FTX Trading Ltd – In What is a Reunion of Sorts, Debtors Cancel Auction and Designate Affiliate of Miami International Holdings as Successful Bidder for Non-Debtor LedgerX ($35mn Cash with Bid Valued at $50mn)

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April 25, 2023 – Further to a January 12th bidding procedures order [Docket No. 487], the Debtors notified the Court that they had canceled an auction scheduled for April 26th and designated M 7 Holdings, LLC (“M 7 Holdings,” a wholly owned subsidiary of Princeton, NJ-based Miami International Holdings, Inc. (“MIH”)) as the successful bidder for the sale of LedgerX LLC* [Docket No. 1342]. MIH is well acquainted with LedgerX, having been a shareholder in LedgerX's parent (and Debtor) Ledger Holdings Inc. ("LHI") until October 2021 when LHI was acquired by West Realm Shires, Inc. ("WRS"); until that point MIH also had two of its management team sitting on the LHI board (see further below on the many connections between the MIH and LedgerX).

*Non-Debtor LedgerX LLC, a Delaware limited liability company ("LedgerX"), is a digital currency futures and options exchange and clearinghouse regulated by the Commodity Futures Trading Commission (the "CFTC"). LedgerX offers and clears futures, options and swaps contracts on digital assets and other commodities primarily for U.S. persons and is registered with the CFTC as a Designated Contract Market ("DCM"), Derivatives Clearing Organization ("DCO") and Swap Execution Facility ("SEF"). LedgerX was acquired in October 2021 by WRS, which continues to indirectly own 100% of the interests of LedgerX through a holding company, Debtor LHI.

UPDATE: Following a brief, uncontested hearing on May 4, 2023, Judge John T. Dorsey said he would enter an order approving the sale of the LedgerX assets to M 7 Holdings, LLC. A written order has yet to be filed.

A revised proposed sale order also filed on May 4th [Docket No. 1422] specifies that the "The Sale Transaction does not involve the sale of any personally identifiable information with respect to which any Debtor, in connection with offering a product or service, disclosed to an individual a policy prohibiting the transfer of such personally identifiable information. Thus, the appointment of a consumer privacy ombudsman pursuant to section 363(b)(1) or section 332 of the Bankruptcy Code is not required with respect to the Sale Transaction."

The revised order also adds, "Notwithstanding anything to the contrary in the Motion, this Sale Order, the Cure Notice or any findings announced at the Sale Hearing, Seller will not assume and assign, and Buyer will not assume, on the Closing Date any contracts with Oracle America, Inc., successor in interest to NetSuite, Inc. ('Oracle'), subject to further discussions among the relevant parties and resolution of the pending objections related thereto. All parties’ rights are reserved with respect to such contracts, including with respect to the Cure Amounts thereunder and Oracle’s consent to the assumption and assignment of such contracts.

In addition, no provision of this Order or the Purchase Agreement shall authorize: (1) the transfer of any Oracle agreement to any third party; or (2) the use of any Oracle license agreement that is inconsistent with the relevant license grant, including, but not limited to, exceeding the number of authorized users, shared use or license splitting, absent Oracle’s express written consent."

In a press release announcing the transaction, the Debtors noted that they have entered into an interest purchase agreement with M7 Holdings, LLC, an affiliate of Miami International Holdings, Inc. ('MIH'), for the sale of LedgerX LLC, the futures and options exchange and clearinghouse unit of FTX….The total proceeds to the FTX Debtors resulting from the transactions is expected to be approximately $50 million….The transaction is subject to customary closing conditions, including approval of the U.S. Bankruptcy Court. A sale hearing to approve the transaction is currently scheduled for May 4, 2023."

John J. Ray III, the Debtors' CEO and CRO, commented: "We are pleased to reach this agreement with MIH, which is an example of our continuing efforts to monetize assets to deliver recoveries to stakeholders."

In their own tight-lipped press release, MIH "announced that it has entered into a purchase agreement (the Purchase Agreement) to acquire all of the issued and outstanding membership interests of LedgerX, LLC (LedgerX) from Ledger Holdings, Inc. (LHI) in connection with the bankruptcy proceedings involving FTX Trading Ltd. and certain of its affiliated entities, pursuant to which LHI is a party." 

The notice provides as to the selection of MIH, the purchase price and MIH's previous connections with the LedgerX: "on March 31, 2023, the Debtors filed a Notice…which…provided notice to each of the two Qualified Bidders of an Auction to be held on April 4, 2023. In accordance with the Bid Procedures and after consultation with Consulting Professionals, the Debtors adjourned, without initiating, the Auction.

…one of the Qualified Bidders determined shortly thereafter that they would be unable to reach a satisfactory transaction, this Qualified Bidder requested the return of its deposit and the Debtors disqualified this bidder as a Qualified Bidder and refunded the deposit…[The Debtors] after further consultation with the Consulting Professionals, determined that…to designate M 7 Holdings as the Successful Bidder for the LedgerX Business and to cancel the Auction.

On April 25, 2023, Debtor Ledger Holdings Inc. ('LHI') entered into the Interest Purchase Agreement (the 'Purchase Agreement') with M 7 Holdings (referred to herein as the 'Successful Bidder') and, solely for the purposes set forth therein, Miami International Holdings, Inc. ('MIH'), for the sale of the LedgerX Business…the Successful Bidder’s purchase price consists of $35 million in cash for the LedgerX Business, subject to certain adjustments, which together with the cash distributions from LedgerX LLC ('LedgerX') to the Debtors contemplated by the Purchase Agreement, will result in anticipated net proceeds to the Debtors
of approximately $50 million."

On the earlier relationship between the parties, the notice adds: "MIH, which wholly owns M 7 Holdings and is a party to the Purchase Agreement as a guarantor for the limited purposes set for therein, has disclosed the following connections with the Debtors and the Debtors’ current or former directors or officers: (i) MIH was a stockholder of Debtor LHI from December 2016 until the time of LHI’s acquisition by West Realm Shires, Inc. ('WRS') in October 2021; (ii) Thomas P. Gallagher, Chairman and Chief Executive Officer of MIH, and Paul Kotos, a director of MIH, served on the board of LHI until the time of LHI’s acquisition by WRS; (iii) John
Smollen, an executive officer of MIH, was an investor in LHI and also served as a director of LedgerX from approximately January 2016 to December 2018; and (iv) Mark Wetjen, who served as Head of Policy and Regulatory Strategy at Debtor West Realm Shires Services Inc. from approximately November 2021 to December 2022 and currently serves as a director of LedgerX, previously served as Executive Vice President, Futures and Innovative Products of MIH and Executive Regulatory Liaison Officer, as well as Chief Executive Officer of Miami International Futures Exchange, LLC, a wholly owned subsidiary of MIH, from January 2020 until October 19, 2021."

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