The United States Securities Exchange Commission won’t be allowed to fine executives involved in Voyager Digital should it end up issuing bankruptcy tokens to help repay impacted customers, bankruptcy judge Michael Wiles has said.
The comments from Wiles came on March 6, the third day of hearings regarding a plan by Voyager to issue a repayment token and sell $1 billion of assets to Binance.US.
The SEC earlier argued that the repayment token would constitute an unregistered security offering, while Binance.US is operating an unregulated securities exchange.
In a supplemental objection statement, it also objected to a legal protection which stated that no U.S. agency, including the SEC, will be able to bring “any claim against any Person on account of or relating to the Restructuring Transactions.”
Essentially, this means that executives and restructuring advisers involved in Voyager’s bankruptcy would be shielded from lawsuits if they implement the bankruptcy plan, as long as it is court-approved.
While the SEC described these provisions as “extraordinary” and “highly improper,” Wiles explained that giving the SEC such authority would “leave a sword hanging over the heads of anybody who’s going to do this transaction,” according to a March 6 Bloomberg report, stating:
“How can a bankruptcy case or any court proceeding function with that kind of suggestion?”
SEC lawyer Therese Scheuer argued however that the legal protections are so broad that Voyager employees and lawyers would have permission to violate securities laws. After debate, Voyagers lawyers agreed to narrow the scope of legal releases, according to Bloomberg.
The trading platform officially filed for bankruptcy on July 5 in an attempt to restructure the firm and “return value” back to over 100,000 customers.
The court has been considering a restructuring plan to bring Voyager out of Chapter 11 bankruptcy which would first announced on Dec. 19.
The plan would see crypto exchange Binance.US acquire its assets for $1.02 billion — an option Voyager said at the time represented the “highest and best bid for its assets.”
The SEC objected to the sale on Feb. 22, claiming aspects of the restructuring plan could breach securities laws. The regulator was then criticized over its ambiguous reasoning for the objection in a March 2 court hearing.
A Feb. 28 court filing found that 97% of 61,300 polling Voyager account holders were in favor of the current Binance.US restructuring plan.