Thread by @nicholashall

1/12 Unraveling the IRS Administrative Priority Claim in the #FTX bankruptcy case: how this impacts the restructuring process in a case involving massive fraud.

Writing this because I'm seeing a lot of bad takes that are likely confusing a lot of creditors.

🧵👇

2/12 In the FTX case, with allegations of massive fraud, the IRS claim becomes a critical component of the plan of reorganization.

This claim, due to its priority, can significantly shape the debtor's restructuring roadmap.

That means things will take longer. 🕕

But why?

3/12 Typically, a significant portion of the IRS claim is settled quickly. However, with massive fraud, the landscape changes drastically.

The IRS may take a stricter stance to deter fraudulent activities.

Sound familiar to other US agency tactics with crypto?

#IRS🤝#SEC

4/12 Full settlement is unlikely in cases of massive insider fraud. It's often in the best interest of the government and bankruptcy court to ensure that fraudulent behavior is not rewarded.

This means that they likely go to the mat on issues with the court hearing them out.

5/12 Unsecured creditors in such a case can face significant losses.

After the IRS claim and other priority claims are addressed, there may be little to no assets left for others.

Even if the claim settles for pennies, professional fees can be massive.

BTW, nobody knows.

6/12 Remember the stay entered in the SEC & CFTC cases against #SBF for benefit of the DOJ? That was granted until the criminal case is over.

They don't want SBF gathering evidence in civil cases to impeach witnesses, circumvent discovery, and tailor his criminal defense.

7/12 The IRS claim also goes towards SBF criminal matters, meaning evidence relevant to the DOJ case.

In cases involving tax fraud, these disputes can be even more complex and protracted, as there may be additional investigations and litigation.

8/12 If tax fraud by insiders is proven, the court may also impose penalties on those individuals, which could further deplete the debtor's assets.

This can create additional hurdles for the plan of reorganization and for creditors seeking recovery.

9/12 By now it should be clear why JR3 was hired. He dealt with this very thorny issue in Enron, albeit not at this scale of insider idiocracy.

A lot of this will come down to the criminal case, which JR3 has dealt with before (Lay, Skilling, and others).

10/12 JR3 will become the government's proxy FA, when it benefits the estate, and enemy when it doesn't.

How quickly can he:

- Accurately reconstitute the books for the entire FTX umbrella?

-Decode wallet transactions?

11/12 In a cluster case like this, he will not have full cooperation from insiders, meaning that he is painting by numbers in the dark.

The retained employees become critical assets. How much do they know and can they fill in the gaps?

12/12 The FTX case highlights the intricacy of dealing with government agencies when fraud is involved.

The issues generally take more time to resolve and time means money, even if IRS settles low.

Always engage experienced bankruptcy counsel to navigate such challenges. ✌️