TRANSMITTAL SHEET FOR WITHDRAWAL OF REFERENCE TO …

TRANSMITTAL SHEET FOR WITHDRAWAL OF REFERENCE TO THE U.S. DISTRICT COURT FOR THE DISTRICT OF DELAWARE

Case Number: BK AP If AP, Related BK Case Number: Name of Debtor: Is this Withdrawal of Reference for the whole case? Yes No Cause of Transmittal: Items being Transmitted:

Withdrawal of Reference Docket Number: Date Filed: Motion being Withdrawn Docket Number: Date Filed: Docket Number: Date Filed: Docket Number: Date Filed:

Docket Number: Date Filed: Petitioner(s) Petitioner’s Counsel Respondent(s) Respondent’s Counsel

Notes

Case 20-12836-JTD Doc 675 Filed 03/23/21 Page 1 of 1

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

) Chapter 11 In re: ) ) Case No. 20-12836 (JTD) CRED INC., et al., ) ) (Jointly Administered) Debtors.1 ) )

)

EMERGENCY MOTION OF THE OFFICIAL COMMITTEE OF

UNSECURED CREDITORS FOR WITHDRAWAL OF THE REFERENCE WITH RESPECT TO THE MOTION OF THE OFFICIAL COMMITTEE OF

UNSECURED CREDITORS FOR AN ORDER (I) HOLDING JAMES ALEXANDER IN CONTEMPT OF COURT AND (II) ISSUING A BENCH WARRANT FOR

THE ARREST AND DETENTION OF JAMES ALEXANDER

The Official Committee of Unsecured Creditors (the “Committee”) of Cred Inc., et al.

(the “Debtors”) hereby submits this emergency motion (the “Withdrawal Motion”), pursuant to

28 U.S.C. § 157(d), Rule 5011 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy

Rules”), and Rule 5011-1 of the Local Rules of Bankruptcy Practice and Procedure of the United

States Bankruptcy Court for the District of Delaware (the “Local Rules”), for entry of an order

by the United States District Court for the District of Delaware (the “District Court”),

substantially in the form of the proposed order attached hereto as Exhibit A, withdrawing the

reference with respect to the Motion of the Official Committee of Unsecured Creditors for an

Order (I) Holding James Alexander in Contempt of Court and (II) Issuing a Bench Warrant for

the Arrest and Detention of James Alexander [Bankr. Docket No. 643] (the “Contempt Motion”).

In support of the Withdrawal Motion, the Committee respectfully states as follows:

1 The Debtors in these Chapter 11 Cases, along with the last four digits of each Debtor’s tax identification

number, as applicable, are as follows: Cred Inc. (8268), Cred (US) LLC (5799), Cred Capital, Inc. (4064), Cred Merchant Solutions LLC (3150), and Cred (Puerto Rico) LLC (3566). The Debtors’ mailing address is 3 East Third Avenue, Suite 200, San Mateo, California 94401.

Case 20-12836-JTD Doc 670 Filed 03/23/21 Page 1 of 15Case 20-12836-JTD Doc 675-1 Filed 03/23/21 Page 1 of 84

2

PRELIMINARY STATEMENT

1. This matter arises from the Contempt Motion filed by the Committee in the

United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”), which

seeks an order: (i) holding James Alexander (“Alexander”) in contempt of court for failing to

comply with the Bankruptcy Court’s Order Approving the Emergency Motion of the Official

Committee of Unsecured Creditors for Entry of an Order Granting (I) Temporary Restraining

Order and Preliminary Injunction Against James Alexander and (II) Related Relief (the

“Emergency Order”); and (ii) issuing a bench warrant for Alexander’s arrest and detention until

he complies with the Emergency Order.2

2. Given (i) the substantial question as to whether the Bankruptcy Court, as an

Article I court, has authority to impose incarceration as a coercive sanction and (ii) the

complexity of the matter in light of recent findings that Alexander may be a fugitive in the

United Kingdom,3 the Bankruptcy Court instructed the Committee to file this Withdrawal

Motion so that the Contempt Motion could be heard by the District Court.4 Moreover,

2 See Bankr. Docket No. 486. 3 On January 8, 2021, the Bankruptcy Court approved the appointment of Robert J. Stark (the “Examiner”), as the

Examiner in the Debtors’ cases. See Bankr. Docket No. 338. On March 8, 2021, the Examiner filed his report. See Bankr. Docket No. 605 (the “Examiner’s Report”). The Examiner’s Report contained a series of findings concerning Alexander’s past, including that he used a series of different names, had been convicted in the United Kingdom, and had escaped from a prison in England. See Bankr. Docket No. 338, at 11 (“Mr. Alexander was convicted on December 3, 2007 in the United Kingdom for crimes related to illegal money transfers, for which he was sentenced to three years and four months in prison to be served at HMP Ford Prison in West Sussex, England. At the time of his incarceration, there was a prison break at this facility. Mr. Alexander has been identified by the UK government as a fugitive.”), 89-90 (“On December 3, 2007, Alexander was convicted in the United Kingdom for crimes related to illegal money transfers. He was sentenced to three years and four months in prison to be served at HMP Ford Prison in West Sussex, England. On October 15, 2008, while serving his sentence, there was a prison break at the HMP Ford Prison. It appears that Alexander is a fugitive in the United Kingdom.”) (internal citations omitted).

4 See March 17, 2021 Hr’r Tr. at 14:4-11 (“On the contempt motion, because it is asking for Mr. Alexander’s

incarceration, there are serious questions about whether or not a bankruptcy court as an Article [I] court has the authority to do that. And to avoid those issues and also because . . . if Mr. Alexander is in fact a fugitive from the U.K., it resulted in further criminal allegations against him, then I think it’s important that this by heard by the district court and not by me.”). The March 17, 2021 Hr’r Tr. is attached hereto as Exhibit B.


3

considerations of judicial economy support withdrawing the reference because: (i) there is a

pending appeal in the District Court of the Emergency Order; and (ii) if the Bankruptcy Court

does not have authority to enter an order on the Contempt Motion, then the District Court will

ultimately be asked to review the Bankruptcy Court’s findings of fact and conclusions of law and

issue a ruling on the Contempt Motion.5 Thus, judicial economy supports withdrawing the

reference. For these reasons, “cause” exists for the District Court to withdraw the reference.

3. Additionally, the Committee respectively requests that the Withdrawal Motion be

heard on an emergency basis. The Emergency Order directed Alexander to immediately

turnover the Debtors’ estates’ assets in his possession, including cryptocurrency, provide

expedited discovery, and sit for a deposition.6 Alexander has not fully complied with these

obligations. Moreover, Alexander has shown that he will not hesitate to take defensive measures

when his feet get close to the fire.7 On multiple occasions, Alexander transferred and/or

liquidated the Debtors’ assets in direct response to pleadings being filed against him (including

withdrawing $60,000 in cash and storing it in the trunk of his car).8

4. The need for Alexander to produce discovery is similarly urgent. Alexander’s

improper transactions involved the transfer of cryptocurrency, which is very difficult to track and

5 See Docket Nos. 526 & 529. 6 See Feb. 5, 2021 Hr’g Tr. at 24:12-17; 33:17-22; 34:24- 35:6; 37:1-5; 31:4-5 attached hereto as Exhibit C. 7 For example: (i) shortly after a complaint was filed against Alexander by the Debtors in California state court,

Alexander transferred and liquidated Debtor assets, id. at 80:8-13; (ii) shortly after the Committee filed the Emergency Motion of the Official Committee of Unsecured Creditors for Entry of an Order Granting (I) Temporary Restraining Order and Preliminary Injunction Against James Alexander and (II) Related Relief (the “Emergency Motion”) in the adversary proceeding captioned Cred Inc., Cred Capital, Inc., and Cred (U.S.) LLC v. Alexander, Case No. 20-12836 (JTD), Docket No. 6 (Bankr. D. Del.) (the “Adversary Proceeding”), Alexander withdrew $170,000 in cash, storing $60,000 of which in the trunk of his car, see Bankr. Docket No. 645-7 at 42:12-50:7; and (iii) Alexander had a bankruptcy petition prepared in advance of a Bankruptcy Court-ordered deposition, which he then filed during a five-minute break in the deposition to end his questioning. See id. at 119:4-11.

8 Id. at 42:12-50:7.


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trace. Accordingly, there is a justifiable concern that a delay in adjudication of this Withdrawal

Motion (and subsequently, the Contempt Motion) may result in Alexander’s (or a third-party

transferee’s) depletion or transfer of the Debtors’ assets, which would cause irreparable harm.

JURISDICTION

5. The District Court has jurisdiction over this Motion pursuant to 28 U.S.C.

§ 1334(b).

6. Venue in the District Court is proper pursuant to 28 U.S.C. §§ 1408 and 1409.

7. The statutory and legal predicates for the relief sought herein are 28 U.S.C.

§ 157(d), Bankruptcy Rule 5011, and Local Rule 5011-1.

STATEMENT OF FACTS

A. Summary Background

(1) The Chapter 11 Cases

8. On November 7, 2020, the Debtors commenced the above-captioned chapter 11

cases (the “Chapter 11 Cases”) by filing voluntary petitions for relief under chapter 11 of the

Bankruptcy Code in the Bankruptcy Court.

9. On December 3, 2020, the Office of the United States Trustee appointed the

Committee.9

10. On March 8, 2021, the Examiner filed the Examiner’s Report, which contained a

series of findings concerning Alexander’s past, including that he used a series of different names,

had been convicted in the United Kingdom, and had escaped from a prison in England.10

9 Bankr. Docket No. 120. 10 See supra, n. 3.


5

(2) The Emergency Motion

11. Alexander was employed as the Debtors’ Chief Capital Officer from August 27,

2018 until his termination on June 26, 2020.11 Two days before Alexander’s termination,

Alexander caused a significant amount of the Debtors’ assets (the “Assets”) to be transferred to

him without authorization.12

12. On July 15, 2020, the Debtors commenced an action against Alexander in

California state court to, among other things, recover the Assets.13 In that action, the California

court issued two orders (the “California Freeze Orders”) freezing the Assets and forbidding

Alexander from making any transfers thereof.14

13. On January 16, 2021 and January 17, 2021, Alexander violated the California

Freeze Orders by transferring the Assets.15

14. As a result, on February 3, 2021, the Committee filed the Emergency Motion,

which sought a temporary restraining order: (i) restraining Alexander from executing further

transactions involving the Assets; (ii) directing Alexander to immediately transfer the Assets into

escrow; and (iii) directing Alexander to produce expedited discovery to develop further

information related to the Assets and Alexander’s personal finances.16

15. On February 5, 2021, the Bankruptcy Court held an emergency hearing, granted

the Emergency Motion, and directed Alexander to provide to the Debtors and the Committee:

11 See Adv. Pro. Docket No. 1, ¶¶ 15, 22-24, 32. 12 See id. at ¶ 35. 13 See Bankr. Docket No. 645-3. 14 See Bankr. Docket Nos. 645-1-2. 15 See Adv. Pro. Docket No. 8, ¶ 15, Ex. B. 16 Adv. Pro. Docket No. 6.


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(i) certain of the Assets within 30 minutes after the hearing concluded; (ii) all cash proceeds from

the liquidation of the Assets by close of business the day of the hearing; (iii) a detailed

declaration by 4:00 p.m. describing all of the transfers of the Assets and any other assets of the

Debtors that were in Alexander’s possession; (iv) an explanation of the reasons for each of these

transactions; (v) discovery on all of the transactions relating to the Debtors by February 8, 2021;

(vi) discovery on all of Alexander’s personal assets by February 10, 2021; and (vii) a deposition

with the Debtors and the Committee.17

16. As set forth in the Contempt Motion, Alexander did not comply with the

Emergency Order.18

(3) The Contempt Motion

17. As a result of Alexander’s noncompliance, on March 15, 2021, the Committee

filed the Contempt Motion, which seeks entry of an order: (i) finding Alexander in contempt for

failing to comply with the Emergency Order; and (ii) issuing a bench warrant for Alexander’s

arrest and detention until he complies.19

18. On March 17, 2021, the Bankruptcy Court held a status conference with respect to

the Contempt Motion. At the March 17 status conference, the Bankruptcy Court instructed the

Committee to file a motion to withdraw the reference because the Contempt Motion “is asking

for Mr. Alexander’s incarceration, [and] there are serious questions about whether or not a

bankruptcy court as an Article [I] court has the authority to do that. And to avoid those issues

and also because . . . if Mr. Alexander is in fact a fugitive from the U.K., it resulted in further

17 See Ex. C at 24:12-17; 33:17-22; 34:24- 35:6; 37:1-5; 31:4-5. 18 See Contempt Motion, ¶¶ 27-64. 19 Id., ¶ 69.


7

criminal allegations against him, then I think it’s important that this by heard by the district court

and not by me.20

(4) Alexander’s Appeals

19. Alexander appealed two Bankruptcy Court orders,21 and those appeals are

pending in the District Court (collectively, the “Alexander Appeals”). Specifically, on February

19, 2021, Alexander appealed the: (i) Emergency Order; and (ii) Order Denying the Motion of

James Alexander to Dismiss the Cred Capital, Inc. Case (the “Dismissal Order”).22

20. On March 8, 2021, Alexander filed designations of records and statements of

issues on appeal in both Alexander Appeals.23

RELIEF REQUESTED

21. By this Motion, the Committee respectfully requests that the District Court

withdraw the reference from the Bankruptcy Court with respect to the Contempt Motion.

BASIS FOR RELIEF

22. Bankruptcy courts derive their jurisdiction from the district court’s referral of

bankruptcy matters pursuant to 28 U.S.C. 157(a), which states that “[e]ach district court may

provide that . . . any or all proceedings arising under title 11 or arising in or related to a case

under title 11 shall be referred to the bankruptcy judges for the district.” Indeed, the District

Court has referred such proceedings to the Bankruptcy Court pursuant to the Amended Standing

Order of Reference, entered by the District Court on February 9, 2012.

20 See Ex. B at 14:4-11. 21 See Bankr. Docket Nos. 526 & 529. 22 See Bankr. Docket No. 487. 23 See Bankr. Docket Nos. 607 & 609.


8

23. Because the Bankruptcy Court’s jurisdiction is acquired by reference from the

District Court, the District Court “may withdraw, in whole or in part, any case or proceeding

referred under this section, on its own motion or on timely motion of any party, for cause

shown.” 28 U.S.C. 157(d) (emphasis added). Although “cause” is not defined by the statute, the

Third Circuit has articulated certain factors that should be considered, including:

(i) considerations of judicial economy; (ii) promoting uniformity in bankruptcy administration;

(iii) reducing forum shopping and confusion; (iv) fostering the economical use of resources; and

(v) expediting the bankruptcy process. See In re Pruitt, 910 F.2d 1160, 1168 (3d Cir. 1990).

24. These factors, however, are not exhaustive. See In re Smalls, No. 15-02174-

CMB, 2016 WL 1639673, at *3 (W.D. Pa. Apr. 26, 2016) (stating that the Pruitt factors are non-

exhaustive). “Cause” has also been established when: (i) the proceeding is exceptionally

complex such that the proceeding is “better served by the presumed expertise of [the district

court]”;24 or (ii) where “there is a substantial question as to whether a bankruptcy judge has

authority to make dispositive rulings.”25

A. The Withdrawal Motion is Timely

25. “[A] motion to withdraw is timely if it was made as promptly as possible in light

of the developments in the bankruptcy proceeding.” Pruitt, 910 F.2d at 1171. The Contempt

Motion was filed on March 15, 2021. The Bankruptcy Court held a status conference on the

Contempt Motion on March 17, 2021, at which the Bankruptcy Court instructed the Committee

24 See In re Enron Creditors Recovery Corp., 410 B.R. 374, 384-85 (S.D.N.Y. 2008) (noting that there is ample

authority for withdrawing the reference where a proceeding is exceptionally complex) (citing In re Braniff Int'l Airlines, Inc., 159 B.R. 117, 126 (E.D.N.Y. 1993); In re Complete Mgmt. Inc., No. 02 Civ. 1736, 2002 WL 31163878, at *3 (S.D.N.Y. Sept. 27, 2002); In re Leedy Mortgage Co., 62 B.R. 303, 306 (E.D. Pa. 1986)).

25 See In re Wisconsin Steel Corp., 48 B.R. 753, 767 (N.D. Ill. 1985); see also In re Dow Corning Corp., 215 B.R.

526 (Bankr. E.D. Mich. 1997) (bankruptcy court recommended to district court that it withdraw the reference because the district court would be better able to make Daubert determinations).


9

to file this Withdrawal Motion. See Ex. B at 14:7-11. The Committee filed this Withdrawal

Motion on March 23, 2021, only four business days after the March 17 status conference.

Accordingly, this Withdrawal Motion is timely.

B. Permissive Withdrawal is Appropriate Because There is a Substantial Question of Whether the Bankruptcy Court Has the Authority to Impose Coercive Incarceration

26. As noted by the Bankruptcy Court, “there are serious questions about whether or

not a bankruptcy court as an Article [I] court has authority [to incarcerate Alexander].” See Ex.

B at 14:4-7. Indeed, for that reason, bankruptcy courts have deferred to their respective district

courts with regard to coercive incarceration sanctions. See e.g., In re Hughes, No. 06-32726,

2007 WL 1087784, at *7, n. 1, 8 (Bankr. N.D. Tex. April 4, 2007) (noting concern as to the

bankruptcy court’s Constitutional authority as a non-Article III court, to incarcerate a person for

civil contempt and thus, recommending withdrawal of the reference to the district court); BKS

Properties, Inc. v. Shumate, 271 B.R. 794, 805 (N.D. Tex. 2002) (recommending withdrawal of

reference “[t]o avoid any issue concerning constitutional authority to incarcerate a person for

civil contempt . . . .”); In re de Kleinman, 923 F. Supp. 24, 27 (S.D.N.Y. 1996) (upon a question

of the bankruptcy court’s jurisdiction to find civil contempt and direct incarceration, the district

court heard the matter); In re GGW Brands, LLC, et al., No. 13-bk-15130-SK, Docket No. 645

(Bankr. C.D. Cal. Aug. 4, 2014) (the bankruptcy court recommending withdrawal of reference to

the district court for the limited purpose of considering issuing arrest warrants for civil

contempt).26

26 Contra In re 1990s Caterers Ltd., 531 B.R. 309, 320 (Bankr. E.D.N.Y. 2015) (bankruptcy court imposing

incarceration after a finding of civil contempt); In re Baker, No. 15-ap-01535-BB, 2019 WL 2896137, at *1 (Bankr. C.D. Cal. April 29, 2019) (same); In re Vaso, 514 B.R. 416, (Bankr. D. Del. 2014) (although not imposing incarceration, noting that bankruptcy courts have the authority to do so).


10

27. The concern over the Bankruptcy Court’s authority is further justified by the

Examiner’s findings regarding Alexander potentially being a fugitive from the United Kingdom.

Particularly, as stated by the Bankruptcy Court, if Alexander is a fugitive then there may be

“further criminal allegations against him.”27 See Ex. B at 14:7-11.

28. Pursuant to the Contempt Motion, the Committee is seeking an order issuing a

bench warrant for the arrest and detention of Alexander. Given the substantial question of

whether or not the Bankruptcy Court has the authority to issue such a ruling, “cause” exists to

withdraw the reference. See id. (the Bankruptcy Court stating that because of this question “it’s

important that this be heard by the district court . . . .”); see also Wisconsin Steel Corp., 48 B.R.

at 767 (finding cause to exist where “there is a substantial question as to whether a bankruptcy

judge has authority to make dispositive rulings . . . .”); see Dow Corning Corp., 215 B.R. at 526

(recommending that the district court withdraw the reference because the district court would be

better able to make Daubert determinations). For that reason, the Withdrawal Motion should be

granted.

