The State Securities Board and Department of Banking of Texas have filed an objection to the proposed deal between Binance.US and crypto lender Voyager Digital, which filed for bankruptcy in the US in December 2021. The objection, filed on February 24, cites “inadequate” disclosures in Binance.US’s terms of service and restructuring plan, including the failure to inform unsecured creditors that they may only receive a recovery rate of 24-26% under the plan, compared to the 51% they would receive under Chapter 7.
Binance.US had disclosed its agreement to purchase Voyager Digital’s assets for $1.022 billion in December, a move that was expected to significantly expand its presence in the US crypto market. However, the objection by the Texas regulatory bodies could pose a major obstacle to the deal.
The objection raises concerns that the proposed transaction may not be in the best interest of Voyager Digital’s creditors, who may receive significantly less than they would under the Chapter 7 process. In addition, the objection points out that the disclosures provided by Binance.US may not be sufficient to enable creditors to make an informed decision about whether to support the proposed deal.
Binance.US has not yet commented on the objection, but the company is likely to face additional regulatory hurdles in the US as it seeks to expand its operations. The objection by the Texas regulatory bodies highlights the challenges that crypto firms may face in navigating the complex and evolving regulatory landscape in the US, where different states may have different rules and requirements.
Overall, the objection by the Texas State Securities Board and Department of Banking to the Binance.US and Voyager Digital deal underscores the importance of thorough disclosures and transparency in the crypto industry. As regulators continue to scrutinize the sector, it will be important for companies to provide clear and comprehensive information to all stakeholders in order to build trust and confidence in the market.
BitGo has filed a lawsuit against crypto financial services firm Galaxy Digital.
The California-based institutional digital asset financial services company is seeking more than $100 million in damages as it claims that Galaxy Digital intentionally breached the companies’ proposed $1.2 billion merger agreement announced in May last year.
On May 5 2021, Galaxy announced plans to acquire custodian provider BitGo for $1.2 billion in cash and stock.
However, last month on August 15, Galaxy terminated its deal to acquire BitGo, something that did not go with the other party. BitGo immediately responded, saying it would seek $100 million in damages following the termination of its merger with Galaxy Digital.
In a tweet yesterday, BitGo announced: “Late yesterday, BitGo filed a lawsuit against Galaxy Digital seeking damages of more than $100 million arising from Galaxy’s improper repudiation and intentional breach of its merger agreement with BitGo.”
The crypto custody firm further said that the complaint was filed in Delaware Chancery Court and will be made available to the public on Thursday, September 15.
In a statement, BitGo disclosed its intention to sue Galaxy, describing the termination of the deal as “absurd.”
What Caused the Failed Merger Deal?
On August 15, Galaxy Digital announced that the firm terminated a proposed $1.2 billion stock and cash deal that would allow the crypto company to acquire the digital asset custody business and financial services provider BitGo. Galaxy detailed that the abandoned deal was due to BitGo’s “failure to deliver” specific financial documents.
Galaxy said it exercised its right to terminate its previously announced acquisition deal with BitGo, following BitGo’s failure to deliver by July 31 audited financial statements for 2021 that comply with the requirements of the proposed agreement. Galaxy further stated: “No termination fee is payable in connection with the termination.”
The news of the failed merger came only a week after Galaxy reported a second-quarter net loss of $554.7 million following a plunge in the value of cryptocurrencies.
The collapse of the Terra blockchain ecosystem hit confidence in cryptocurrencies. Several crypto lending firms such as Celsius Networks, Voyager Digital, Vauld, Zipmex, Babel Finance, among others, were forced to stop customer withdrawals, and many became bankrupt.
Alameda has cut ties with Reef Finance while sister company FTX accused Reef of being a scam, tanking REEF token by 26%.
Reef Finance leaked documents revealing that Alameda had threatened to ruin the project by dumping tokens, delisting it, and discrediting it.
It appears that an $80 million business deal fell through due to a miscommunication handled entirely through Telegram with no formal legal contract.
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Days after “investing” $20 million in Reef Finance, Alameda Research refuted all ties with the DeFi project, leveling numerous accusations against it.
Reef Finance, however, reveals a wholly different take. So, what happened?
With screenshots and transcripts now available, the debacle ultimately reveals that $80 million deals are best brokered with legal contracts, not messaging apps.
FTX Denounces Reef as Rug Pull, Alameda Cuts Ties
On Mar. 15, the official Twitter account for FTX accused Reef Finance of being a scam, telling Reef Finance investors that their money was being stolen.
FTX did not respond to Crypto Briefing comment requests and has since deleted the tweet in question.
At around the same time, Alameda trader Sam Trabucco stated that Alameda had no connection to Reef Finance. He characterized the $20 million transaction as an OTC trade rather than a business investment, adding that Reef reneged on their deal and prematurely went to the media about it.
