2023, Voyager filed proofs of claim in the FTX bankruptcy proceedings against various FTX entities for damages arising from fraudulent inducement and breach of the master loan agreement and asset purchase agreement.

The parties agreed to mediate the FTX adversary proceeding and the Voyager proofs of claims in nonbinding mediation in the Bankruptcy Court for the Southern District of New York.

From July through September 2023, the McDermott team submitted a 120-page brief on complex and novel questions at the intersection of cryptocurrency and bankruptcy law, primarily arguing:

• The FTX payments were unavoidable under section 546(e) of the Bankruptcy Code because they were made in connection with the MLA, which qualified as either a securities contract or forward contract under the statute.
• FTX’s preference claims were limited by collateral that Voyager returned in a contemporaneous exchange of new value.
• FTX could not recover the alleged preferential payments because they were made in the ordinary course of business.
• Even assuming the alleged preferential payments were recoverable, FTX’s claims would be equitably subordinated in the distribution of the Voyager estate (and FTX would therefore recover nothing) because of FTX’s extreme inequitable conduct in relation to the MLA and the FTX APA.
• Its creditors were entitled to damages arising out of FTX’s fraudulent inducement of Voyager to enter into the MLA and FTX’s breach of the FTX APA.

Following a September 2023 in-person mediation session, the parties continued extensive negotiations, leading to an extremely favorable settlement for Voyager. FTX agreed to drop the entirety of its $445 million preference claims against Voyager in exchange for Voyager’s agreement not to attempt to recover on any claims that were (or could have been) asserted in the Voyager proofs of claim. The settlement is subject to a settlement approval motion pending in the FTX bankruptcy proceedings.

The interoffice, cross-practice cryptocurrency, restructuring and litigation team was led by Darren Azman, John Calandra, Joe Evans, Stacy Lutkus, Gregg Steinman, Elizabeth Rodd, Patrick Kennedy, Cris Ray, Daniel Thomson, Chris Combs and McDermott Discovery.

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