C. Permissive Withdrawal is Appropriate Because of the Complexity of the Circumstances

29. District courts are within their discretion to withdraw the reference where a

proceeding “is exceptionally complex” and “would be better served by the presumed expertise of

the [district court] . . . .” Enron Creditors Recovery Corp., 410 B.R. at 384-85 (noting that there

is ample authority for withdrawing the reference where a proceeding is exceptionally complex)

(citing In re Braniff Int'l Airlines, Inc., 159 B.R. 117, 126 (E.D.N.Y. 1993); In re Complete

27 The Committee is not seeking any relief related to Alexander potentially being a fugitive, nor is the Committee

affirmatively stating that the Examiner’s findings are correct. The relief sought by the Committee in the Contempt Motion is limited to Alexander’s non-compliance with the Emergency Order.


11

Mgmt. Inc., No. 02 Civ. 1736, 2002 WL 31163878, at *3 (S.D.N.Y. Sept. 27, 2002); In re Leedy

Mortgage Co., 62 B.R. 303, 306 (E.D. Pa. 1986)).

30. In addition to the question of authority, the existence of potential criminal

allegations against Alexander creates a level of complexity that is best served by the District

Court. Although the Committee is not seeking relief as to Alexander’s alleged criminal past, if

criminality becomes an issue with respect to the Contempt Motion, the Bankruptcy Court does

not have authority to enter an appropriate order. See In re Vaso Active Pharmaceuticals, Inc.,

514 B.R. 416, 421-22 (Bankr. D. Del. 2014) (noting that bankruptcy courts do not possess

criminal jurisdiction). For that reason also, “cause” exists to withdraw the reference and the

Withdrawal Motion should be granted.

D. “Cause” Exists to Withdraw the Reference in the Interests of Judicial Economy

31. Judicial economy weighs in favor of granting permissive withdrawal for two

reasons.

32. First, Alexander has appealed the Emergency Order (and the Dismissal Order) to

the District Court. Thus, the District Court is well-versed (or soon will be) in the facts and

circumstances underlying the Emergency Order. See In re The IT Group, No. 05-100, 2005 WL

936992, at *2 (D. Del. Apr. 21, 2005) (withdrawing the reference when adversary proceeding

concerned similar facts underlying pending district court action). Of course, the Emergency

Order and the Contempt Motion are intertwined in that the entire basis for the Contempt Motion

is Alexander’s noncompliance with the Emergency Order. Accordingly, withdrawing the

reference and adjudicating the Contempt Motion and the Emergency Order appeal in the same

forum promotes judicial economy.

33. Second, as discussed above, there is a question as to whether the Bankruptcy

Court has the authority to enter an order on the Contempt Motion. Thus, the Bankruptcy Court


12

would be limited to issuing findings of fact and conclusions of law, which would then have to be

reviewed by the District Court in order to issue a ruling. See Hatzel & Buehler, Inc. v. Orange &

Rockland Utlis., 107 B.R. 34, 40 (D. Del. 1989) (finding permissive withdrawal appropriate “in

light of considerations of judicial economy” when the bankruptcy court could not enter a final

judgment and the district court would be forced to review the facts and proposed findings of fact

and conclusions of law anyway); see also In re NDEP Corp., 203 B.R. 906, 907 (D. Del. 1996)

(quoting In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993) (“district courts might

reasonably conclude that ‘in a given case unnecessary costs could be avoided by a single

proceeding in the district court.’”)). Withdrawing the reference obviates the need for two

different forums to examine the same facts and circumstances and thus, promotes judicial

economy.

34. For these reasons, considerations of judicial economy support permissive

withdrawal of the Contempt Motion.

E. The Committee Respectfully Requests that the Withdrawal Motion be Heard on an Emergency Basis

35. The Committee respectfully requests that the District Court hear this Withdrawal

Motion on an emergency basis because any further delay will likely result in irreparable harm for

the following reasons:

36. First, Alexander has demonstrated a pattern of taking defensive measures in

response to pleadings filed against him, including: (i) transferring and liquidating certain of the

Assets shortly after the Debtors filed a California state court action against him; (ii) withdrawing

$170,000 in cash proceeds of the Assets shortly after the Emergency Motion was filed; and

(iii) preparing a bankruptcy petition to be filed in the middle of a Bankruptcy Court-ordered

deposition to halt the deposition. See supra, n. 7. Accordingly, the Committee is justifiably


13

concerned that Alexander will take similar defensive measures while the Contempt Motion (and

now the Withdrawal Motion) are pending.

37. Second, the Assets in question and the transfers thereof involve cryptocurrency,

which is easily transferred and extremely difficult to trace. To make matters worse, the nature of

the various cryptocurrency transactions present here are even more difficult to trace because

many of the transactions were “off exchange” transactions where cryptocurrency is traded

privately between parties (as opposed to through cryptocurrency exchanges). See Contempt

Motion, ¶¶ 76-80. Detailed discovery is needed to track these transactions in order to, among

other things, identify the transferees and attempt to prevent any further transfers of the Assets or

the proceeds thereof. Id. At any given moment, further transactions may be conducted, which

will make it increasingly more difficult for the Committee to recover the Assets.

38. It has been over six weeks since the Bankruptcy Court ordered Alexander to

immediately turnover the Assets and produce expedited discovery. Alexander has not turned

over or accounted for all of the Assets. Nor has Alexander complied with the Committee’s

discovery demands in accordance with the Emergency Order. The Committee is already facing a

delay in the adjudication of the Contempt Motion, which was filed in the Bankruptcy Court as an

emergency motion on shortened notice, due to the necessity of filing this Withdrawal Motion.

Any further delay in adjudicating this Withdrawal Motion may result in irreparable harm by

permitting the further depletion of the Assets and potentially hindering the Committee’s ability

to trace and recover the Assets. For these reasons, the Committee respectfully requests that the

District Court hear this Withdrawal Motion on an emergency basis.

NOTICE

39. Notice of the Withdrawal Motion has been provided to (i) counsel to the Debtors,

(ii) the Office of the United States Trustee for the District of Delaware, (iii) counsel to Alexander


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in the Chapter 11 Cases, (iv) counsel to Alexander in Alexander’s personal bankruptcy case

pending before the California bankruptcy court, and (v) parties that have requested notice

pursuant to Local Rule 2002-1(b). In light of the nature of the relief requested herein, the

Committee submits that no other or further notice is required.

[Remainder of Page Intentionally Left Blank]


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WHEREFORE, for the reasons stated above, the Committee respectfully requests that

the District Court enter an order withdrawing reference from the Bankruptcy Court with respect

to the Contempt Motion.

Dated: Wilmington, Delaware March 23, 2021

MCDERMOTT WILL & EMERY LLP /s/ David R. Hurst David R. Hurst (I.D. No. 3743) The Nemours Building 1007 North Orange Street, 10th Floor Wilmington, DE 19801 Telephone: (302) 485-3900 Facsimile: (302) 351-8711 -and- Timothy W. Walsh (admitted pro hac vice) Darren Azman (admitted pro hac vice) Joseph B. Evans (admitted pro hac vice) 340 Madison Avenue New York, NY 10173-1922 Telephone: (212) 547-5400 Facsimile: (212) 547-5444 Counsel to the Official Committee of Unsecured Creditors


Exhibit A

Proposed Order

Case 20-12836-JTD Doc 670-1 Filed 03/23/21 Page 1 of 3Case 20-12836-JTD Doc 675-1 Filed 03/23/21 Page 16 of 84

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

) Chapter 11 In re: ) ) (Jointly Administered) CRED INC., et al., ) ) Debtors.1 ) )

)

ORDER GRANTING EMERGENCY MOTION OF THE OFFICIAL

COMMITTEE OF UNSECURED CREDITORS FOR WITHDRAWAL OF THE REFERENCE WITH RESPECT TO THE MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR AN ORDER (I) HOLDING JAMES ALEXANDER

IN CONTEMPT OF COURT AND (II) ISSUING A BENCH WARRANT FOR THE ARREST AND DETENTION OF JAMES ALEXANDER

Upon the Emergency Motion of the Official Committee of Unsecured Creditors for

Withdrawal of the Reference With Respect to the Motion of the Official Committee of Unsecured

Creditors for an Order (I) Holding James Alexander in Contempt of Court and (II) Issuing a

Bench Warrant for the Arrest and Detention of James Alexander (the “Withdrawal Motion”),2

pursuant to 28 U.S.C. § 157(d) and Bankruptcy Rule 5011(a), for entry of an order by the United

States District Court for the District of Delaware (the “Court”) withdrawing the reference of the

Motion of the Official Committee of Unsecured Creditors for an Order (I) Holding James

Alexander in Contempt of Court and (II) Issuing a Bench Warrant for the Arrest and Detention

of James Alexander (the “Contempt Motion”); and this Court having jurisdiction to consider the

Withdrawal Motion and the relief requested therein pursuant to 28 U.S.C. §§ 157 and 1334; and

venue being proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409; and this Court



2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Withdrawal Motion.


2

having reviewed the Withdrawal Motion; and this Court having held a hearing to consider the

relief requested in the Withdrawal Motion; and this Court having determined that the legal and

factual bases set forth in the Withdrawal Motion establish just cause for the relief requested

therein; and after due deliberation and sufficient cause appearing therefor,

IT IS HEREBY ORDERED THAT:

1. The Withdrawal Motion is granted.

2. The Contempt Motion is hereby withdrawn pursuant to 28 U.S.C. § 157(d).

3. The Contempt Motion shall be set for hearing on ______, 2021 at [ ]:[ ] [ ].m.

4. This Court shall retain jurisdiction to resolve any disputes arising from or related

to this Order, and to interpret, implement and enforce the provisions of this Order.

Dated: __________________________ United States District Judge


Exhibit B

March 17, 2021 Hearing Transcript


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UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE

IN RE: . Chapter 11 . Case No. 20-12836 (JTD) CRED INC., et al., . . (Jointly Administered) . . . 824 Market Street Debtors. . Wilmington, Delaware 19801 . . Wednesday, March 17, 2021 . . . . . . . . . . . . . . . 2:01 p.m.

TRANSCRIPT OF HYBRID TELEPHONIC/ZOOM HEARING BEFORE THE HONORABLE JOHN T. DORSEY

UNITED STATES BANKRUPTCY JUDGE

APPEARANCES: For the Debtors: Scott D. Cousins, Esquire Scott Jones, Esq. COUSINS LAW, LLC Brandywine Plaza West 1521 Concord Pike Suite 301 Wilmington, Delaware 19803 -and- James T. Grogan, Esquire PAUL HASTINGS, LLP 600 Travis Street 58th Floor Houston, Texas 77002 (APPEARANCES CONTINUED) Electronically Recorded By: Jason Spencer, ECRO Transcription Service: Reliable 1007 N. Orange Street Wilmington, Delaware 19801 Telephone: (302) 654-8080 E-Mail: [email protected] Proceedings recorded by electronic sound recording: transcript produced by transcription service.


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APPEARANCES (CONTINUED): For the Debtors: Avram Luft, Esquire PAUL HASTINGS, LLP 200 Park Avenue New York, New York 10166 For the Trustee: James J. McMahon Jr., Esquire UNITED STATES DEPARTMENT OF JUSTICE OFFICE OF THE UNITED STATES TRUSTEE 844 King Street Suite 2207, Lockbox 35 Wilmington, Delaware 19801 For the Official Committee of Unsecured Creditors: Darren Azman, Esquire David Hurst, Esquire MCDERMOTT WILL & EMERY, LLP 340 Madison Avenue New York, New York 10173 For Robert J. Stark: Andrew M. Carty, Esquire BROWN RUDNICK, LLP Seven Times Square New York, New York 10036 For James Alexander: Mark Pfeiffer, Esquire BUCHANAN INGERSOLL & ROONEY 700 Alexander Park Suite 300 Princeton, New Jersey 08540-6347


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INDEX

MATTERS GOING FORWARD: PAGE Agenda Item 1: Motion to Withdraw as Attorney of Record 4 for James Alexander [Docket No. 542, 2/23/21] Court's ruling 13, 17 Transcriptionist’s Certificate 19


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(Proceedings commenced at 2:01 p.m.)

THE COURT: Good afternoon. Can everyone hear me

okay? All right.

This is Judge Dorsey. We're on the record in Cred

Inc., Case Number 20-12836. I'll go ahead and turn it over

to debtors' counsel to run the agenda.

MR. COUSINS: Good afternoon, Your Honor, Scott

Cousins on behalf of debtors Cred Inc.

There are two matters on the agenda, one is a

status conference. The first is Mr. Pfeiffer's motion to

withdraw as counsel for Mr. Alexander.

THE COURT: All right. Mr. Pfeiffer, are you on?

MR. PFEIFFER: Good afternoon, Your Honor, Mike

Pfeiffer on behalf of Buchanan Ingersoll & Rooney in

connection with our firm's motion to withdraw as counsel for

Mr. Alexander.

I would like to make one correction to the motion

before starting, Your Honor. We have a citation to RPC

1.16(a)(3) in our motion, which deals with a discharge of the

attorney. That has not occurred, that is an errant citation.

This is a matter under RPC 1.16(b).

As with these types of motions, Your Honor, we've

alleged that there are irreconcilable differences which make

it difficult, if not impossible, for this firm to continue to

represent this debtor -- or Mr. Alexander. In addition, Mr.


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Alexander is in his own Chapter 7 case in California and does

not have the ability to continue to retain us in this matter.

As with these types of motions, we are available

if the Court has questions as to the specific reasons for the

withdrawal or for the termination of the relationship, and we

can provide those reasons to the Court in camera.

There has been an objection to the motion to

withdraw filed by the committee. And, essentially, the

committee takes the position that it would be difficult for

this firm to withdraw at the present time because there are

unfinished issues with respect to the Court's order from

February 5th, 2021.

We have filed this morning -- or this afternoon,

not filed, but we submitted to debtors' counsel, the

committee, and to chambers a supplemental affidavit, and we

have also provided discovery in connection with what's been

called the Phase II discovery, which deals with the debtors'

personal financial information. And as the Court could

imagine, because the debtor filed a Chapter 7 bankruptcy,

much of the information is already in the debtor's statement

of financial affairs and bankruptcy schedules in his personal

bankruptcy case.

With regard to the Court's order as far as

unfinished business, we took the Court's order very

seriously. And, rightfully, you know, the Court was


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concerned about immediately getting back bitcoin that was in

my client's possession that were derived from the debtors.

And on the day of the hearing my client turned over

approximately 50 bitcoin worth approximately $1.9 million at

the time and approximately $2.7 million in USDT, which is a

cryptocurrency that is tied to the United States dollar.

We have also provided or helped the debtor -- or

Mr. Alexander provide information that the Court was

concerned about. If the Court recalls, there was a dispute

as to whether or not the debtor held 225 bitcoin or 150

bitcoin. We've provided information to the debtor that 75

bitcoin were liquidated prepetition, and the proceeds of that

liquidation went into a coin-based account and ultimately

into Wells Fargo accounts and JPMorgan accounts.

We also provided information to the debtor and the

committee concerning a liquidation of 100 bitcoin in January

2021. Again, it went into a bitcoin account and ultimately

into the USDT coin that was turned over to the debtor on

February 5th. Some of the proceeds apparently wound up in

the Wells Fargo and the JPMorgan accounts.

We provided information concerning the JPMorgan

account, the Wells Fargo account, and the coin-based accounts

to the debtor and to the committee, and, specifically, we

provided what I believe are the relevant account statements

for those accounts. And, ultimately, those accounts or


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subsequently the DIP account into which those accounts flowed

were turned over to the debtor.

So, from my perspective, a large portion of the

Court's order from February 5th was to get the property back

to the debtor and get information to the debtor about the

transactions, and I believe that has occurred. What has not

finally occurred or fully occurred is the deposition. That

was still out there, that was interrupted by the debtor's

bankruptcy filing. From our perspective, the debtor can sit

through a deposition. Whether the debtor chooses to sit

through a deposition or not, that's not necessarily within

the control of our firm.

So the short of it, from our perspective, is that

if we get out of this case as a firm now, you know, the

committee and the debtor or the liquidating trustee still

have whatever rights they have against the debtor or against

Mr. Alexander.

I'm aware of no other material bitcoin that was

derived from -- or any crypto that was derived from Cred that

has not been turned over. There are accountings that

probably need to be done and figured out, but the debtor and

the committee have all that information. They probably need

to ask some deposition questions about it, but that can be

done without our firm and if the debt -- if Mr. Alexander

agrees to submit to a deposition.


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But at this point, Your Honor, the continued

representation of Mr. Alexander by our firm is, regrettably,

not something that we can continue with in the scope of --

well, it's not something we can continue and we would request

that we be permitted to withdraw pursuant to RPC 1.16(b).

THE COURT: Has Mr. Alexander undertaken steps to

obtain replacement counsel in this case?

MR. PFEIFFER: Mr. Alexander has been advised that

he should undertake steps to retain replacement counsel. I

believe he has communicated with replacement counsel, I do

not know if he has retained replacement counsel.

THE COURT: Is Mr. Alexander's California counsel

on the call today?

MR. PFEIFFER: If I may scroll through the list,

Your Honor?

THE COURT: Yes.

(Pause)

THE COURT: It doesn't appear on the list that I

have.

MR. PFEIFFER: Your Honor, I don't see either the

bankruptcy lawyer or the general California counsel on the

list of today's hearing.

THE COURT: What -- who's -- I didn't know there

was general California counsel. I thought he had a

bankruptcy counsel in California, what's the general counsel


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that he has?

MR. PFEIFFER: Bird, Marella is the general

counsel or the litigation counsel handling various matters.

And the principal lawyer there is referenced in the

declaration, Thomas Reichert, who also has in his possession

some of the equipment that the Court instructed be turned

over to Mr. Reichert.

THE COURT: All right. Let me hear from UCC's

counsel who objected.

MR. AZMAN: Good afternoon, Your Honor, Darren

Azman, McDermott Will & Emery, counsel to the committee.

Your Honor, the withdrawal motion is very much

tied to the contempt motion, as well as the original

emergency order that Your Honor entered. The fact is, as we

sit here today, Mr. Alexander has not complied with the

order. If it is acceptable, I think it would be beneficial

for us to address the contempt motion, as Mr. Pfeiffer did,

because it does lay the foundation for why we're asking the

Court to deny the withdrawal motion. That is, once the order

is complied with, we have no objection to Buchanan's

withdrawal. We understand the circumstances they're in right

now, but we're not there quite yet.

So, if it's acceptable, I'd like to address some

issues with the contempt motion.

THE COURT: All right. I'm not going to -- I'm


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certainly not hearing the contempt motion, but you can

address whatever you think is necessary --

MR. AZMAN: Yeah.

THE COURT: -- to deal with the withdrawal motion.

MR. AZMAN: Understood. Your Honor, the emergency

order that you entered was very clear about what Alexander

was required to do and when he was required to do it. As I

said a moment ago, as we sit here right now, he has not

complied with that order. Yes, he has complied in some

respects and that's great, but he is nowhere near satisfying

the obligations that you laid out very explicitly, which

includes turnover of assets that Alexander has admitted are

Cred Capital's property and, equally important, a declaration

and discovery on a host of issues that will allow the

committee and ultimately the liquidation trust to recover

estate property and discharge their fiduciary obligations.

Time and time again, Your Honor, Mr. Alexander has

come up with excuse after excuse. As you know, Mr.

Alexander's thrilling line of excuses culminated in his

personal bankruptcy filing in the middle of our deposition.

We had informally asked Mr. Alexander to consent to lifting

the stay so that we could enforce Your Honor's order.

Perhaps unsurprisingly, he declined. So we went out to

California and the judge very quickly entered an oral order

from the bench immediately lifting the stay for us to proceed


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on these issues before Your Honor.