Brian Lee of Alameda’s Venture Capital department retweeted Trabucco’s post.
1. Alameda is not affiliated with REEF.
2. Alameda does not endorse REEF.
3. We agreed to an OTC trade with REEF; they immediately went to the press to brag.
4. They then reneged on the OTC trade.
5. We obviously do not recommend anyone do business with REEF in any way.
— Sam Trabucco (@AlamedaTrabucco) March 15, 2021
The claims from Alameda and FTX directly preceded a 26% drop in the price of REEF. Social media erupted with the news that Reef may be a scam and may have invented the story of an Alameda investment to pump its prices.
However, none of these claims offered the full story.
Crypto Briefing has obtained evidence that an investment announcement was carefully co-ordinated between both projects and released at the agreed time. Brian Lee himself greenlit the announcement, including the disclosure of a $20 million investment, on Mar. 10.
On Mar. 12, the announcement was made.
It appears that Alameda then sold some of their REEF, using the Binance exchange rather than their sister company, the FTX exchange.
An OTC Trade, Not an Investment
Alameda and FTX declined to comment, though Trabucco told Crypto Briefing that Alameda’s blog post on the matter constituted his comments.
In the post, Alameda released conversation transcripts of their own. On Mar. 8, it appears that Alameda brokered a deal for $80 million worth of tokens at a fixed price, settling the first tranche of $20 million.
They agreed to market this OTC trade as an investment in Reef Finance.
Source: Alameda Research
Reef wanted to reframe the trade as an investment for the public, saying, “I assume it is fine with announcing you guys as a big investor, right?”
20% Token Discount Without Vesting
Speaking to Crypto Briefing, Reef Finance CEO Denko Mancheski stated that the token sell-off was unexpected, believing Alameda would lock up their new holdings until further notice.
Reef Finance sources claim that Alameda bought $20 million worth of tokens at a 20% discount and then tried to squeeze the project for more tokens at discounted prices.
“They said that they are investing long term and wanted to buy $80 million,” said Mancheski. “I sent them offers with vesting schedule but they said they are very reputable and long-term investors and professionals and have bought in even bigger projects even bigger amounts without lockups.”
Crypto Briefing has seen no evidence that Alameda agreed to lock up tokens, and Mancheski claimed to no longer have access to the conversation logs where aspects of the deal were discussed.
Mancheski stated that Alameda started selling their tokens on Binance “the moment we settled the $20 million,” further claiming that “they are lying that they still own the majority of the tokens.” It certainly appears that Alameda did indeed move tokens to Binance, although how many were sold is unclear.
Source: Etherscan
“The moment we realized we are getting basically scammed (instead of investing they are lying us and selling the tokens), we decided to stop,” said Mancheski.
This contradicts the quotes posted by Alameda, in which Reef agreed to sell $80 million and merely marketed the transaction as an investment for the public, fully aware that the deal was to broker an $80 million trade in multiple tranches.
Reef shared screenshots indicating that Alameda essentially threatened to ruin Reef Finance.
Threats included to publicly cut ties, dump their holdings and likely impact price, delisting REEF token, and even convincing other exchanges, including Binance, to delist REEF.
The legality of this last threat and of FTX accusing Reef Finance of being a “rug pull” stealing all investor holdings is unclear at this time.
Alameda also told Reef that they had notified their legal department, threatening legal action “should this not settle.”
However, it’s difficult to say to what extent legal action can apply to a deal carried out in such a casual, ad-hoc way by both parties.
An $80 Million Business Agreement on Telegram
At the end of the day, while one could argue both sides are guilty of misrepresenting the truth and carrying out shady business practices, the deal fell apart due to a misunderstanding on both sides.
Alameda was supposed to buy $80 million worth of tokens at a discount, and Reef pulled out when Alameda started to sell earlier than expected.
The most noteworthy aspect of this story is that no formal legal agreement appears to have been written up for a deal worth $80 million.
According to Reef, the entire deal was brokered in good faith and through Telegram messenger, and Alameda representatives refused to comment on whether a legal document was in place.
Likely, the contract Alameda refers to in the Medium blog post was simply the written agreement in which Alameda asked Reef to “pls confirm” that an $80 million transaction was on the table. Sometimes written agreements hold up in court, and sometimes they don’t.
“There is literally nothing they can do legally since there was no paperwork,” Mancheski bluntly told Crypto Briefing.
In traditional finance, brokering a deal of this size with no formal legal contract would be unheard of.
In crypto, it’s business as usual.
This news was brought to you by ANKR, our preferred DeFi Partner.
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@CryptoDonAlt I could be wrong, but I would be surprised if a significant amount of the money going into Bitcoin right now is due to an expectation of people needing it to fight corruption or deal with a shitty society.
They’re just buying because the printer is printing.
