Lane Powell Achieves Successful Outcome for Firm Client Bitvestment in Bitcoin Matter
Lane Powell Attorneys Chuck Ekberg and Tereza Simonyan recently won a major victory for Lane Powell’s creditor client, Bitvestment. On January 10, U.S. Bankruptcy Court Judge Karen Overstreet rejected debtor Alydian’s request to auction its bitcoin-mining rigs, which has resulted in a settlement in Bitvestment’s favor.
Bitcoins are a virtual currency created by sophisticated computer systems performing complicated algorithms. Although their value is subject to wild fluctuation — with prices that soared above $1,000 per bitcoin in early December 2013 and now trading at $800 — bitcoins have launched a cyber-gold rush around the world.
Bitvestment had entered into a contract with Bainbridge Island-based Alydian and its affiliate CoinLab to receive the first 7,500 bitcoins that Alydian mined, but Alydian refused to perform its contract as it faced more competition for mining bitcoin and their value soared. Bitvestment first filed a lawsuit in the Southern District of New York, after which Alydian sought to block the suit by filing Chapter 11 bankruptcy protection in Seattle on November 1, 2013. Initially, the debtor tried to reject the Bitvestment contract as an executory contract, but Lane Powell was successful in convincing the court that the contract could not be rejected.
Thereafter, Lane Powell’s discovery efforts resulted in disclosures that the debtor had transferred more than $12 million worth of bitcoin to its affiliate just before the day of filing; had misrepresented payments to insiders and the costs it incurred; and was in fact profitably mining bitcoin throughout November and December 2013, and into January.
At the hearing to sell the mining rigs, Judge Overstreet, relying on evidence submitted by Lane Powell, said she was very close to dismissing the bankruptcy case entirely due to uncertainties about who owns the mining rigs, their value, the risk that insiders would be favored in bidding and inaccuracies in the debtor’s financial statements. The case was featured in a January 16 Nasdaq article titled “Bankruptcy Judge Blocks Bitcoin Miner Alydian From Auction.”