Since that time, since that court had lifted the

automatic stay, we have gotten practically nothing from

Alexander other than around $130,000 of cash. But up until

yesterday, late afternoon, we had not received a single piece

of additional information that Your Honor had ordered

Alexander to provide, including any information regarding

Alexander's assets that he deems to be his personal assets,

but we're all very skeptical in terms of characterizing it

that way.

This needs to end and we need to execute on the

order that Your Honor granted us, and Mr. Alexander needs to

respect the law. We're under no illusion that the relief we

asked for in the contempt motion is extraordinary, there's no

other way to put it, but at the same time we don't see that

there's any other relief that would coerce Alexander to

comply with the order. The estate already has significant

claims against Alexander, we believe in excess of $50

million. There's questions about whether the automatic stay

would preclude monetary sanctions from being issued. So Your

Honor has nothing left but jail time for Mr. Alexander, in

our view, until he complies with the order. So that's why we

asked the Court to issue a bench warrant and to take that

action.

Now, late yesterday afternoon, around 4 o'clock,


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we did receive additional discovery from Mr. Alexander. And

then shortly before today's hearing, I would say about an

hour ago, we received a new declaration. We received it the

same time it was sent to Your Honor's chambers. We're still

reviewing everything, but there are already very obvious and

significant deficiencies, and I'm sure that list is going to

grow once we finish our review. We're happy to walk through

our initial issues list for why he's not complying still.

I'm not sure that would be a productive use of the Court's

time, but the point is that Mr. Alexander is going to

continue to be evasive in his responses until there are

serious consequences imposed on him for noncompliance.

Now, that ties directly into -- excuse me just a

moment -- that ties directly into Buchanan's motion to

withdraw because the job is not done. They're the ones who

are most inured with these matters, they received whatever

benefit it is that they received representing Mr. Alexander

for the past several months in the case, and we think the

case law is there to support the proposition that they should

be -- they should continue in that representation until the

job is done.

And, you know, I think the quote from our briefing

on this issue is probably best: "An attorney has certain

obligations and duties to apply once representation is

undertaken that do not evaporate because the case becomes


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more complicated or the work more arduous. Attorneys must

never lose sight of the fact that the profession is a branch

of the administration of justice and not a mere money-getting

trade."

Your Honor, we don't think that Buchanan should be

able to withdraw, the job is not done.

THE COURT: Thank you, Mr. Azman.

Anyone else wish to be heard before I go back to

Mr. Pfeiffer?

All right. Mr. Pfeiffer, I sympathize with your

position and I understand the difficult position that you are

in, but at this point, given the fact that we have this

contempt motion pending, I think it would be inadvisable for

me to allow you to withdraw at this time until we can see

where this case is going to go. And I'll talk about the

contempt motion in a moment, but -- so at this point I'm

going to -- I'll deny the motion to withdraw without

prejudice to renew it again, and I will actually bring it up

myself in the future to see where things are.

And hopefully Mr. Alexander understands the

seriousness of the situation that he is in at this time and

would seek to obtain new counsel, because if the contempt

motion goes forward, you know, there's a risk that he could

end up in jail. And if he is in fact a fugitive from the law

in the U.K., he could end up in serious criminal -- a


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criminal position as well.

So, for those reasons, I think it's not advisable

for me to allow you to withdraw at this time.

On the contempt motion, because it is asking for

Mr. Alexander's incarceration, there are serious questions

about whether or not a bankruptcy court as an Article 3 court

has the authority to do that. And to avoid those issues and

also because, as I said, if Mr. Alexander is in fact a

fugitive from the U.K., it resulted in further criminal

allegations against him, then I think it's important that

this be heard by the district court and not by me.

And I'd point out that Rule 9020 provides that

Rule 9014 governs motions for contempt, and 9014 provides

that a person before contempt can be entered has to be given

notice and an opportunity to be heard. And the notice under

9014 has to be the type of notice that is provided under Rule

7004 for summons -- for issuance of a summons and complaint.

So it's certainly not something that can be done

off the cuff because it wasn't -- the contempt is not alleged

to be something that occurred in front of me, it was

something that occurred outside the Court's purview. So it

would require a full hearing and an opportunity for Mr.

Alexander to be heard before any contempt could be granted.

So I would -- well, what you should do -- and I've

actually already contacted the district court to give them a


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heads-up that this might be coming -- is to file a motion to

withdraw the reference to allow the contempt motion to be

heard before the district court and proceed in that manner.

Does that -- does anybody have any questions about

that?

MR. AZMAN: Thank you, Your Honor. Would Your

Honor be willing to hear that motion for the withdrawal of

the reference on shortened notice?

THE COURT: I think that gets heard by the

district court, not by me.

MR. AZMAN: The district court, that's right,

that's right. Okay, thank you.

THE COURT: But, as I said, I did give the

district court a heads-up that this would be coming, likely

be coming. So if it is something you want to do, I would go

ahead, and make the request and make the request on an

expedited fashion and see if the district court will agree to

do that.

MR. JONES: Your Honor, I'm sorry to jump in, but

does your Court need to make a core/non-core determination

for the benefit of the district court or can we go right to

the district court.

THE COURT: I think it can go just straight to the

district court to withdraw the reference. I don't think

there's any need for me to make a determination on that, but


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if you need to -- yeah, I don't know if this would be a core

or non-core matter, to be honest with you, Mr. Cousins. I've

never dealt with this situation before either in practice or

on the bench, but --

MR. JONES: Yeah, Your Honor, the only reason I

raise it, if I recall, there's some old case law that

requires Your Honor to make the core/non-core determination

to help the district court make a decision, but I think

because of the criminal overlay, I understand where the Court

is going. And I'm sorry to intervene; I just want to make

sure this goes as quickly as possible.

THE COURT: No, I understand, and it should be

done quickly and I think it's something that can be done

quickly. If there is an issue, if the district court raises

a question about whether or not it's a core or non-core and

they need me to make a decision, I certainly would do that on

an expedited basis, but I don't think you need to -- in this

circumstance, I don't think you need to do that. We're all

treading new ground here.

MR. JONES: Yes.

THE COURT: All right. Anything else for today?

MR. AZMAN: Not from the committee, Your Honor.

Thank you.

THE COURT: Mr. Pfeiffer, if there is anything

that you think I should know that -- with regard to your


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representation of Mr. Alexander, you can certainly submit

that to me in camera, and I will look at that and consider

that as we go forward on reconsidering your motion for

withdrawal later on down the road.

MR. PFEIFFER: Your Honor, I appreciate that.

Would the Court consider just generally adjourning this

motion in lieu of denying it without prejudice, so that if

something does develop we don't have to go through the

process again?

THE COURT: That's fine with me. Yeah, we can do

that. I'll just adjourn the motion until some undetermined

time in the future -- or why don't we -- hopefully, this

moves very quickly. When is our next omnibus in this case?

MR. JONES: Your Honor, it's April 1st, I believe.

THE COURT: All right. Why don't we -- why don't

you go ahead and re-notice it for April 1st, Mr. Pfeiffer,

and we'll consider it then --

MR. PFEIFFER: We will. Thank you, Your Honor.

THE COURT: -- and we'll look at it again at the

next omnibus hearing. Hopefully, by then we'll be a little

further down the road with the district court and we'll know

what's going on. All right?

Is there anything else just status-wise or

housekeeping-wise that we can talk about as long as we're on

the call today? Nothing? Everything else is going smoothly


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except for this one hiccup?

MR. AZMAN: Your Honor, it's Darren Azman again

for the committee. The only status update I think that is

worthwhile is we're moving towards going effective under the

plan. So we're -- you know, we don't have a time frame, but

we're working through those issues now. And there are some,

you know, unique circumstances as always in this case with

transferring assets from the debtors to the trust and some

other related issues, but that's the direction we're heading

in and we're hopeful to go effective soon.

THE COURT: Okay. Thank you, Mr. Azman.

All right. Well, if there's nothing else for

today, then we are adjourned and I'll see everybody on April

1st.

COUNSEL: Thank you, Your Honor.

THE COURT: Thank you. We're adjourned.

(Proceedings concluded at 2:24 p.m.)


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CERTIFICATION

I certify that the foregoing is a correct

transcript from the electronic sound recording of the

proceedings in the above-entitled matter to the best of my

knowledge and ability.

/s/ Tracey Williams March 17, 2021

Tracey Williams, CET-914

Certified Court Transcriptionist

For Reliable


Exhibit C

February 5, 2021 Hearing Transcript


UNITED STATES BANKRUPTCY COURTDISTRICT OF DELAWARE

. Chapter 11IN RE: . . Case No. 20-12863(JTD)CRED INC., et al, . . . 824 Market Street Debtors. . Wilmington, Delaware 19801 .. . . . . . . . . . . . . . . . Friday, February 5, 2021CRED INC., CRED CAPITAL, .INC., and CRED (US) LLC, . Adv. Proc. No. 20-51006(JTD) . vs. . .JAMES ALEXANDER. .. . . . . . . . . . . . . . . .

TRANSCRIPT OF ZOOM HEARING RE: EMERGENCY MOTIONS OF THEOFFICIAL COMMITTEE OF UNSECURED CREDITORS

BEFORE THE HONORABLE JOHN T. DORSEYUNITED STATES BANKRUPTCY JUDGE

APPEARANCES VIA TELEPHONE:

For the Debtors: Scott D. Cousins, Esq. COUSINS LAW, LLC

James T. Grogan, Esq.Broocks (Mack) Wilson, Esq.Avi E. Luft, Esq.PAUL HASTINGS, LLP

For the U.S. Trustee: Joseph J. McMahon, Jr., Esq.OFFICE OF THE U.S. TRUSTEE

(Appearances Continued)

Audio Operator: Electronically Recorded by Jason Spencer, ECRO

Transcription Company: Reliable 1007 N. Orange Street Wilmington, Delaware 19801 (302)654-8080 Email: [email protected]

Proceedings recorded by electronic sound recording,transcript produced by transcription service.


APPEARANCES VIA TELEPHONE: (Continued)

For the Official Committeeof Unsecured Creditors: Timothy W. Walsh, Esq.

Joseph Evans, Esq.David Hurst, Esq.Darren Azman, Esq.MCDERMOTT, WILL & EMERY, LLP

For Upgradeya Investments,LLC: Adam G. Landis, Esq.

LANDIS, RATH & COBB, LLP

For Daniel Wheeler: Marc Greenwald, Esq.QUINN, EMANUEL, URQUHART & SULLIVAN, LLP

For the Examiner RobertJ. Stark: Gregory Taylor, Esq.

ASHBY & GEDDES, PA

Andrew Carty, Esq.BROWN RUDNICK, LLP

For the United States: Augustus Curtis, Esq.U.S. DEPARTMENT OF JUSTICE - CIVIL DIVISION

For James Alexander: Mark Pfeiffer, Esq.Kody Sparks, Esq.BUCHANAN, INGERSOLL & ROONEY, PC

Also Appearing: Julius Hudec, Pro Se

Daniyal Inamullah, Pro Se

Pamela Clegg, Esq.CIPHER TRACE

Jeffrey Kaplan"BCAS"

Uday Gorrepati"ABI PROJECT"

Daniel GillBLOOMBERG LAW

Vince SullivanLAW360

(Appearances Continued)


APPEARANCES VIA ZOOM: (Continued)

Also Appearing: Becky YerakWALL STREET JOURNAL

Laura HaneyU.S. BANKRUPTCY COURT - DISTRICT OF DELAWARE


4

INDEX

Page

ARGUMENT 5

COURT DECISION 24


5

1 (Proceedings commence at 10:01 a.m.)

2 THE COURT: Good morning. Can everyone hear me

3 okay?

4 UNIDENTIFIED: Yes, sir.

5 THE COURT: All right. This is Judge Dorsey. We

6 are on the record in Cred, Inc., Case Number 20-51006, the

7 adversary proceeding. This is the time the Court set aside

8 for a hearing on the committee's motion to intervene in the

9 adversary proceeding and a motion for temporary restraining

10 order and preliminary injunction.

11 So let me turn it over to -- and I will tell the

12 parties I have read all of the pleadings and the

13 declarations, including the response filed by Mr. Alexander.

14 So keep that in mind when making comments.

15 Mister -- let's see. Committee's counsel, who's

16 speaking for the committee?

17 MR. EVANS: This is Joseph Evans, Your Honor, from

18 McDermott, Will & Emery, for the committee.

19 THE COURT: All right.

20 MR. EVANS: Good morning.

21 THE COURT: Go ahead, Mr. Evans.

22 MR. EVANS: Your Honor, we brought this witness

23 because our expert witness Pamela Clegg identified to

24 transactions on January 16th and January 17th, 2021, executed

25 by Mr. Alexander, in which Bitcoin that was directly


6

1 traceable to Cred that was in Alexander's possession was

2 transferred. That's a total U.S. Dollar amount of 1.832

3 million. And that was in violation of a California temporary

4 restraining order and preliminary injunction.

5 As Your Honor said, you've read the papers. But we

6 just received the declaration this morning -- or a response

7 this morning from Mr. Alexander, where, apparently, he agreed

8 to post certain of the cryptocurrency into escrow, where

9 we're happy about that. The response wasn't clear as to what

10 "the cryptocurrency" is. He was originally transferring 225

11 -- or 224.98993 Bitcoin and 204,557 in U.S. Dollar coin,

12 which is a one-to-one for U.S. Dollars. And so the total net

13 value now is 8.474 million.

14 So, if Mr. Alexander is intending to

15 (indiscernible) in escrow $8.474 million worth of Bitcoin or

16 equivalent currency, then we have no issue. It wasn't clear

17 from the response if that's what his intentions are. But I'd

18 like to know what "the cryptocurrency" means when Alexander

19 is agreeing to post.

20 And I understand that they have requested more

21 briefing time for a sanctions motion. We don't have an

22 objection to that. And that's where we stand.

23 THE COURT: All right. So everybody understands,

24 on the motion for sanctions for violating the California

25 State Court's order, I don't think I have jurisdiction to do


7

1 that. I think that's pretty black-letter law, that I cannot

2 impose sanctions for someone violating another Court's order.

3 So I think, if you want sanctions for violating that order,

4 you're going to have to go back to the State Court to get

5 those.

6 But let me ask Mr. Pfeiffer. What is the Bitcoin

7 that you agreeing -- your client is agreeing to transfer into

8 the escrow account?

9 MR. PFEIFFER: Yes, Your Honor. Mark Pfeiffer,

10 Buchanan, Ingersoll & Rooney, on behalf of Mr. Alexander.

11 If I first may address the motion to intervene, my

12 client does -- is not opposing the motion to intervene.

13 My client is agreeing to transfer all of the Cred

14 Capital cryptocurrency under his possession or control to the

15 -- to an escrow agent, pending this matter. Right now, I

16 understand that there are 50 Bitcoin and another smaller form

17 of cryptocurrency that has fairly immaterial value, compared

18 to the Bitcoin. But my client would transfer everything that

19 he has into an escrow agent.

20 THE COURT: So the -- then he only has, you're

21 telling me, 50 of the 220 -- close to 225 Bitcoin that the

22 debtors allege is their property?

23 MR. PFEIFFER: Yes, Your Honor. Let me be

24 specific. It is my understanding that there was only 149 and

25 change, to begin with, of Bitcoin. And there is proceeds;


8

1 some of those Bitcoin have been liquidated and there are

2 proceeds. And it is my understanding my client is agreeable

3 to transfer the proceeds of the liquidated cryptocurrency,

4 the identifiable proceeds of the cryptocurrency liquidation,

5 into the escrow agent.

6 THE COURT: And how much is in Bitcoin and how much

7 is in liquidated form?

8 MR. PFEIFFER: So the 50 Bitcoin, there is another

9 about -- approximately $200,000 worth of cryptocurrency. And

10 I believe there is approximately $2.7 million in cash,

11 effectively, or proceeds.

12 THE COURT: So it sounds like we have a difference

13 as to how much Bitcoin was originally transferred and how

14 much Bitcoin was subject to the California Court's injunction

15 to not be transferred.

16 Mr. Evans?

17 MR. LUFT: Your Honor, may I be heard on behalf of

18 the debtor?

19 THE COURT: Go ahead, Mr. Luft, even though you say

20 you're Mr. Grogan on your --

21 MR. LUFT: Yeah, it looks like Me, Mr. Jimenez, and

22 Mr. Grogan all want to be Mr. Grogan this morning. I

23 apologize for that, but you -- how could you blame us?

24 Your Honor, this is shocking. I want to be very

25 clear about this. The idea that every -- first of all, there


9

1 was 225 pieces of Bitcoin. We have the contemporary records.

2 You've heard Mr. Inamullah's testimony about this previously

3 in the case. There were written documents indicating how

4 much was transferred to Mr. Alexander, there's documentation.

5 So this alleged 100 pieces of Bitcoin less is completely

6 unfounded. And we can provide all the documentation the

7 Court needs for how much it is.

8 So, quite simply, putting aside the fact that, as

9 Your Honor pointed out, Mr. Alexander was not a director of

10 Cred Capital, even under his scenario, he has stolen the

11 funds. There is no scenario where a director gets to take

12 personal funds of a corporation, put them in their own

13 pocket, and spend them. So, starting from day one, he has

14 acted improperly and taken it.

15 Moreover, before the California Court -- and we

16 litigated this -- at no point did Mr. Alexander ever say to

17 that Court, Your Honor, we're having a whole TRO hearing

18 about this amount of -- this 225 Bitcoin, I don't have that

19 much, I got rid of it, it's not in the account that we're

20 filing orders for. He has been dishonest with that Court.

21 And now we're standing before you. He went before

22 the Chancery Court -- excuse me -- before we get to you.

23 Again, he filed this motion, again, never once said I no

24 longer control these assets.

25 And then we had a whole hearing on Wednesday, where


10

1 I know he sat here in front of you, Your Honor, and never

2 once said, by the way, when Mr. Pfeiffer said this will all

3 get resolved and whatever else, you should all know I don't

4 hold those assets, right? Instead, what we have gotten is

5 serial lawsuits from him, trying at every turn to fight this.

6 And I -- Your Honor should be aware he filed a new

7 lawsuit in California just the other day, purportedly against

8 Mr. Schatt, but clearly against Cred, asking for the same

9 relief Mr. Pfeiffer was in front of you the other saying,

10 saying please find that I am a proper holder of these assets.

11 Well, now I know why: Because he spent them all or sent them

12 somewhere. So when he says he only has 50, that means he's

13 either spent it on something, given it away. Either way,

14 it's malfeasance.

15 To sit there and come to this Court today and say,

16 oh, I'll stick it in escrow is outrageous. First of all, it

17 just -- escrow is gone, Your Honor. He should turn it over

18 to the debtor. There's no -- he doesn't even dispute that

19 they're Cred Capital's assets. And then, to sit there and

20 say, well, I only know where 50 is, I would ask that he file

21 something today setting forth every single transfer, where it

22 is, who -- what it was for, and to whom, so that we can take

23 immediate steps with the committee to try to recover what is

24 literally millions of dollars of lost assets for the estate.

25 I cannot stress how surprised I am to find out -- I


11

1 knew he took it. But the idea that he did actually -- he'd

2 go through all this and never once mention that this thing

3 we've been fighting over for months is -- are assets that

4 don't even exist anymore in his possession is highly

5 disingenuous, including his filing, to be honest, and not put

6 that in there. I'm just shocked.

7 But I do ask, Your Honor, please, make him tell us

8 today where it is, so we can try to find these funds.

9 THE COURT: Well, let me hear --

10 MR. EVANS: Your Honor --


12 MR. EVANS: No, I think the time frame is important

13 here. You know, on July 16th, 2020, there was an order from

14 the California Court, and it precluded Alexander from

15 transferring, transmitting, using, depositing, or permitting

16 anyone else to transfer, transmit, or use any Cred and/or

17 Cred Capital digital assets in his possession, custody,

18 and/or control. That was July 16th, 2020.

19 And what we have here, Judge, is we have Alexander

20 not even appearing here today, despite the fact that he was

21 here on Wednesday, not even being available to us to cross-

22 examine or ask questions, even though we asked counsel

23 numerous times yesterday to have their client available to

24 us.

25 He's telling us today, oh, I only have 50 Bitcoin


12

1 left. This isn't something that was spent on Cred Capital

2 expenses, this isn't something that was a business expense

3 that may or may not have been done. These were transferred

4 on January 16th and January 17th of this year, two weeks ago.

5 Pamela Clegg is here to testify, and perhaps we don't need

6 her to explain anything, but this was in her declaration,

7 Docket Number 8, which was filed in this case, and these were

8 her conclusions:

9 "For the reason discussed in detail below, it is my

10 professional opinion that:

11 "(A) On January 16th, 2021, Alexander transferred

12 50 Bitcoin that is directly traceable to Cred;

13 "(B) On January 17th, 2021, Alexander transferred

14 50 Bitcoin that is directly traceable to Cred."

15 These are expert conclusions, and Alexander's

16 response is nothing. Okay, I'll put it in escrow now, I only

17 have 50 left. And that's not good enough, Judge.

18 We have $8.74 million worth of crypto that has been

19 put in his possession. We have violations of the court

20 order, which are clear, and violations two weeks ago. And

21 this isn't some unwilling or unknowing participant. He's

22 represented by competent counsel, he's engaged in litigation

23 (indiscernible) stayed, but he's engaged in litigation in

24 California, here. He's been actively answering adversary

25 proceedings here, standing up in court, showing up. And two


13

1 weeks ago, he was secretly taking money. And the only reason

2 we had it is because we have a cryptocurrency tracing expert

3 that's tracking this stuff, right?

4 So I really don't understand where they come out on

5 this thing. I mean, 8.74 million doesn't just disappear.

6 There's no dispute, 225 Bitcoin he received. On July 16th,

7 he's got a court order saying you can't move it. Two weeks

8 ago, 3.74 million of it gets trans -- or 1.74 million of it

9 gets transferred -- ah, sorry -- 3.664 million is the right

10 number. Two weeks ago, that disappeared. And now he's

11 saying, I don't know where it is, I don't have it, right?

12 And the tracing here, when you look at it and you

13 look at the expert report we submitted, it's not that

14 complicated. There's five or six transactions, and they're

15 all him, and the expert concluded they're all him.

16 And so I don't know where we go from here, Judge.

17 But I agree with the debtors' counsel, there needs to be an

18 accounting and a full explanation of each of these

19 transactions. There's only six or seven of them, Judge. And

20 it's shocking to us, just like it's shocking to the debtor,

21 that one of the former executives of the company would be

22 engaged in these litigations, represented by competent

23 counsel, you know, participate at a bankruptcy hearing, and

24 then just two weeks ago, right under our noses, steal $3.664

25 million with no explanation.


14

1 I mean, he was accused of, effectively, stealing

2 this money. And his response is, okay, well, I know the 100

3 that I just spent, you caught me, but the 50 that I still

4 have, okay, I'll put that in escrow, right? It's simply not

5 good enough, Judge.

6 And just, when we're talking about this motion and

7 we're talking about likelihood of success and the ability to

8 win the -- the ability to win this case (indiscernible) his

9 whole defense was that, oh, this was Cred Capital's assets

10 and Cred Capital wasn't appropriately -- couldn't have

11 appropriately filed for bankruptcy because, somehow,

12 Alexander was the only person that could authorize Cred

13 Capital to file for bankruptcy. Well, Your Honor ruled on

14 Wednesday, that theory doesn't have -- hold any water.

15 So that's why we don't really know what his defense

16 could possibly be at this point. And we need to get the 50

17 Bitcoin he says he has in his possession, get the whatever

18 2.7 million in cash he says he has in his possession, the

19 200,000 USD, and we need to know what happened with each of

20 these transactions.

21 MR. PFEIFFER: Your Honor, may I respond?

22 THE COURT: Go ahead, Mr. Pfeiffer.

23 MR. PFEIFFER: Yes, very briefly.

24 What we're agreeing to is transferring to the

25 escrow agent everything we have. I understand that Bitcoin


15

1 were liquidated and converted to cash. The identifiable cash

2 proceeds -- which I believe is a bulk, if not all of what

3 we're talking about -- will go to the escrow agent. I know

4 of very little, if any, that was spent out of those funds.

5 It is my understanding that at least the bulk of those funds

6 that resulted from the liquidation are there. We will

7 transfer those to the escrow agent.

8 We will provide them with information as to what

9 these transactions were, what happened with the cash. We are

10 effectively saying to the Court that everything we have will

11 go to the escrow agent. We will be cooperative because we

12 understand the implications of the Court's order on

13 Wednesday. We are going to put what we have into the escrow.

14 We're good with that.


16 MR. LUFT: Your Honor --

17 MR. PFEIFFER: May I just --

18 THE COURT: Hold on.

19 MR. EVANS: (Indiscernible)

20 THE COURT: Wait a minute, wait a minute.

21 Mr. Pfeiffer, were you done?

22 MR. PFEIFFER: No. As far as the allegation that

23 my client is filing complaints in California, that's not my

24 understanding. My understanding was there's a pending matter

25 between my client and Mr. Schatt in California, and my client


16

1 filed an amendment to the complaint --

2 THE COURT: He filed a --

3 MR. PFEIFFER: -- against mister --

4 THE COURT: He filed a second amended complaint,

5 actually. I've looked --

6 MR. PFEIFFER: Yeah.

7 THE COURT: -- at it.

8 MR. PFEIFFER: Yeah, against Mr. Schatt. He hasn't

9 started a new lawsuit.

10 And it's also my understanding -- and I have

11 California counsel here on the line, who can confirm; he's

12 not admitted before this Court. But it is my understanding

13 that there was never actually a signed injunction order in

14 California. So that's an issue that may or may not become

15 relevant at some point in time.

16 But the bottom line is, for today, we're agreeing

17 to hand over everything we have to the escrow agent, Judge.


19 MR. PFEIFFER: Your Honor, one question.

20 THE COURT: Hold on. One at a time here. Go

21 ahead, Mr. Evans.

22 MR. EVANS: Mr. Pfeiffer says that his client

23 Alexander has $2.7 million in cash proceeds from the

24 liquidation of Bitcoin, that's what he says. On January 16th

25 and January 17th, there was a transfer of 100 Bitcoin. The


17

1 market value of that 100 Bitcoin is $3.8 million. If, two

2 weeks ago, 100 Bitcoin was sent to who knows where, but

3 apparently another 1.1 just disappeared, right? So these

4 numbers don't make any sense.

5 And the question as to whether there was an order

6 from the California Court, I mean, it's in our papers. On

7 July 17th, 2020, there was a temporary restraining order

8 issued by the Court; in August, there was a preliminary

9 injunction that extended that temporary restraining order to

10 the conclusion of the proceedings. So I don't know what the

11 ambiguity is here, but we have two court orders that clearly

12 preclude Mr. Alexander from transferring Cred Capital.

13 His counsel is now conceding that the

14 cryptocurrency that he received, they're saying is Cred

15 Capital property. But the violation of the order -- and our

16 expert is here to testify, saying these January 16th and

17 January 17th transactions are directly traceable to Cred. So

18 that's where we are, Judge.

19 And you know, at this point, the funds just got to

20 be transferred to the debtor. I mean, we're -- they just got

21 to be transferred to us now. There's really no reason and no

22 harm -- or there's no reason to allow Alexander to hold onto

23 this, so he can get the benefit of an escrow agent. His

24 conduct here is egregious, Judge.



18

1 MR. PFEIFFER: Your Honor, may I respond?

2 MR. LUFT: If I may?

3 THE COURT: Well, let me hear from Mr. Luft first,

4 he wanted to say something.

5 MR. LUFT: Yes, thank you, Your Honor.

6 Your Honor, it looks as though Your Honor has seen

7 the second amended complaint.

8 THE COURT: I have, yes.

9 MR. LUFT: If you look at the first -- what's the

10 first action he wants, he wants a declaration that he's a

11 director of Cred Capital. Now I don't know why an action

12 against Mr. Schatt could do that. But the fact is he's

13 asking for the exact same relief they came to the other day.

14 And in fact, if you look at all the causes of action, they

15 are all related to the idea that he is a director of Cred

16 Capital.

17 So this notion that they are not violating the stay

18 because they keep just naming Mr. Schatt, as opposed to the

19 necessary party of Cred and Cred Capital -- which has been

20 pointed out to them previously by these courts -- it's --

21 there's no question that that's what they're doing. They're

22 trying an end run.

23 Moreover, Your Honor, I will note that the Court

24 that filed the injunction, that case has been removed to the

25 Bankruptcy Court in the Northern District of California, and


19

1 is in the process of being transferred to yourself. So we

2 hope, very quickly, this will all be in front of you, in

3 terms of the injunction, and you can see it.

4 The only other thing I'd like to just touch on

5 really quickly is, you know, we have had all this litigation

6 going on. As I pointed out, none of these facts have ever

7 come up. In all of the papers that he's filed, he's never

8 said the money is not there or, more importantly, that's he

9 liquidated. They act as though that's not a big deal, well,

10 we just changed it from crypto to dollars. Your Honor, he

11 has no authority do to that.

12 And that decision, by itself, as Mr. Evans has

13 alluded to, has cost the estate millions of dollars. When

14 one looks at the value of crypto since he stole it from the

15 company until today, it's astounding how much he's done. The

16 only thing that gives me -- makes sense is, well, he did the

17 same thing when he was working for Cred. That's how they

18 lost a lot of money in the first place, he made those

19 decisions. But that -- the idea that he's not responsible

20 and liable for the additional funds that he lost by his

21 unauthorized actions to, I guess, take some of the crypt -- a

22 bunch of the crypto and change it into dollars, he's liable

23 for that, as well.

24 And I go back to what the committee sought, which

25 is not just the depositing (indiscernible) there needs to be


20

1 an action, an injunction put up for his other assets. He

2 needs to make good on all this and needs to know where it is.

3 He's created an astonishing track record that he does not do

4 right when left to his own devices. Even with a court order,

5 he has -- seems to have no problem violating it.

6 So I do ask today that, not only does he give all

7 the funds that he has to the debtor, but to the extent there

8 is a shortfall in that amount, he has to post the personal

9 collateral to the Court, so that we can have some basis to be

10 sure that we will get the funds.

11 There is no dispute at issue anymore. He was not

12 the Director of Cred Capital, he did not have authority to do

13 this. And at this point, Your Honor, we are literally in

14 just a free fall, trying to see how much of the assets that

15 he stole can we recover. Starting today, please help us make

16 that happen.

17 THE COURT: Mr. Pfeiffer, I will point out that, if

18 -- well, we now know that he did, Mr. Alexander did transfer

19 funds during the pendency of this bankruptcy case, funds that

20 were assets of the debtors. Isn't that a violation of the

21 automatic stay, and can't I sanction your client for

22 violating the automatic stay?

23 MR. PFEIFFER: Your Honor, I don't know the

24 particular facts and the circumstances are not -- that

25 transfer, are not before the Court or were -- haven't been


21

1 presented to the Court.

2 I can tell you that it is my understanding that

3 recent transfers have very good explanations and -- related

4 to pandemic-related issues that I would prefer not to divulge

5 at the moment because they involve personal health issues.

6 But if a holder of Bitcoin or crypto becomes incapacitated or

7 were to become deceased, if it is in a particular type of

8 account, that person -- nobody could actually (indiscernible)

9 or get that crypto without the right password.

10 My client experienced some issues related to the

11 pandemic, where he had to make sure that, if he were to

12 become deceased, that crypto would be available to other

13 parties, including potentially the debtor. So there is an

14 explanation for it. And I'm being purposely oblique because

15 it involves some personal health issues with regard to my

16 client that I would prefer not to disclose in open court, but

17 I will provide the information to the debtor. I've already

18 disclosed some of the information to the debtor concerning

19 that situation.

20 But there's more to it than, you know, simple

21 transfers of assets post-bankruptcy. And he didn't transfer

22 any assets to a third party, effectively transferred them to

23 himself, he retained control. So I'm not sure that is a

24 violation of the automatic stay.

25 And the recent Chicago Parking Authority case would


22

1 indicate that merely holding onto them, the assets

2 themselves, post-petition would not be a violation of the

3 automatic stay.

4 MR. EVANS: Your Honor, this is Joe Evans from the

5 committee.

6 First of all, Mr. Pfeiffer just said that Alexander

7 still has and is in possession of the Bitcoin that was

8 transferred on January 16th and January 17th. That's 150

9 Bitcoin. And now he's saying, okay, I can only post 50

10 Bitcoin into escrow. That doesn't make any sense, Judge.

11 And this last-second, COVID-related excuse, you

12 know, this is -- you can't just come to court and say, well,

13 I took money, but okay, it might have something to do with

14 COVID, I don't want to tell anybody what it is, but I

15 shouldn't be held responsible. We've been in contact with

16 counsel for Alexander for months. They didn't contact us and

17 say, hey, here's this issue, we have a privacy issue, we want

18 to make sure that the assets are secure. They didn't say

19 that.

20 Only when we caught them, and we caught a hundred-

21 Bitcoin transfer on January 16th and January 17th, they file

22 a declaration that says nothing about this so-called "excuse"

23 for why they transferred the money. And then they come to

24 court and, after hearing oral argument, they say, well,

25 actually, it's a COVID issue, Judge, actually, maybe it's a


23

1 COVID issue and we needed to be secure. If you want the

2 funds to be secure, if that's the goal, place them with the

3 debtor, who's hired professionals to make sure that all the

4 cryptocurrency is safe and protected and for the benefit of

5 the estate.

6 You know, I -- we can't respond to this oblique

7 reference to COVID-related issue, and that's why the client

8 transferred $3.4 million a couple of weeks ago, it just

9 doesn't make any sense.

10 And you know what, Judge? Alexander was here two

11 days ago. He was at the hearing two days ago, he showed up.

12 And then, once we showed him that we know that he transferred

13 this Bitcoin two weeks ago, where is he today? We asked

14 counsel numerous times is Alexander going to be here, is

15 Alexander going to be here. We put him on our witness list,

16 to ask him these questions, and he's not here. And he sends

17 counsel here to say, okay, maybe it's a health issue, maybe

18 that's why. But these sorts of excuses, they just don't

19 work. These are millions and millions and millions of

20 dollars of other people's money.

21 THE COURT: Well --

22 MR. PFEIFFER: Your Honor --

23 THE COURT: -- I agree, it is time for Mr.

24 Alexander to start answering some difficult questions and do

25 so in a way that gives the parties and the Court the ability


24

1 to understand what's going on here. So I'm trying to figure

2 out how to fashion a remedy here.

3 Certainly, I'm going to enter an injunction, a TRO

4 and a preliminary injunction, ordering Mr. Alexander to turn

5 over whatever he says he has to the debtors.

6 No need for an escrow, at this point because I

7 think the -- having determined that Mr. Alexander was not the

8 Director of Cred Capital when those funds were transferred, I

9 don't think there's any question that he owns those funds.

10 They belong to the debtors and I think they need to be turned

11 over to the debtors without an escrow.

12 And we need to get answers from Mr. Alexander. So

13 one of two ways to do this: One, I order him to submit a

14 declaration by sometime today that lays out exactly what he

15 has, when he got it, how he got it, where it was transferred

16 to, how it was liquidated, where the liquidated funds are

17 located; or I order him to sit for a deposition and let the

18 parties examine him about those issues.

19 Let me open it up to debtors and the committee to

20 see which you would prefer.

21 MR. LUFT: Your Honor, speaking on behalf of the

22 debtors, what I would ask -- I think, if I could take one

23 from Column A and one from Column B, I think what we need,

24 given the level of duplicity with Mr. Alexander, is I'd like

25 him to submit that declaration today, setting forth exactly


25

1 where it is. And then, to the extent that we have any

2 questions with regard (indiscernible) --

3 THE COURT: You're --

4 MR. LUFT: -- that declaration --

5 THE COURT: You're freezing up a little bit, Mr.

6 Luft. I'm not sure what's happening, but now you're

7 completely frozen.

8 MR. PFEIFFER: Your Honor, Mark Pfeiffer.

9 I think I know what he's saying, and I don't

10 necessarily disagree. But if you'd like a declaration

11 submitted by --

12 MR. LUFT: (Indiscernible)

13 MR. PFEIFFER: -- by today --

14 MR. LUFT: There seems to be --

15 THE COURT: Oh, wait a minute. Mr. Luft --

16 MR. LUFT: Your Honor?

17 THE COURT: -- I think you're back. You froze up

18 there and we couldn't hear --

19 MR. LUFT: Oh.

20 THE COURT: -- what you're saying.

21 MR. LUFT: Sorry. I'm sure it was something

22 brilliant. But in short, what I'd ask for, Your Honor, is

23 that mister -- given his level of duplicity, that he submit

24 that declaration today, setting out everything you just

25 explained. And then, if there's any questions -- which I


26

1 think there will be, given that his lawyer has said today

2 that he claims to have only got almost 100 million less

3 Bitcoin than all of our records show -- that we then

4 immediately sit for a deposition, once we've had a chance to

5 look at it, to follow up on.

6 I think we need both, to be honest. But the

7 starting point, I think, would be a clear declaration with at

8 least what he says -- where he says all this money is, so

9 that we can look at that, try to use our resources to

10 evaluate it, and then ask the followup questions that are

11 necessary. I don't -- unfortunately, I don't have any faith

12 that we can just take him at his word, nor do I think it's

13 reasonable to assume that we can begin to just question him

14 without that type of foundational discovery of what it --

15 where he at least says they are.

16 MR. EVANS: Your Honor, this is --


18 MR. EVANS: From the committee, there's a couple of

19 things that we would like.

20 First of all, we agree with you, Judge, that all of

21 the -- all of the cryptocurrency, the proceeds of the

22 cryptocurrency that are held by Alexander, those should be

23 posted and given to the debtor immediately. And I gather,

24 from doing a quick calculation of what Mr. Pfeiffer was

25 saying, the value of that is approximately $4.732 million,


27

1 based on current market prices. I think that's about right.

2 It might be a little -- it might be a little higher than

3 that.

4 This case, this transfer case, is for $8.74 million

5 in Bitcoin. Okay? So there's going to be a shortfall,

6 according to what Mr. Pfeiffer says Alexander currently has

7 in his possession, versus what the recovery for the estate is

8 under the adversary action. So we would ask that, in

9 addition to the providing of the debtors' assets to the

10 debtor, the shortfall, the difference between the value of

11 the adversary action versus what he's able to post, to be

12 placed in escrow, pending the outcome of the adversary

13 action.

14 Mr. Pfeiffer has indicated that his client is

15 liquidating Bitcoin and turning it into cash, executing a

16 transaction, using it for personal reasons, whether their

17 healthcare-related or otherwise. The only way to ensure that

18 the estate will actually recover these funds, if we are

19 successful -- and we do believe we'll be successfully,

20 especially given the fact that Alexander's only defense to

21 the turnover actions is that these weren't debtor -- these

22 weren't estate assets because Cred Capital couldn't have

23 filed for bankruptcy without his consent. And so that

24 defense is gone.

25 And so the only way to protect the estate here,


28

1 Judge, is to have the Cred cryptocurrency and the proceeds

2 transferred to the debtor immediately and to have the

3 shortfall be posted in escrow by Mr. Alexander.

4 MR. PFEIFFER: Your Honor, may I address that?

5 THE COURT: Go ahead, Mr. Pfeiffer.

6 MR. PFEIFFER: Yes, Your Honor. As far as the

7 crypto go, it's in my client's best interest and everybody's

8 clients' best interests to get that transferred and out of my

9 client's hands as soon as possible because it poses a

10 security issue, both from a personal perspective for my

11 client and to the crypto itself, now that this has been

12 fairly widely publicized and people know that my client has

13 crypto. We will transfer that, we will work with the debtor

14 to transfer that as soon as possible.

15 I understand Mr. Luft's position about the

16 declaration, and I understand that the Court ordered the

17 declaration. I have no qualms with that.

18 I understand Mr. Luft's position that he would like

19 to provide -- or depose my client. If I may suggest that,

20 because there are security issues with regard to the crypto,

21 that the declaration be provided, not publicly, but to both

22 Mr. Luft and the committee, so they know what it is. And if

23 they choose to file it publicly, they can; or, if they ask me

24 to file it publicly, they can -- we can. But I don't think

25 everybody wants the entire world to know where these assets


29

1 are, at the moment, until they are secured by the debtor.

2 THE COURT: Well, I assume the -- correct me if I'm

3 wrong. But I'm assuming whatever crypto he has could be

4 transferred immediately, without -- with just a few

5 keystrokes of the keyboard. Am I incorrect about that?

6 UNIDENTIFIED: That's correct, Your Honor.

7 THE COURT: All right. So --

8 MR. PFEIFFER: That is my understanding, Your

9 Honor. I've never had a Bitcoin or a crypto case before, but

10 that's my understanding.

11 THE COURT: All right. So I'm going to order him

12 to immediately, within the next 30 minutes after this hearing

13 is over, transfer that Bitcoin to the debtors.

14 Now the cash that he has, I'm assuming that is in a

15 bank account somewhere. Is that right?

16 MR. PFEIFFER: I assume that to be the case. I

17 don't know for certain, Your Honor.

18 THE COURT: All right. And that can be transferred

19 through a wire transfer to the debtors' account fairly

20 quickly, so I will order that to be done, as well, by the end

21 of the day today, whatever cash that he has that he alleges

22 or that he admits is the proceeds of the cryptocurrency which

23 was taken from Cred Capital.

24 I will also order him, by the end of the day today

25 -- we'll say, actually, by -- if I was going to give a


30

1 deposition, Mr. Evans and Mr. Luft, would you want to take it

2 today or over the weekend or Monday?

3 MR. LUFT: Your Honor, I think it depends if we're

4 going to see a declaration or not. If we're going to see the

5 declaration, I'd have -- I'd like to have a chance to read it

6 and review it first. If we're not going to get such a

7 declaration, then I guess I would confer with Mr. Evans. I

8 personally have a deposition for three hours this afternoon,

9 but I'd be happy to sit down after that and talk to Mr.

10 Alexander then, but --

11 THE COURT: Well, let's --


13 THE COURT: There will be a declaration because I'm

14 going to order him to provide one.

15 MR. LUFT: Terrific.

16 THE COURT: That will be -- I'm just trying to

17 figure out the timing of it, when I should have him do that.

18 It's --

19 MR. LUFT: If I could suggest, Your Honor, it can -

20 - whatever time it makes sense for you, I think, given Ms.

21 Clegg's involvement, and I think that there will probably be

22 questions about where this stuff went, maybe a deposition --

23 unless Mr. Evans disagrees -- on Monday then, so we have the

24 weekend -- if he can provide the details today, we have a

25 weekend to look at it -- or I'll defer to Ms. Clegg and Mr.


31

1 Evans how much time it would take to evaluate his responses.

2 But if that would be quick enough, then I do think time is of

3 the essence, so ...

4 THE COURT: All right. So we'll -- I'll order the

5 declaration to be submitted by 4 p.m. today.

6 MR. LUFT: Thank you, Your Honor.

7 THE COURT: It will be provided to the committee

8 and debtors' counsel. I would also like to see it, I'd like

9 it submitted to chambers, so I can review it, as well.

10 And then, if the debtors and the committee request

11 a deposition, Mr. Alexander will sit for that deposition at

12 the committee and the debtors' time, whatever time of their

13 choosing.


15 THE COURT: I also think it's important that we get

16 some expedited discovery, document discovery, what happened

17 to these assets, where they went, how they were transferred.

18 Anything that Mr. Alexander has in writing also needs to be

19 produced on an expedited basis.

20 Mr. Pfeiffer, how quickly can your client get those

21 materials together and produced?

22 MR. PFEIFFER: Your Honor, I had your sound cut out

23 in the last 15 seconds.

24 THE COURT: I'm sorry. You're fading out, too, Mr.

25 Pfeiffer. I can barely hear you.


32

1 MR. PFEIFFER: I'm sorry. How about now?

2 THE COURT: That's a little better, but still bad.

3 I was saying that I want expedited discovery, document

4 discovery from Mr. Alexander, as well. So I was asking you

5 how quickly Mr. Alexander can pull together all documents

6 relating to the Bitcoin, its transfer, its liquidation, and

7 provide that to the debtors and the committee on an expedited

8 basis. How much time do you need?

9 MR. PFEIFFER: Probably more time than the Court is

10 willing to give. But you know, we will provide it before

11 Monday --


13 MR. PFEIFFER: (Indiscernible)

14 THE COURT: By Monday then, it should be provided.

15 I also think it might be important to have Ms.

16 Clegg involved in this, so that she can provide some guidance

17 to the parties and to me on transfers and how they happen and

18 so forth. So I'd like her to be involved in this. I --

19 sorry if I'm messing up your weekend, Ms. Clegg, but I think

20 it's important that you be involved in this, so I have some

21 independent expert that can give me some guidance on how all

22 of this played out.


24 MS. CLEGG: I'm available, Your Honor.

25 THE COURT: Thank you.


33

1 I'm sorry. Someone --


3 THE COURT: -- else was --

4 MR. PFEIFFER: Yes, it's Mark Pfeiffer. And I'm

5 sorry, your audio cut out again when you were talking about

6 the timing of the production of documents.

7 THE COURT: You had said you could get them by

8 Monday, so --

9 MR. PFEIFFER: Uh-huh.

10 THE COURT: -- I was saying, yes, get them by

11 Monday.

12 MR. PFEIFFER: And Your Honor, just so I know, so

13 that we make sure that we comply with the Court's order, the

14 declaration will be regarding the location of the

15 cryptocurrency and what happened to it and the proceeds,

16 effectively. Is that correct?

17 THE COURT: That's correct. He should also address

18 the differences between the 225 Bitcoin that Ms. Clegg has

19 been able to trace, that was transferred from Cred Capital to

20 Mr. Alexander, and his assertion that he only took possession

21 of 150 Bitcoin. I want to know, well, how -- what's the

22 basis for that distinct difference between the two.

23 MR. PFEIFFER: And Your Honor, with regard to the

24 scope of the deposition, would it be, I'm assuming, similar

25 to the declaration?


34

1 THE COURT: Yes, exactly.

2 MR. EVANS: Your Honor, this is Joe Evans from the

3 committee.

4 One thing, just to clarify, in the declaration, for

5 each of these transactions, we want an explanation as to the

6 reason behind each of these transactions. If 150 Bitcoin is

7 what Mr. Alexander had, it appears, on July 17, when the

8 Court entered the temporary restraining order, but before

9 that, 75 Bitcoin had dissipated. And so we want an

10 explanation of each transaction that relates back to the

11 crypto that Cred provided Mr. Alexander. So that's one.

12 The -- two -- the second thing is, according to Mr.

13 Pfeiffer (indiscernible) 50 Bitcoin. And what's not clear to

14 me is he also said that there was 100 Bitcoin that was

15 transferred, but it was effectively transferred back to

16 Alexander, transferred to an account he controls for security

17 purposes, I suppose. And so he should be transferring 150

18 Bitcoin to the debtor today in 30 minutes, not just 50.

19 THE COURT: Well, he's going to --

20 MR. EVANS: And so I don't know where the

21 disconnect --

22 THE COURT: He's going to transfer whatever Bitcoin

23 he has that's related to what was transferred to him from

24 Cred Capital and provide an explanation for why there's a

25 difference between what he alleges is the amount that was


35

1 transferred to him and the amount that the debtor says was

2 transferred to him. And he should also provide an

3 explanation for each of the transfers subsequent to the

4 initial transfer of all the Bitcoin, as well as an

5 explanation for why he liquidated the Bitcoin and where that

6 money is located.


8 MR. EVANS: Thank you, Your Honor.

9 And then the one last -- apologies. The one last

10 thing is, if Mr. Pfeiffer is correct and there are 50

11 Bitcoin, 200,000 in (indiscernible) coin and about 2.7

12 million in cash, that adds up to about $4.6 million. Judge,

13 there's still 3.8 of additional funds that are the subject of

14 this adversary action.

15 And so, given Mr. Alexander's conduct to date and

16 the risk to the estate of not recovering those proceeds, we'd

17 ask that Mr. Alexander be asked to post in escrow, pending

18 the resolution of the adversary action, the remainder, the

19 3.8 million about that is the difference between the Cred

20 assets he claims are still under the control and the Cred

21 assets that he originally received.

22 THE COURT: Well, I think requiring a prejudgment

23 attachment of assets is premature, at this point, until I

24 have a better understanding of what happened, how it

25 happened, and where the money is and how much is involved


36

1 here. And I would want further briefing on that issue. I

2 think that is a -- that's a big ask, to ask me to impose a

3 prejudgment attachment against somebody. It doesn't happen

4 very often, it rarely happens in Delaware for sure. So I'd

5 like further briefing on that issue before I took that next

6 step.

7 MR. LUFT: Your Honor, if I may? Just I hope this

8 would be clear that it should be covered, but given this

9 (indiscernible) secrecy in crypto, I would hope that mister -

10 - we need Mr. Alexander, in that declaration, to say who he

11 transferred the funds to, not just some anonymous account, if

12 he knows. Presumably, he is sending money to people, he knew

13 -- he knows where it is. We need names, so that we can

14 contact those people. So I'd ask that to be included, as

15 well, and not to say that it's confidential and whatever else

16 they're going to say.

17 The second thing I would just note is, in addition

18 to the crypto that he took, he still holds a computer and a

19 phone that presumably holds Cred information on them, as well

20 as other -- I think it's called "coin," "U.S. Coin," or some

21 other forms of currency. We have been talking about the

22 Bitcoin, but I don't see any distinction as to why he should

23 not turn over everything he has in his possession that he

24 took from Cred Capital.

25 THE COURT: Well, on the first one, I agree, and


37

1 that's what I expected, that he would -- when he's describing

2 the transfers, he's describing who the funds were -- or who

3 the Bitcoin or who the funds were transferred to and where

4 they're currently residing, so -- and not just some anonymous

5 account number. He has to provide full disclosure here.

6 On the second issue, remind me what it was. I'm

7 sorry, I lost track.

8 MR. LUFT: Quite all right. The turnover -- we --

9 at issue in the turnover action is -- we --

10 THE COURT: Okay. The computer --

11 MR. LUFT: -- (indiscernible)

12 THE COURT: -- and the other items.

13 MR. LUFT: (Indiscernible) whatever --

14 THE COURT: Mr. Pfeiffer, does your client still

15 have the computer and the phone that was provided by the

16 debtors to Mr. Alexander?

17 MR. PFEIFFER: I think there are about four or five

18 pieces of equipment listed in the complaint. I don't think

19 my client had one of those to begin with. I believe he has

20 the others.

21 With regard to the computer, which is the main

22 issue, I think, is -- he hasn't opened up or used that

23 computer since being terminated because it was the protocol

24 of Cred to wipe computers, you know, as soon as they're

25 powered up, following termination. So, you know, it's just


38

1 sitting there. I can talk to my client about getting it to

2 the debtor in some way, shape, or form.

3 MR. LUFT: It's not just the computer, though, Your

4 Honor.

5 MR. PFEIFFER: Whatever equipment it is.

6 THE COURT: Whatever equipment he has that was

7 proved to him by the debtors should be turned over as soon as

8 possible.

9 Where is Mr. Alexander located, physically?

10 MR. PFEIFFER: California, Your Honor.

11 THE COURT: And where are you located, Mr.

12 Pfeiffer? I'm sorry.

13 MR. PFEIFFER: I'm in Philadelphia.

14 THE COURT: And Mr. Alexander has counsel in

15 California, you mentioned Mr. Pfeiffer, who's actually on the

16 call today?

17 MR. PFEIFFER: Yes, Mr. Thomas Reichert, who is on

18 the call right now and on the screen.

19 THE COURT: Okay. Then I would order Mr. Alexander

20 to turn those items over to Mr. Reichert for safekeeping

21 immediately.

22 MR. EVANS: Your Honor, this is Joe Evans for the

23 committee.

24 And I understand Your Honor's point about the

25 prejudgment order of attachment, how you'd like more


39

1 briefing. In the interim, before you can make a decision,

2 what we would like to do and what we'd request is that there

3 be a restriction on Alexander's transfer of what he claims is

4 his personal Bitcoin or personal assets. We anticipate that

5 what we're going to receive is, well, this Bitcoin was mine,

6 this wasn't Cred Capital's, this Bitcoin was mine, it wasn't

7 Cred Capital's. And so, until we can sort all that out,

8 Judge, we'd ask for a restriction on Alexander's transfer of

9 his cryptocurrency and other assets.

10 Mr. Pfeiffer said that the assets were liquidated

11 and some of the Bitcoin was liquidated, and Ms. Clegg is very

12 good (indiscernible) this stuff, but we're going to need to

13 understand what his position in certain of these items. And

14 just to protect the estate, pending the determination of the

15 prejudgment attachment, we'd ask that there be an injunction

16 on Mr. Alexander for making transfers over a certain dollar

17 amount, maybe $1,000, $2,000, something like that.

18 THE COURT: Well --


20 THE COURT: -- that's --

21 MR. PFEIFFER: -- that --

22 THE COURT: That's kind of like a prejudgment

23 attachment. But go ahead, Mr. Pfeiffer.

24 MR. PFEIFFER: I was going to say that's the same

25 thing, and that poses constitutional issues.


40

1 THE COURT: Yeah. Yeah, I'm not prepared to do

2 that at this time. But I do expect that Mr. Alexander will

3 disclose -- and I'm going to order expedited discovery on all

4 of his personal assets, so that we know how much Bitcoin he

5 holds that he believes is his personal property, including

6 his -- and cash.

7 I'm going to open it up. I'm going to let the

8 committee and the debtors submit written requests for

9 production and, if you want, interrogatories to Mr. Alexander

10 regarding his personal assets. And I would expect that that

11 be done on an expedited basis, not 30 days, as allowed by the

12 rules. I would expect that could be done within a week or 10

13 days.

14 MR. EVANS: Your Honor, for the committee, we can

15 get these -- we can get these requests out either this

16 evening or first thing tomorrow. And we'd ask that the

17 responses be submitted by no later than Wednesday.

18 THE COURT: I'm sorry. When did you say you would

19 get them out, Mr. Evans, today?

20 MR. EVANS: We can get them out today or tomorrow

21 morning, but we'd ask the responses be Wednesday.

22 THE COURT: All right. I'll say the responses are

23 due Wednesday. But Mr. Pfeiffer, if there -- something comes

24 up that makes that difficult to reach, I would ask that the

25 parties contact the Court and we'll have a status conference


41

1 over the telephone, and we'll see if you need some additional

2 time.

3 MR. PFEIFFER: Thank you, Your Honor.

4 MR. CARTY: Your Honor, Andrew Carty from Brown

5 Rudnick on behalf of the examiner. May I be heard very

6 briefly?

7 THE COURT: Go ahead, Mr. Carty.

8 MR. CARTY: I understand that there's going to be,

9 you know, some information being provided. I think some or

10 all of it is going to be provided under seal, and we would

11 just like to be involved in that process and provided with --

12 if there's a declaration, if there's depositions, if there's

13 document discovery, we would like to be afforded the

14 opportunity to participate in that process.

15 THE COURT: Absolutely.

16 MR. PFEIFFER: No objection, Your Honor.

17 THE COURT: Yeah, absolutely.

18 MR. CARTY: Thank you, Your Honor.

19 THE COURT: Absolutely. Yes.

20 Well, I'm not sure how to formulate one order.

21 I've ordered a lot of things today. So I think what I'm

22 going to do is so order the transcript with all of my rulings

23 today. And Mr. Luft, if you want to submit a form of order

24 that just says -- incorporates my rulings on the record

25 today. You don't have to do them specifically; just say the


42

1 Court held a hearing today, made numerous rulings on the

2 record relating to various issues and, for the reasons stated

3 on the record, the record is so ordered. And I think that

4 will -- we'll have to go with that because it will be

5 impossible to try to put together a comprehensive order on

6 this on a short period of time, especially since you have a

7 deposition this afternoon.

8 MR. LUFT: Thank you, Your Honor. That is,

9 honestly, very helpful.


11 MR. EVANS: And Judge, this is Joe Evans for the

12 committee.

13 And the two items that we were come back to you

14 with briefing on were the sanctions item and the -- sanctions

15 related to a violation of the automatic stay and, also, the

16 prejudgment order of attachment. We'd just like to confer

17 with Mr. Pfeiffer on that and come back to you with a

18 proposed briefing schedule. I think some of the information

19 we're going to get over the next few days might be pretty

20 helpful for those motions, so --

21 THE COURT: Yes, that's fine.

22 MR. EVANS: -- we'd ask for that.

23 THE COURT: That's fine, yeah.

24 All right. I also -- I guess I am going to grant

25 the motion to intervene. We forgot about that one. So you


43

1 can -- Mr. Evans, you can -- I think we have the form of

2 order that was attached to your motion.

3 But Mr. McMahon raised his hand. Mr. McMahon, do

4 you have an issue about the intervention?

5 MR. MCMAHON: No, Your Honor. I -- jumping in.

6 And my apologies, I was monitoring the hearing. We have the

7 same interest in the information that the examiner does, so

8 we just ask that we be included with respect to

9 communications regarding the declaration, the deposition, and

10 the like.

11 THE COURT: Yes, absolutely. Absolutely.

12 So, going back to the motion to intervene, I'll

13 enter the order that was submitted by the committee with your

14 motion, we'll get that entered today.

15 MR. EVANS: Thank you, Your Honor.

16 THE COURT: All right. And I think that's all we

17 had for today, right? That was enough. It's a lot.

18 MR. EVANS: Nothing more from the committee.


20 MR. EVANS: Thank you.


22 THE COURT: All right. Thank you, everybody. I'll

23 say "have a good weekend," but I have a feeling some people

24 aren't going to that are on the phone today. So we're

25 adjourned. Thank you.


44

1 COUNSEL: Thank you, Your Honor. Thank you, Your

2 Honor. Same to you.

3 (Proceedings concluded at 10:55 a.m.)

4 *****


45

1 CERTIFICATION

2 I certify that the foregoing is a correct

3 transcript from the electronic sound recording of the

4 proceedings in the above-entitled matter to the best of my

5 knowledge and ability.

6

7

8

9

10 February 5, 2021

11 Coleen Rand, AAERT Cert. No. 341

12 Certified Court Transcriptionist

13 For Reliable




) Requested Hr’g Date: 3/17/21 at 2:00 p.m. (ET) Requested Obj. Deadline: At the hearing

EMERGENCY MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED

CREDITORS FOR AN ORDER (I) HOLDING JAMES ALEXANDER IN CONTEMPT OF COURT AND (II) ISSUING A BENCH WARRANT FOR

THE ARREST AND DETENTION OF JAMES ALEXANDER

The Official Committee of Unsecured Creditors (the “Committee”) of Cred Inc., et al.

(the “Debtors”) hereby submits this motion (the “Motion”), pursuant to section 105(a) of title 11

of the United States Code (the “Bankruptcy Code”), Rule 37(b) of the Federal Rules of Civil

Procedure, as made applicable to this proceeding by Rule 7037(b) of the Federal Rules of

Bankruptcy Procedure (the “Bankruptcy Rules”), Bankruptcy Rule 9020, and Rule 9013-1 of the

Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the

District of Delaware, for entry of an order, substantially in the form of the proposed order

attached hereto as Exhibit A: (i) finding James Alexander in contempt for violating the Order

Approving the Emergency Motion of the Official Committee of Unsecured Creditors for Entry of

an Order Granting (I) Temporary Restraining Order and Preliminary Injunction Against James

Alexander and (II) Related Relief [Docket No. 486] (the “Emergency Order”); and (ii) issuing an

appropriate remedy to compel Alexander to comply with the Emergency Order, including issuing

a bench warrant for Alexander’s arrest and detention until he complies. In support of the




2

Motion, the Committee submits the Declaration of Joseph B. Evans (the “Evans Declaration”),

filed contemporaneously herewith. In further support of the Motion, the Committee respectfully

states as follows:

PRELIMINARY STATEMENT

1. Escaping from prison, using multiple identities,2 misappropriating assets,

violating injunctions,3 withdrawing $170,000 in cash and checks hours after the Committee filed

the Emergency Motion,4 committing perjury, and refusing to comply with this Court’s

Emergency Order. These are just a few examples of Alexander’s transgressions prior to and

during these Chapter 11 Cases. It is now clear that swift and harsh justice is the only remedy that

will compel Alexander to comply with the Emergency Order.

2. The Emergency Order directed Alexander to immediately turnover estate assets,

provide expedited discovery, and sit for a deposition.5

3. Alexander has led the Debtors and the Committee down an obstacle course to

avoid complying with the Emergency Order. Such obstacles include: (i) ridiculous excuses

about why he could not turnover estate assets; (ii) submitting a bare bones nine-paragraph

declaration that failed to address questions posed by the Court and failing to submit a revised

2 On January 8, 2021, the Court approved the appointment of Robert J. Stark (the “Examiner”), as the Examiner in the Debtors’ cases. See Docket No. 338. On March 8, 2021, the Examiner filed his report. See Docket No. 605 (the “Examiner’s Report”). The Examiner’s Report contained a series of findings concerning Alexander’s past, including that he used a series of different names, had been convicted in the United Kingdom, and had escaped from a prison in England. See Docket No. 338, at 11 (“Mr. Alexander was convicted on December 3, 2007 in the United Kingdom for crimes related to illegal money transfers, for which he was sentenced to three years and four months in prison to be served at HMP Ford Prison in West Sussex, England. At the time of his incarceration, there was a prison break at this facility. Mr. Alexander has been identified by the UK government as a fugitive.”), 89-90 (“On December 3, 2007, Alexander was convicted in the United Kingdom for crimes related to illegal money transfers. He was sentenced to three years and four months in prison to be served at HMP Ford Prison in West Sussex, England. On October 15, 2008, while serving his sentence, there was a prison break at the HMP Ford Prison. It appears that Alexander is a fugitive in the United Kingdom.”) (internal citations omitted). 3 Evans Decl., Ex. G at 105:20-106:19 4 Id. at 42:12-50:7. 5 See id., Ex. D.


3

declaration; (iii) producing limited and incomplete discovery; (iv) failing to produce any

discovery concerning his personal assets despite being ordered by the Court to do so; (v) after

admitting that he withdrew $170,000 from a “dedicated” Cred Inc. (“Cred”) account after the

filing of the Emergency Motion and that $60,000 of it was held in cash in the trunk of his car,

refusing to turnover the cash to the Debtors; and (vi) engaging in obstructive and evasive

behavior at his deposition, including seeking a five-minute break during which he filed for

personal bankruptcy and then refused to continue with the deposition.

4. The latest obstacle (Alexander’s bankruptcy filing) forced the Debtors and the

Committee to seek stay relief in the United States Bankruptcy Court for the Central District of

California (the “California Bankruptcy Court”) to enforce the Emergency Order. Although the

California Bankruptcy Court granted such relief effective immediately, Alexander’s malfeasance

continued. To date, there are identifiable assets Alexander has not turned over or accounted for.

Additionally, Alexander has yet to produce any further discovery or a revised declaration, which

has hindered the Committee’s ability to identify and locate additional assets that may be property

of the Debtors’ estates. Without this information, the Committee is unable to investigate the

whereabouts of the unaccounted for assets.

5. More than five weeks have passed since this Court entered the Emergency Order.

Since then, the Committee has repeatedly requested that Alexander comply with the Emergency

Order, but to no avail. The Committee now has no choice but to seek a finding of civil contempt.

6. The Court should impose sanctions on Alexander to coerce his compliance with

the Emergency Order. However, based on Alexander’s pattern of conduct and the present

circumstances, monetary sanctions will not be sufficient to coerce Alexander’s compliance. The

Debtors already have claims against Alexander far in excess of what is likely to be recoverable


4

from Alexander. Indeed, Alexander recently filed for personal bankruptcy and listed

approximately $2,000,000 in assets.6 Even absent a finding of civil contempt, the Debtors have

claims against Alexander in excess of that amount. Unrecoverable fines simply will not coerce

Alexander to comply with the Emergency Order. Moreover, Alexander likely would not face

any immediate adverse consequences from fines because the automatic stay applicable in

Alexander’s personal bankruptcy case may hinder collection efforts.

7. The only conceivable sanction that would coerce Alexander to comply with the

Emergency Order is for this Court to issue a warrant for Alexander’s detention and arrest.

Although Bankruptcy Courts do not maintain criminal jurisdiction, incarceration as a sanction

for civil contempt is appropriate under Bankruptcy Code section 105(a) when (i) it is unlikely

that monetary sanctions would improve the likelihood of compliance and (ii) there has been a

pattern of noncompliance. Alexander’s pattern of misconduct demonstrates that monetary

sanctions are not enough to coerce him to comply with the Emergency Order. Accordingly and

for the reasons stated herein, incarceration of Alexander is appropriate.

JURISDICTION AND VENUE

8. The Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and

1334, and the Amended Standing Order of Reference from the United States District Court for

the District of Delaware, dated February 29, 2012. This matter is a core proceeding within the

meaning of 28 U.S.C. § 157(b)(2). In accordance with Local Rule 9013-1(f) the Committee

confirms its consent to the entry of a final order by the Court in connection with this Motion to

the extent that it is later determined that the Court, absent consent of the parties, cannot enter

6 As set forth herein, Alexander’s personal bankruptcy schedules reflect approximately $2 million in assets, which Alexander asserts are exempt and/or subject to liens. Thus, monetary sanctions are likely uncollectable.


5

final orders or judgments in connection herewith consistent with Article III of the United States

Constitution.

9. Venue in this Court is proper pursuant to 28 U.S.C. §§ 1408 and 1409.

10. The statutory predicates for the relief sought herein are Bankruptcy Code section

105(a) and Bankruptcy Rule 7037(b).

STATEMENT OF FACTS

A. Background

(1) The Chapter 11 Cases

11. On November 7, 2020, the Debtors commenced the above-captioned chapter 11

cases (the “Chapter 11 Cases”) by filing voluntary petitions for relief under chapter 11 of the

Bankruptcy Code. The Debtors continue to operate their businesses and manage their properties

as debtors in possession pursuant to Bankruptcy Code sections 1107(a) and 1108.

12. On November 18, 2020, the Debtors commenced an adversary proceeding against

Alexander seeking turnover of the Cred Cryptocurrency (as defined below) and other Debtor

property in his possession. See Cred Inc., Cred Capital, Inc., and Cred (U.S.) LLC v. Alexander,

Case No. 20-12836 (JTD), Docket No. 1 (Bankr. D. Del.) (the “Adversary Proceeding”).

13. On December 3, 2020, the Office of the United States Trustee appointed the

Committee. Docket No. 120.

14. On January 8, 2021, the Court approved the appointment of the Examiner. See

Docket No. 338.

15. On March 8, 2021, the Examiner filed the Examiner’s Report.


6

(2) Alexander’s Employment at Cred7

16. Alexander was employed as Cred’s Chief Capital Officer from August 27, 2018

to June 26, 2020. Adv. Pro. Docket No. 1, ¶¶ 15, 32. Alexander was terminated by Cred after it

was discovered that Alexander disregarded instructions in the formation of Cred Capital, Inc., a

Delaware entity that was supposed to be a subsidiary of Cred under Cred’s sole controlled. Id. at

¶¶ 22-24. Instead, Alexander took complete control over Cred Capital. Id.

(3) The Cred Cryptocurrency

17. Two days before Cred fired Alexander, without authorization, Alexander caused a

significant amount of Cred’s cryptocurrency – 224.98993 Bitcoin and $204,567 United States

Dollar Coin (collectively, the “Cred Cryptocurrency”) – to be transferred to him. Id. at ¶ 35.

18. On July 15, 2020, the Debtors commenced an action against Alexander in

California state court (the “California Court”) to, among other things, recover the Cred

Cryptocurrency. Evans Decl., Ex. C (the “California Complaint”).

19. On July 16, 2020, Alexander liquidated 65 Bitcoin of the Cred Cryptocurrency by

transferring those assets into his Coinbase account. Id., Ex. G at 83:16-85:2. Alexander had

previously liquidated 10 Bitcoin of the Cred Cryptocurrency in the same fashion on July 1, 2020

(the 65 Bitcoin and 10 Bitcoin collectively, the “Missing Bitcoin”).

20. On July 17, 2020, the California Court issued a temporary restraining order (the

“California TRO”) freezing the Cred Cryptocurrency and forbidding Alexander from making any

transfers thereof. Id., Ex. A.

7 For additional background regarding Alexander, the Committee respectfully refers the Court to the Motion of the Official Committee of Unsecured Creditors for Entry of an Order Granting (I) A Temporary Restraining Order and Preliminary Injunction Against James Alexander and (II) Related Relief (the “Emergency Motion’). Adv. Pro. Docket No. 6.


7

21. On August 13, 2020, the California Court extended the TRO during the pendency

of the action and ordered Alexander to not transfer any of the Cred Cryptocurrency. See Evans

Decl., Ex. B (the “California PI,” and together with the California TRO, the “California Freeze

Orders”). On August 27, 2020, the California Court issued the California PI.

22. As explained below, Alexander violated the California Freeze Orders on January

16, 2021 and January 17, 2021 by transferring the Cred Cryptocurrency.

23. The Committee retained CipherTrace, one of the world’s leading cryptocurrency

tracing consultants to assist the Committee’s ongoing tracing efforts in connection with these

cases. Adv. Pro. Docket No. 8, ¶ 3. As part of those efforts, CipherTrace conducts regular

checks of the digital wallets holding the Cred Cryptocurrency, which, as of January 15, 2021

held 149.998 Bitcoin of Cred Cryptocurrency. Id. at ¶ 11

24. In late January 2021, CipherTrace conducted routine checks of the Alexander

digital addresses, which uncovered that on January 16, 2021 and January 17, 2021, Alexander

transferred 100 Bitcoin of the Cred Cryptocurrency. Id. at ¶ 15, Ex. B. Such transfers were a

clear violation of the California Freeze Orders.

B. The Motion for TRO and Preliminary Injunction

25. Based on CipherTrace’s findings, on February 3, 2021, the Committee filed the

Emergency Motion, which sought a temporary restraining order: (i) restraining Alexander from

executing further transactions with the Cred Cryptocurrency; (ii) directing Alexander to

immediately transfer the Cred Cryptocurrency into escrow; and (iii) directing Alexander to

produce expedited discovery to develop further information related to the Cred Cryptocurrency

and Alexander’s personal finances. See Adv. Pro. Docket No. 6.

26. On February 5, 2021, the Court granted the Emergency Motion and ordered

Alexander to provide to the Debtors and the Committee: (i) all Cred Cryptocurrency in his


8

possession “within 30 minutes” after the hearing concluded; (ii) all cash in Alexander’s

possession related to the Debtors by close of business the day of the hearing; (iii) a detailed

declaration by 4:00 p.m. describing all of the transfers of Cred Cryptocurrency and any other

assets of the Debtors that were in Alexander’s possession; (iv) an explanation of the reasons for

each of these transactions; (v) discovery on all of the Cred Cryptocurrency transactions and fiat

transactions relating to the Debtors by February 8, 2021; (vi) discovery on all of Alexander’s

personal assets by February 10, 2021; and (vii) to sit for a deposition with the Debtors and the

Committee. See Evans Decl., Ex. D. Alexander has not complied with the Emergency Order.

C. Alexander’s Violations of the Emergency Order

(1) Alexander Failed to Submit an Adequate Declaration

27. Pursuant to the Emergency Order, Alexander was directed to submit to the

Debtors and the Committee a declaration that: (i) “lays out exactly what he has, when he got it,

how he got it, where it was transferred to, how it was liquidated, [and] where the liquidation

funds are located,” id. at 24:12-17; (ii) “address[es] the differences between the 225 Bitcoin that

Ms. Clegg has been able to trace, that was transferred from Cred Capital to Mr. Alexander, and

his assertion that he only took possession of 150 Bitcoin,” id. at 33:17-22; (iii) “provide an

explanation for each of the transfers subsequent to the initial transfer of all the Bitcoin, as well as

an explanation for why he liquidated the Bitcoin and where that money is located,” id. at 34:24-

35:6; and (iv) describe “who the Bitcoin or who the funds were transferred to and where they’re

residing, so -- not just some anonymous account number. He has to provide full disclosure

here,” id. at 37:1-5. The Court ordered that the declaration be submitted by 4:00 p.m. (EST) on

February 5, 2021. Id. at 31:4-5.

28. Alexander did not submit a declaration until February 6, 2021, and despite the

Court’s specific instructions as to the declaration, Alexander submitted a declaration containing


9

only nine paragraphs, which did not provide any explanations of the various transactions at issue

or the location of the Debtors’ assets. Id., Ex. L (the “Alexander Declaration”).

29. For example, the Alexander Declaration merely contained vague statements that

Alexander “had 225 Bitcoin held by Cred Capital, Inc. transferred to my personal account” and

then provided no explanation about what happened to that 225 Bitcoin. Id., Ex. L at ¶ 2.

30. Moreover, the Alexander Declaration merely states that “prior to the hearing in

California on the Temporary Restraining Order, I liquidated 75 Bitcoin, the proceeds of which

were deposited into a Coinbase account.” Id., Ex. L at ¶ 8. This vague explanation does not

provide the dates of the transactions, the reasons for the transactions, the parties to the

transactions, the transaction IDs and digital wallet addresses, which Coinbase account the

“proceeds” were transferred into, who owns and controls that Coinbase account, and where the

proceeds of that 75 Bitcoin are now. Alexander then states that “in August 2020, I transferred

the remaining amounts to a bank account at Wells Fargo” without any explanation as to what

the “remaining amounts” are or what happened to the rest of the proceeds of the 75 Bitcoin. Id.

31. The appendix attached to the Alexander Declaration is equally deficient. Id., Ex.

L at App’x 1. It simply shows that Alexander made transfers of the Cred Cryptocurrency on

January 16, 2021 and January 17, 2021, but does not show where the Cred Cryptocurrency was

transferred. Also, the appendix does not contain the transaction IDs or digital addresses.

32. These are just a few of the many deficiencies in the Alexander Declaration.8 The

nine paragraph declaration does not even begin to approach the level of detail that the Court

ordered Alexander to provide. See Evans Decl., Ex. D at 24:12-17; 33:17-22; 34:24-35:6; 37:1-

8 Additionally, the Alexander Declaration is devoid of any explanation as to why Alexander was only able to transfer 49.9980892 Bitcoin and $2,773,489.24 USDC to the Debtors on February 5, 2021, as opposed to the entirety of the 225 Bitcoin. Such transfers are discussed in greater detail below.


10

5 (the declaration should address “exactly what he has, when he got it, how he got it, where it

was transferred to, how it was liquidated, where the liquidation funds are located . . . the

differences between the 225 Bitcoin that Ms. Clegg has been able to trace, that was transferred

from Cred Capital to Mr. Alexander, and his assertion that he only took possession of 150

Bitcoin . . . an explanation for each of the transfers subsequent to the initial transfer of all the

Bitcoin, as well as an explanation for why he liquidated the Bitcoin and where that money is

located . . . [, and describe] “who the Bitcoin or who the funds were transferred to and where

they’re residing, so -- not just some anonymous account number. He has to provide full

disclosure here.”).

33. Shortly after receiving the Alexander Declaration, counsel to the Committee

emailed Alexander’s counsel informing him that the Alexander Declaration “is insufficient by a

large margin.” Id., Ex. R.

34. On February 7, 2021, counsel to the Committee emailed Alexander’s counsel

asserting that the Alexander Declaration is in “clear violation” of the Emergency Order and

provided a detailed list of reasons as to why the Alexander Declaration is “plainly insufficient”.

Id., Ex. O. Counsel to the Committee concluded that email by demanding a revised declaration

by February 8, 2021 that complied with the Emergency Order. Id. To date, Alexander has not

provided a revised declaration.

(2) Alexander Failed to Produce All Ordered Discovery

35. The Emergency Order required that Alexander produce discovery as to the Cred

Cryptocurrency by February 8, 2021 and discovery as to his personal assets by February 10,

2021. Id., Ex. D at 32:14; 40:22-23.

36. To date, Alexander has produced very limited discovery. The limited discovery

that has been produced included Wells Fargo bank statements from an account that was


11

established by Alexander for the sole purpose of holding the Debtors’ assets. Id., Ex. F at

Response to Interrogatory Nos. 16 and 17; see also id., Ex. G at 98:17-99:10 (Alexander

admitting that such accounts are “dedicated” accounts containing only the Debtors’ assets).

Indeed, this Wells Fargo account is a business account named “James Alexander DBA James

Alexander Cred.” Id., Ex. H.

37. The bank statements reveal Alexander’s history of using Cred’s assets apparently

for his personal enjoyment and other unauthorized expenses. Specifically, Alexander used Cred

Cryptocurrency proceeds: (i) to fund trips to Istanbul and Vail, Colorado in December 2020; (ii)

to fund a future trip to Switzerland, paid in advance in January 2021; (iii) hundreds of thousands

of dollars of cash withdrawals; (iv) the payment of a $350,000 retainer to Quinn Emmanuel

Urquhart & Sullivan to fund legal defense costs for Cred’s former General Counsel, Dan

Wheeler, immediately before Wheeler filed a declaration in support of Alexander’s motion to

dismiss Cred Capital’s chapter 11 case one week prior to the transfer); and (v) on February 4,

2021, one day after the Emergency Motion was filed, to (a) withdraw $60,000 in cash to store in

the trunk of Alexander’s car; (b) transfer $100,000 to himself; and (c) write a $10,000 check to

himself; and (v) make a series of transfers to “Alexander Custom Management” and “Custom

Management.” Id., Ex. G at 42:12-50:7; Ex. S.


regarding these transactions. Id., Ex. S. Alexander’s counsel did not address the questions and,

instead, asked that the Committee confirm receipt of wire transfers from Alexander’s Wells

Fargo and JP Morgan accounts. Id., Ex. T. Such transfers occurred, however, there were

shortfalls totaling approximately $46,000 from the amounts in the accounts reflected on the

account statements and the amounts transferred. Id.


12

39. After counsel to the Committee sent a follow up email regarding the transfers,

Alexander’s counsel responded stating that he was consulting with Alexander. Id, Ex. S.

Alexander’s counsel did not provide a response and, on February 9, 2021 (three hours before the

February 9 deposition discussed below), counsel to the Committee again requested responses

regarding Alexander’s actions and additional information. Id. The requests were made in

accordance with the Emergency Order, which required expedited discovery, and were necessary

to obtain the information in advance of the deposition. Counsel to the Committee again

requested the information one hour before the deposition. Id. The information was not provided.

40. The limited records provided by Alexander also reveal that Alexander owns or

controls other bank accounts that he has not disclosed. Id., Ex. H (reflecting an initial $100

funding transfer from another Wells Fargo account); Ex. G at 103:1-104:18 (Alexander

admitting that there are other bank accounts (that he has not produced) that received proceeds of

the Missing Bitcoin); 104:14-16; 115:6-16 (Alexander admitting that there is a personal account

(and potentially others) that will be turned over in “phase two” discovery). One such account

received certain of the proceeds from Alexander’s liquidation of the Missing Bitcoin. Id., Ex. G

at 98:8-99:2. Those proceeds were then transferred to fund a new JP Morgan account opened by

Alexander. Id., Ex. U at 10. Alexander has not provided the records from the account that

initially received those proceeds.

41. Additionally, the Wells Fargo account Alexander provided was opened in August

of 2020, but he received the Cred Cryptocurrency at least three months prior. Although

Alexander claims that the Wells Fargo account was a “dedicated account” for Cred Capital

business expenses, Alexander was fired on June 26, 2020, and there were no legitimate

operations and no business expenses for Cred Capital.


13

42. It is clear Alexander has not produced a full set of bank account records,

cryptocurrency exchange records, or digital wallet records. It is also clear that Alexander was

transferring hundreds of thousands of dollars to himself (including an account held by Alexander

Custom Management) and other so-called “consultants.”

43. During Alexander’s February 9 deposition (discussed below), Alexander admitted

that he had not fully complied with his discovery obligations and that a “part two discovery”

would be forthcoming. Id., Ex. G at 104:14-21. To date, Alexander has not produced the “part

two discovery,” nor any further discovery as required by the Emergency Order.

(3) Alexander Failed to Turnover or Account for All Assets

44. Although Alexander was required to transfer all Cred Cryptocurrency within 30

minutes of the conclusion of the hearing, he did not do so. Instead, he provided excuse after

excuse for why he could not do so. These excuses ranged from claims that he feared for his

personal safety, that he was not near a computer, that he did not know where his hard drive was

located, that he had personal illness issues, that he was two hours away from where his

cryptocurrency was stored, and that he was unable to technically execute these transactions

because he did not know how to transfer cryptocurrency (despite being in charge of Cred’s

complex cryptocurrency trading and hedging strategies).

45. It was not until the Committee demanded that Alexander join a recorded video

conference with CipherTrace and the Debtors that he finally transferred the majority of the Cred

Cryptocurrency that he claimed was in his possession. Although Alexander was generally

uncooperative during the video conference, on Friday, February 5, 2021, Alexander transferred


14

49.998 BTC and 2,773,438.24 USDC to Cred.9 However, this amount fell at least $664,518.29

short of the $3,437,956.53 (USD)10 from the January 16, 2021 and January 17, 2021 transfers

that Alexander admittedly transferred and liquidated from the Cred Cryptocurrency.

46. As discussed in greater detail below, Alexander has failed to turnover or account

for various Debtor assets.

D. The February 9, 2021 Deposition

47. Pursuant to the Emergency Order, Alexander was required to sit for a deposition

with the Debtors and the Committee, which took place on February 9, 2021. From the outset of

the deposition, Alexander was obstructive and uncooperative.

48. For example, Alexander claimed he did not remember whether he had left the

country within the last six months (although his bank records that he produced reflect that he

took trips to Istanbul and Vail, Colorado (with his wife) only weeks prior, all using Cred funds),

and for 20 minutes Alexander refused to answer what his job responsibilities were at Cred except

for “financial services.” Id., Ex. G at 65:22-66:27; 27:7-29:13.11

49. Additionally, during his deposition, Alexander revealed that he has (now likely,

had) $60,000 of cash traceable to the Cred Cryptocurrency in the trunk of his car:

Q. You took $60,000 out in cash a week ago, you say it's in the trunk of your car, and now you can't tell me how much of the 60,000 is still in the trunk of your car? Is that your answer? A. Yes. I'm sorry. I -- I need to deposit it, and then I'll give you the exact number of what's -- what's -- when the deposit is made.

Id., Ex. G at 56:9-15 9 Also during the video conference, Alexander made a number of relevant admissions. For example, Alexander stated that he held a single Coinbase account. As became clear from Alexander’s production of records, he holds at least two Coinbase accounts (and probably more). Id., Composite Ex. E. 10 $3,437,956.53 (USD) represents the proceeds from Alexander’s liquidation of 100 Bitcoin of the Cred Cryptocurrency. 11 Alexander’s counsel directed him to answer the question of what his job responsibilities were. Id. at 30:22-24. It was only after this instruction did Alexander provide an answer other than “financial services.”


15

50. Throughout the deposition, Alexander continuously asked for breaks and refused

to answer questions clearly.

51. The deposition continued until Alexander was asked to provide the location of the

missing $664,518.29.12 During this line of questioning, Alexander continued his obstructive

behavior:

Q: Okay. So the proceeds from the January 16th and January 17th Bitcoin transactions were 3,437,956.53. You provided the debtors with 2,773,488. Where are the additional $664,467.53? A: Yeah. This has been the subject of back-and-forth e-mails ongoing, and I don't – I don't have a complete answer for you today. I believe it will be part of discovery part two, which -- which I -- so I would -- I have to defer that -- I have to defer that to -- to -- believe I have to defer that. Q: Let me understand. There is 664,000 missing, and you are saying it's in your personal accounts because that's what's coming in part two? A: Well, I don't know. This has -- as I said, this has been the subject of an ongoing e-mail conversation between lawyers. And I don't know the current status of that conversation, but I -- I believe we will get to the bottom of it when we have more -- or -- or all of the discovery that has up to now been asked for. And this issue is a -- has been ongoing. And I am, of course, committed to delivering all the assets I have of the debtors, but I -- I -- I can't answer that question today because I just don't know where we stand. Q: Mr. Alexander, your lawyers didn't execute these transactions. You executed these transactions. Where is the 664,000? A: That question remains open, and I can't answer it, as I have described. Q: This was just a few weeks ago. You don't remember where $664,467 went? A: As I said, this -- that question remains open, and as far as I know, it hasn't been resolved yet as to exactly what the accounting is, whether --for example -- whether people agree on that number, and -- and so I can't answer that. Q: It's not a legal question. The question is where the money is. So I'm not asking you to make a legal opinion or a legal determination or

12 Prior to the deposition, counsel to the Committee made repeated requests to Alexander’s counsel for information regarding the missing $664,518.29. Id., Ex. V. Such information was not provided.


16

for counsel to have argument. I'm asking you where the money is. There is $664,467.53 missing. Where is it? A: I can't answer that question because I don't know if the amount is correct, and I don't know what the accounting is for -- for -- for those assets. . . . Q: The question is, where is the $664,000? A: I have answered the question to the best of my ability and recollection. Q: You’re not going to answer the question? A: I have answered the question. Q: It’s -- it’s a very -- it’s a very specific question, and you are being very evasive. The question is, where is the missing $664,457, and your answer is “I don’t remember”? A: I will answer that question when I’m able to answer it. It remains an open question because it’s being debated by counsel and others now, so . . .

Id., Ex. G at 115:5-117:3.

52. During the above questioning, Alexander requested that the parties take a five-

minute break citing shortness of breath and asserting that Committee counsel, who was

conducting the questioning, was not appreciating the state of Alexander’s COVID recovery. Id.,

Ex. G at 114:8-13, 118:3-6. Counsel to the Committee agreed to the five-minute break, but

explained to Alexander that the answers he has to provide are not going to go away. Id. at

118:13-18.

53. During the break, Alexander filed a voluntary petition for chapter 11 relief (the

“Alexander Bankruptcy”) in the California Bankruptcy Court.13 When the deposition

recommenced, Alexander’s counsel informed the Debtors and the Committee of the Alexander

13 During this break, Alexander likely violated Delaware Court of Chancery Rule 30(d)(1), which expressly places restrictions on communications between a deponent and their counsel during a deposition, including any breaks.


17

Bankruptcy, instructed Alexander to cease answering questions, and took the position that the

automatic stay prevented the deposition from going forward. Id., Ex. G at 119:4-124:7. Clearly,

Alexander had prepared his chapter 11 petition in advance of the deposition, likely to be used as

a defensive weapon to cease questioning.

E. The Stay Relief Motion

54. On February 12, 2021, the Debtors and the Committee jointly filed an emergency

motion for relief from the automatic stay to enforce the Emergency Order. Id., Ex. I (the “Stay

Relief Motion”). On February 16, 2021, Alexander filed an opposition to the Stay Relief

Motion. See In re Alexander, Case No. 21-10214-MB, Docket No. 23 (Bankr. C. D. Cal.).

55. On February 16, 2021, the California Bankruptcy Court conducted an emergency

hearing on the Stay Relief Motion.14 At the emergency hearing, the California Bankruptcy Court

stated that Alexander had not complied with the Emergency Order.15 Further, the California

Bankruptcy Court granted the Stay Relief Motion to immediately “un-pause” Alexander’s

obligations to comply with the Emergency Order.16 “Un-pausing” the Emergency Order was

particularly important to the California Bankruptcy Court as evidenced by the Court’s ordering

relief from the stay mid-hearing, stating that as of 4:05 p.m. (PST), the Emergency Order is

“back on.” Id, Ex. J at 61:21-22.

14 The same day as the emergency hearing, Alexander spent $752.84 from the Wells Fargo bank account dedicated to Cred, which included purchases at Whole Foods, Target, Amazon, and Google. See In re Alexander, Case No. 21-10214-MB, Docket No. 24, Ex. C (Bankr. C.D. Cal.). 15 Id., Ex. J at 52:18-22 (“[Alexander] did not comply with Judge Dorsey’s order. Judge Dorsey’s order was unconditional. He basically said, “Go home and transfer the cryptocurrency today, and transfer the rest by tomorrow.”) 16 Evans Decl., Ex. J at 51:5-13 (“I haven't been asked to grant relief from stay or annul the stay nunc pro tunc, so I'm not going to do that, but there's just no good reason for [the Emergency Order] that directs [Alexander] to turn everything over should be on pause. I want to un-pause it as soon as possible, and if you have issues about discovery, about [Alexander’s] ability to comply, you know, the technical issues with the wallet, all that stuff may be real stuff, but I just think it's really for Judge Dorsey to sort out.”).


18

56. Additionally, during the emergency hearing, Alexander made an ore tenus motion

to convert the Alexander Bankruptcy to chapter 7. Id, Ex. J at 57:3-16. However, a conversion

to chapter 7 would have created another “pause” of the Emergency Order as a result of

Alexander’s assets being turned over to a chapter 7 trustee. Id, Ex. J at 64:3-8. The California

Bankruptcy Court found this second “pause” to be impermissible and raised concerns over

whether Alexander would comply with the Emergency Order prior to a conversion order being

entered.17 To work around this issue, the California Bankruptcy Court concluded that it would

not enter the conversion order until the order granting the Stay Relief Motion was entered. Id,

Ex. J at 68:19-23.

57. On February 25, 2021, the California Bankruptcy Court entered the order granting

the Stay Relief Motion. Id., Ex. K (the “Stay Relief Order”). The Stay Relief Order grants the

Committee and the Debtors relief from the automatic stay to enforce the Emergency Order.

F. Alexander’s Conduct After the Emergency Hearing


requesting the turnover of the remaining assets by February 17, 2021 at 5:00 p.m., which

included

a. $170,000 that Alexander transferred to himself ($100,000), withdrew in cash ($60,000), or claims to have written as a counter-check ($10,000) on February 3, 2021 and February 4, 2021 from Alexander’s Wells Fargo Account (9285);

b. The remainder of the proceeds of Alexander’s January 16, 2021 and January 17, 2021 Bitcoin transactions ($604,751.19);

17 Id, Ex. J at 62:8-19 (“. . . if [Alexander] doesn’t comply again, after you’ve represented that he plans to comply, at least with respect to an unspecified amount that’s in the DIP account, well, I think Judge Dorsey can make an adverse inference from that. If [Alexander] drags his feet, and doesn’t remit the money until - - doesn’t remit the money before I convert the case, and that creates a delay, I think it would be fair for Judge Dorsey to conclude that you client was playing games . . . .”).


19

c. All cryptocurrency remaining in Alexander’s Coinbase accounts held by [email protected] and [email protected], including BTC, DAI, ETH, and USDC;

d. $45,295.38 which remained in Alexander’s JP Morgan Chase account following Alexander’s transfer of $35,000 to Cred on February 8, 2021;

e. All remaining assets in Alexander’s ledger wallet, including DAI, Aave Interest bearing DAI, Dai Stablecoin v.20, USDC, USDT, ETH, Compound;

f. All remaining assets that Alexander deposited with IDLE or are otherwise subject to smart contracts with IDLE;

g. $204,567 USDC that Alexander received on June 24, 2021;

h. All cash Alexander withdrew from Alexander’s Wells Fargo Account (9285) since August 2020;18

i. Macbook Pro, Serial Number: SC02CLK4HMD6M;

j. Ipad, Serial Number: DMPZM21CLMV7; and

k. Samsung SSD External Drive, Serial Number: S49WNSON307389.

Id., Ex. M.

59. On February 17, 2021 at 4:01 p.m. (EST), Alexander’s counsel responded stating,

among other things, that:

a. Alexander is prepared to transfer 100% of the funds in the DIP Account established for the Alexander Bankruptcy;

b. There is a remaining $3,780.22 in one of Alexander’s Coinbase accounts, which will be closed and the sum transferred;

c. Alexander is unable to cause the transfer of the remaining assets in Alexander’s ledger wallet absent technical assistance, but is prepared to do so as soon as possible;

d. Alexander is prepared to transfer all of the assets in the “hardware wallet”; and

e. The Macbook Pro and Ipad will be forwarded to the Debtors.

18 In addition to the $70,000 of cash withdrawals referenced supra, Alexander also withdrew an additional $107,410 in cash from the Wells Fargo Account (9285) since August 2020.


20

Id., Ex. N.

60. To date, the only turnover Alexander has made since the February 16, 2021

emergency hearing was a check for $116,225.34 from the DIP Account, despite the account

reflecting $120,782.35 as of February 16, 2021. See In re Alexander, Case No. 21-10214-MB,

Docket No. 24, Ex. C (Bankr. C.D. Cal.).

G. The Committee’s Final Efforts to Obtain Discovery Pursuant to the Emergency Order


regarding Alexander’s continued noncompliance with the Emergency Order. Id., Ex. P. In that

correspondence, counsel to the Committee made clear that the email did not encompass the

entirety of Alexander’s obligations under the Emergency Order, but requested the following

discovery as a more immediate concern by certain deadlines:

a. A response to the “Phase Two” interrogatories and discovery demands concerning Alexander’s personal assets no later than February 25, 2021;

b. The production of account statements to six accounts that were included in Alexander’s personal bankruptcy schedules, but had not yet been provided, by no later than February 25, 2021; and

c. A revised Alexander Declaration by no later than February 26, 2021.

Id., Ex. P.

62. Counsel to the Committee followed up on the foregoing requests on February 25,

2021 and March 1, 2021. Id. Finally, on March 1, 2021, Alexander’s counsel responded to

inform the Committee that he would be sending his response on March 2, 2021. However, the

March 2 response simply stated that Alexander “is working on this now and the information will

be provided as soon as it is completed.” Id., Ex. Q. The Committee has not heard from

Alexander or his counsel on these issues since the March 2 correspondence.


21

63. On March 14, 2021, counsel to the Committee emailed Alexander’s counsel

regarding the continued noncompliance, stating:

Despite multiple assurances from you over the past several weeks that your client would comply with Judge Dorsey’s TRO (including the email below and the attached email on March 2 in which you wrote “My client is working on this now and the information will be provided as soon as it is completed.”), nothing has progressed and Mr. Alexander has still not complied. At this point, we have no choice but to seek intervention from the court and will be doing so shortly. It’s unfortunate that Mr. Alexander continues to cause the Debtors and their estates to expend additional resources on seeking compliance with a court order.

Id., Ex. P.

64. To date, Alexander has not produced any further discovery.

H. The Examiner’s Report

65. The Examiner’s Report revealed a number of disturbing facts about Alexander.

Specifically, that: “[o]n December 3, 2007, Alexander was convicted in the United Kingdom for

crimes related to illegal money transfers. He was sentenced to three years and four months in

prison to be served at HMP Ford Prison in West Sussex, England. On October 15, 2008, while

serving his sentence, there was a prison break at the HMP Ford Prison [during which Alexander

escaped]. It appears that Alexander is a fugitive in the United Kingdom.” Id. at 89-90.

66. Additionally, the Examiner uncovered that James Alexander has legally changed

his name twice, which is a fact that was unknown to the Committee. Docket No. 605, n. 5.

Indeed, the Committee specifically asked Alexander to state his full legal name and any alias or

aliases he has used. Evans Decl., Ex. L (Interrogatory No.1). Alexander’s response only states

“James Alexander.” Id.

67. The Examiner’s Report also identifies Alexander as a target of substantial claims

held by the Debtors, stating:


22

Mr. Alexander is an important figure in the story of Cred’s demise . . . . Alexander’s participation/involvement in poor decisionmaking is a recurring theme, especially when evaluating particularized errors in business oversight (e.g., undisciplined diligence and asset-allocation functions) and points of loss (e.g., QuantCoin and repayment of the Luxembourg Bonds, both discussed below). At the end of his tenure with the company, and at various times thereafter, Mr. Alexander engaged in behavior that may be charitably described as aberrant.

Id. at 11.

68. As suggested throughout the Examiner’s Report, the Debtors likely have

substantial claims against Alexander.

RELIEF REQUESTED

69. By this Motion, the Committee respectfully requests that the Court enter an order:

(i) finding James Alexander in contempt for violating the Emergency Order; and (ii) issuing a

bench warrant for the arrest and detention of Alexander until he complies with the Emergency

Order.

BASIS FOR RELIEF

70. The Emergency Order is unambiguous. It requires Alexander to turnover the

Debtors’ assets, produce discovery, submit a declaration, and sit for a deposition, all by certain

deadlines. To date, Alexander has substantially failed to comply with the Emergency Order.

Instead, he has disregarded it, employing evasive and obstructive tactics to frustrate the Debtors

and the Committee’s efforts to recover property of the Debtors’ estates and obtain discovery. As

a result, the Committee has no alternative other than to seek a finding of civil contempt and an

order issuing an arrest warrant for the detention and arrest of Alexander. Indeed, such a severe

sanction is necessary to coerce Alexander’s compliance with the Emergency Order.

A. The Evidence Establishing Alexander’s Civil Contempt is Clear and Convincing

71. To establish civil contempt in the Third Circuit, movants must establish that: (i) a

valid court order existed; (ii) the contemnor had knowledge of the order; and (iii) the contemnor


23

disobeyed the order. See Roe v. Operation Rescue, 919 F.2d 857, 971 (3d Cir. 1990). Civil

contempt must be established by clear and convincing evidence. In re Vaso Active

Pharmaceuticals, Inc., 514 B.R. 416, 422 (Bankr. D. Del. 2014). However, the contemnor has

the burden to introduce evidence demonstrating why the contemnor was unable to comply with

the order. Harris v. City of Philadelphia, 47 F.3d 1311, 1324 (3d Cir. 1995). The evidence must

be beyond “a mere assertion of inability” and the contemnor must show “that he has made in

good faith all reasonable efforts to comply.” Id.

72. The Committee establishes each of the civil contempt elements. The Emergency

Order was entered by this Court on February 5, 2021 following an extensive hearing on the

Emergency Motion, which Alexander filed a response to in advance of the hearing. See Adv.

Pro. Docket Nos. 6, 13, 14; Docket No. 486. Thus, satisfying the first factor.

73. There is no question that Alexander had knowledge of the Emergency Order

because: (i) the proposed Emergency Order was circulated to Alexander’s counsel, who did not

object to entry of the Emergency Order, see Docket No. 485; (ii) at the February 9, 2021

deposition, Alexander stated that he knew he was appearing at the deposition under a court order,

see Evans Decl., Ex. G at 29:11-13; (iii) Alexander submitted a declaration in support of his

response to the Stay Relief Motion, which sought stay relief to enforce the Emergency Order, see

In re Alexander, Case No. 21-10214-MB, Docket No. 24 (Bankr. C.D. Cal.); and (iv) Alexander

complied with certain of his obligations under the Emergency Order. Thus, the second factor is

also satisfied.

74. Finally, Alexander has failed to comply with the Emergency Order, which

requires, among other things, that Alexander: (i) submit a declaration; (ii) provide expedited

discovery regarding, among other things, the Debtors’ assets, cryptocurrency in his possession,


24

his personal assets, and the transfers of the Debtors’ assets; and (iii) turnover all of the Debtors’

assets to the Debtors. See Evans Decl., Ex. K. As discussed below, Alexander’s compliance

with these requirements has been limited, at best.

(1) Alexander Disobeyed the Emergency Order By Failing to Submit a Sufficient Declaration

75. As discussed above, the Alexander Declaration falls well short of providing the

detail about the cryptocurrency transactions and current location of Debtors’ assets. See id., Ex.

D at 24:12-18; 33:12-22; 34:2-35:6. In the Alexander Declaration, Alexander admits that on

June 24, 2020, he received the Cred Cryptocurrency. While Alexander has returned some

cryptocurrency and cash, there is a significant amount of Cred Cryptocurrency and the proceeds

of liquidations of Cred Cryptocurrency that is still unaccounted for. Alexander has provided the

Debtors with 49.9980892 Bitcoin, $2,773,489.24 USDC, and $200,580.34 in fiat currency. The

remainder is still unaccounted for because Alexander has failed to identify in the Alexander

Declaration each transaction, explain the reasons for the transaction, and identify all parties to

each transaction. Alexander failed to explain where the Cred Cryptocurrency and money that he

took from Cred was spent, who it was sent to, why each transaction was executed, and where the

remaining cryptocurrency and cash is currently located.

76. The need for a detailed explanation of these various transactions is even more

acute here than might ordinarily be the case because of the nature of the cryptocurrency

transactions Alexander engaged in. Alexander traded Cred Cryptocurrency on a number of

different Coinbase accounts and he also engaged in “off exchange” transactions where

cryptocurrency is traded and transferred to and from private wallets that are not associated with

exchanges. When Alexander provided certain of the Cred Cryptocurrency back to the Debtors, it

was not held within Coinbase or another regulated cryptocurrency exchange. Rather, that


25

cryptocurrency was being stored in an off-exchange wallet. This makes transactions

significantly more difficult to track and trace. That is why detailed explanations of the

transactions, reasons for the transactions, and the natural persons or entities on each side of the

transaction is critical.

77. Similarly, there is no explanation for the late January 2021 transfers of Cred

Cryptocurrency. Nor is there an explanation as to why the Debtors have not received the full

amount of the fiat currency Alexander received when he liquidated 100 Bitcoin on January 17,

2021 and where that fiat is presently located.

78. The Alexander Declaration fails to explain any of the Cred Cryptocurrency

transactions, cash withdrawals, or other transfers to third parties. Accordingly, the Alexander

Declaration does not even come close to complying with the Emergency Order.

(2) Alexander Disobeyed the Emergency Order By Failing to Produce Discovery

79. By Alexander’s own admission, the limited discovery produced to date is not

complete. Id., Ex. G at 104:14-21 (Alexander stating that there would be a “part two discovery”

forthcoming). The Committee has continuously requested that Alexander comply with the

Emergency Order by producing the “part two discovery” concerning Alexander’s personal

assets. Id., Ex. P. The “part two discovery” is particularly important to allow the Committee to

further trace Alexander’s transfers of the Debtors’ assets, which will assist with identifying the

location of the assets and potential third party defendants. Even the limited discovery produced

to date has revealed that there are additional bank accounts in which the Debtors’ assets have

passed through. See id., Ex. G at 98:8-99:2; Ex. U at 10. This does not even take into account

the “off exchange” transactions.

80. Although Alexander and his counsel affirmatively responded to the Committee’s

requests for additional production by stating that the discovery is forthcoming, it has now been


26

more than five weeks since the Emergency Order was entered and no further discovery has been

produced. This is also a violation of the Emergency Order.

(3) Alexander Disobeyed the Emergency Order By Failing to Turnover or Account for Cred Assets

81. The Emergency Order required that Alexander turnover all of the Debtors’ assets.

Alexander admits that he received 224.98993 Bitcoin and $204,567 of Cred Cryptocurrency.

Although he has provided the Debtors with 49.9980892 Bitcoin, $2,773,489.24 USDC, and

$200,580.34 in fiat currency, since his receipt of the Cred Cryptocurrency Alexander used Cred

Cryptocurrency proceeds: (i) to fund trips to Istanbul and Vail, Colorado in December 2020; (ii)

to fund a future trip to Switzerland, paid in advance in January 2021; (iii) hundreds of thousands

of dollars of cash withdrawals; (iv) to transfer $350,000 as a retainer to Quinn Emmanuel

Urquhart & Sullivan to fund legal defense costs for Cred’s former General Counsel, Dan

Wheeler, immediately before Wheeler filed a declaration in support of Alexander’s motion to

dismiss Cred Capital’s chapter 11 case one week prior to the transfer; (v) on February 4, 2021,

one day after the Emergency Motion was filed, to (a) withdraw $60,000 in cash to store in the

trunk of Alexander’s car; (b) transfer $100,000 to himself; and (c) write a $10,000 check to

himself; and (vi) to make a series of transfers to “Alexander Custom Management” and “Custom

Management.” Id., Ex. G at 42:12-50:7; Ex. S.

82. Additionally, Alexander continuously used funds from the “dedicated” Cred

Wells Fargo account to make de minimis personal purchases, including spending over $700 on

February 16, 2021 – the same day as the emergency hearing on the Stay Relief Motion. Without

additional discovery from Alexander, it is impossible to account for his use of Cred assets for

personal expenses. Nevertheless, it is evident that there are considerable funds that remain


27

unaccounted for and have not been turned over. Alexander’s failures to turnover or account for

these funds also violates the Emergency Order.

83. The foregoing establishes, by clear and convincing evidence, that the Emergency

Order is valid, Alexander had knowledge of the Emergency Order, and Alexander disobeyed the

Emergency Order. Accordingly, the Court should hold Alexander in civil contempt.

B. The Court Should Hold Alexander in Civil Contempt Under Bankruptcy Rule 7037(b)

84. Bankruptcy Rule 7037(b)(1) states: “[i]f the court where the discovery is taken

orders a deponent to be sworn or to answer a question and the deponent fails to obey, the failure

may be treated as contempt of court.” Bankruptcy Rule 7037(b)(2)(A) provides a list of potential

further orders that a court may enter if an order is not obeyed. See Fed. R. Bankr. P.

7037(b)(2)(A)(i)-(vii). “For instance, a court may strike pleadings in whole or in part, stay

further proceedings until the order is obeyed, dismiss the proceeding in whole or in part, render a

default judgment against the disobedient party, or treat as contempt of court the failure to obey

any order (that is not an order to submit to a physical or mental examination).” Vaso Active

Pharmaceuticals, 514 B.R. at 421. Bankruptcy Rule 7037(b)(2)(A)’s list is non-exhaustive,

however, and sanctions are “generally entrusted to the discretion” of the court. Clientron Corp.

v. Devon IT, Inc., 894 F.3d 568, 580 (3d Cir. 2018).

C. The Court Should Hold Alexander in Civil Contempt Under Bankruptcy Code Section 105(a)

85. Bankruptcy courts derive civil contempt authority from Bankruptcy Code section

105(a), which provides:

The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to


28

enforce or implement court orders or rules, or to prevent an abuse of process.

11 U.S.C. § 105(a).

86. Section 105(a) “gives the court ‘general equitable powers . . . insofar as those

powers are applied in a manner consistent with the Code.’” Vaso Active Pharmaceuticals, 514

B.R. at 421 (quoting In re Joubert, 411 F.3d 452, 455 (3d Cir. 2005)). Such general equitable

powers are frequently used by bankruptcy courts to make civil contempt findings. See e.g., id.

(citing In re Cont'l Airlines, Inc., 236 B.R. 318, 331 (Bankr. D. Del. 1999) aff'd sub nom. In re

Cont'l Airlines, 90–932, 2000 WL 1425751 (D. Del. Sept. 12, 2000) aff'd sub nom. In re Cont'l

Airlines, Inc., 279 F.3d 226 (3d Cir. 2002); In re Baker, 390 B.R. 524, 531 (Bankr. D. Del. 2008)

aff'd, 400 B.R. 136 (D. Del. 2009); In re Anderson, 348 B.R. 652, 661 (Bankr. D. Del. 2006); In

re WCI Communities, Inc., No. 08–11643, 2012 WL 1981713 (Bankr. D. Del. June 1, 2012)

(Carey, J.); Accord In re Walters, 868 F.2d 665, 669 (4th Cir. 1989); Matter of Terrebonne Fuel

& Lube, Inc., 108 F.3d 609, 612 (5th Cir. 1997); In re Skinner, 917 F.2d 444, 447 (10th Cir.

1990); In re Hardy, 97 F.3d 1384, 1389 (11th Cir. 1996)).

87. As proven herein, Alexander failed to comply with the Emergency Order by

failing to turnover assets and produce discovery. Such conduct justifies a finding of civil

contempt under Bankruptcy Code section 105(a). See, e.g. Vaso Active Pharmaceuticals, 514

B.R. at 426 (finding civil contempt for the violation of a court order requiring the production of

discovery); In re 1990s Caterers Ltd., 531 B.R. 309, 320 (finding civil contempt for the violation

of a court order requiring the turnover of sale proceeds); In re Kenny G Enterprises, LLC, 692

F.App’x. 950, 953 (9th Cir. 2017) (finding civil contempt for the violation of a court order

requiring the turnover of assets); In re Tate, 521 B.R. 427, 439-44 (S.D. Ga. 2014) (finding civil

contempt for the violation of a court order requiring turnover of assets).


29

88. As discussed in detail above, the Court ordered Alexander to submit a sworn

declaration answering a bevy of questions. Alexander’s complete disregard for such order is a

contempt of court.

D. The Court Should Order the Incarceration of Alexander as a Coercive Sanction for His Civil Contempt

89. Generally, a finding of civil contempt results in some form of sanction designed

to coerce future compliance with a court order. In certain instances, incarceration is the only

appropriate sanction to achieve compliance. See Vaso Active Pharmaceuticals, 514 B.R. at 426

(stating that incarceration is appropriate when the contemnor is unlikely to comply based on

monetary sanctions and the contemnor has consistently failed to comply); see also 1990s

Caterers, 531 B.R. at 320 (finding incarceration appropriate when the contemnor knowingly

violated an unambiguous order to turnover sale proceeds, continuously and willfully ignored the

order, and falsely testified about not possessing the subject proceeds); Tate, 521 B.R. at 439-44

(continuing the incarceration of a contemnor for his continued failure to fulfill obligations

imposed pursuant to court order). Particularly, incarceration is appropriate when (i) monetary

sanctions are unlikely to result in compliance and (ii) there has been a pattern of noncompliance

with the court. Id. “Courts may utilize incarceration as a coercive sanction for civil contempt, so

long as ‘the contemnor is able to purge the contempt and obtain his release by committing an

affirmative act.’” 1990s Caterers, 531 B.R. at 319 (quoting Int’l Union, United Mine Workers of

Am. V. Bagwell, 512 U.S. 821, 828-29 (1994)).

(1) Monetary Sanctions are Unlikely to Result in Alexander’s Compliance with the Emergency Order

90. There are at least three reasons why monetary sanctions will not coerce Alexander

to comply with the Emergency Order. Any one of them is sufficient to grant the requested relief.


30

91. First, Alexander’s bankruptcy schedules provide that Alexander has

approximately $2 million in assets. See In re Alexander, Case No. 21-10214-MB, Docket No. 48

(Bankr. C.D. Cal.). Alexander has asserted that all of these assets are subject to exemptions or

liens. Id. The Debtors’ claims against Alexander are likely to be substantial, and thus any

additional monetary sanction is only a drop in the bucket. Accordingly, Alexander is unlikely to

comply with the Emergency Order if his punishment for noncompliance is simply an increase of

the Debtors’ already substantial claims against him.

92. Second, Alexander is a chapter 7 debtor. Thus, any monetary sanctions against

Alexander are not likely immediately collectable (even if Alexander had assets to satisfy the

sanctions). Instead, the Debtors would have a larger claim against Alexander’s estate for the

value of the monetary sanctions. Meaning, the Committee would have to wait until distributions

are made from the Alexander Bankruptcy and are unlikely to receive the full amount of the

claim. Additionally, the existence of the automatic stay in the Alexander Bankruptcy creates a

dangerous line for the Committee. The Committee has obtained relief from the automatic stay in

the Alexander Bankruptcy solely to enforce the Emergency Order. If Alexander’s civil contempt

sanction is monetary, the Committee may have no avenues to enforce the sanction (i.e., levying

on Alexander’s assets) without potentially violating the automatic stay.

93. Third, Alexander’s history demonstrates that there are very few punishments (if

any) that will coerce him to comply with court orders. “Mr. Alexander was convicted on

December 3, 2017 in the United Kingdom for crimes related to illegal money transfers, for which

he was sentenced to three years and four months in prison to be served at HMP Ford Prison in

West Sussex, England.” See Docket No. 338 at 7, 89-90, 91 (internal citations omitted). “On

October 15, 2008, while serving his sentence, there was a prison break at the HMP Ford Prison.”


31

Examiner’s Report at 90 (internal citations omitted). “Mr. Alexander has been identified by the

UK government as a fugitive.” See Docket No. 338 at 7, 90 (internal citations omitted). More

recently, Alexander admittedly violated the California Freeze Orders by making the January 16,

2021 and January 17, 2021 transfers. See Evans Decl., Ex. G at 105:20-106:19.

94. Alexander has also shown that he will not hesitate to take defensive measures

when his feet get close to the fire. After the California Complaint was filed, but before the

California TRO hearing (only a one day difference), Alexander transferred and liquidated more

than 65 Bitcoin of the Cred Cryptocurrency. Id. at 80:8-13. Additionally, shortly after the

Committee filed the Emergency Motion, Alexander withdrew $170,000 in cash, storing $60,000

of which in the trunk of his car. Id. at 42:12-50:7. Finally, in advance of the Court Ordered

February 9, 2021 deposition, Alexander apparently had lawyers prepare a personal bankruptcy

petition which was to be filed just in case the deposition was going badly. Id. at 119:4-11.

When the questioning turned to the subject of missing funds derived from recent liquidations of

Cred Cryptocurrency, Alexander claimed to be “short of breath” and asked for a five-minute

break, apparently to contact his lawyers, authorize a personal bankruptcy filing, and put an end to

the deposition. Id. at 114:8-13, 118:3-6. Deponents of Court Ordered depositions do not get

escape hatches. This sort of gamesmanship serves no just purpose in the administration of

justice.

95. Put simply, unrecoverable monetary sanctions are unlikely to compel Alexander

from complying with the Emergency Order. Swift and severe justice is necessary here.

(2) Alexander Has Demonstrated a Pattern of Noncompliance

96. Alexander’s noncompliance with this Court’s ruling began thirty-one minutes

after the emergency February 5 hearing. At the hearing, the Court set a number of deadlines for

Alexander to meet. Specifically, the Court ordered Alexander to provide directly to the Debtors


32

and the Committee: (i) all Cred Cryptocurrency in his possession “within 30 minutes” after the

hearing concluded; (ii) all cash in Alexander’s possession related to the Debtors by close of

business the day of the hearing; (iii) a detailed declaration by 4:00 p.m. describing all of the

transfers of Cred Cryptocurrency and any other assets of the Debtors that were in Alexander’s

possession; (iv) an explanation of the reasons for each of these transactions; (v) discovery on all

of the Cred Cryptocurrency transactions and fiat transactions relating to the Debtors by February

8, 2021; and (vi) discovery on all of Alexander’s personal assets by February 10, 2021. Evans

Decl., Ex. D. Alexander did not meet a single deadline. When Alexander finally executed some

transfers and provided some information, they were insufficient and incomplete.

97. The Court stated at the February 5 hearing, “it is time for Mr. Alexander to start

answering some difficult questions.” Evans Decl., Ex. D at 23:23-24. Consistent with that

statement, the Court ordered that Alexander sit for a deposition with the Debtors and the

Committee. Id. at 31:10-13. The Debtors and the Committee spent considerable time and estate

resources preparing for the deposition, including working with CiperTrace, the Committee’s

expert. Midway through the deposition, Mr. Alexander put an end to the deposition by asking

for a health-related break, during which time he filed for personal bankruptcy. Id., Ex. G at

114:8-13, 118:3-6. These antics forced the Debtors and the Committee to expend even more

time and estate resources to seek stay relief in the California Bankruptcy Court to enforce the

Emergency Order. See id., Ex. I. Even though the California Bankruptcy Court granted this

relief and lifted the stay so that Alexander can comply with the Emergency Order, Alexander has

still not complied. See id., Ex. K.

(3) Incarceration is the Only Sanction that Will Coerce Compliance

98. Courts are “given wide discretion to tailor the most effective remedy to obtain

compliance.” Vaso Active Pharmaceuticals, 514 B.R. at 425. Although courts in this district


33

take the view that incarceration is an option of last resort, it is inconceivable that any sanction

short of incarceration will coerce Alexander to comply with the Emergency Order when his

behavior to date demonstrates that he will try anything to avoid compliance. See In re Chief

Exec. Officers Clubs, Inc., 359 B.R. 527, 534 (Bankr. S.D.N.Y. 2007) (when determining the

appropriate remedy, courts must consider “the nature of the harm and the probable effect of

alternative sanctions.”).

99. Courts dealing with similar individuals whose noncompliance is “overwhelming

and blatant” have found incarceration to be the appropriate sanction. See e.g., 1990s Caterers,

531 B.R. at 320 (finding incarceration appropriate when the contemnor knowingly violated an

unambiguous order to turnover sale proceeds, continuously and willfully ignored the order, and

falsely testified about not possessing the subject proceeds); In re Baker, No. 15-ap-01535-BB,

2019 WL 2896137, at *1 (Bankr. C.D. Cal. April 29, 2019) (finding incarceration appropriate

when the contemnor continuously failed and refused to comply with an order requiring the

turnover of data and information, failed to preserve such data and information, and published

defamatory information about the plaintiff); Kenny G Enterprises, 692 F.App’x. at 952

(affirming incarceration when it was clear that the contemnor was in possession of assets and

refused to turn them over).

100. Alexander’s noncompliance with the Emergency Order is blatant. Since entry of

the Emergency Order, he has thumbed his nose at each deadline and obligation. His conduct has

made it abundantly clear that he lacks respect for the law. It is axiomatic that this conduct will

continue unless Alexander is sanctioned appropriately. But, as discussed above, monetary

sanctions (no matter how severe) will have no coercive effect on Alexander. Thus, the

Committee respectfully requests that the Court apply its broad discretion and issue a bench


34

warrant for the arrest and detention of Alexander until Alexander complies with the Emergency

Order.19

WHEREFORE, the Committee respectfully requests that the Court enter an order: (i)

finding James Alexander in contempt for violating the Emergency Order; and (ii) issuing a bench

warrant for the arrest and detention of Alexander until he complies with the Emergency Order.

Dated: Wilmington, Delaware March 15, 2021

19 Of course, Alexander can purge his contempt and be released at any time upon his compliance with the Emergency Order.

MCDERMOTT WILL & EMERY LLP /s/ David R. Hurst David R. Hurst (I.D. No. 3743) The Nemours Building 1007 North Orange Street, 10th Floor Wilmington, DE 19801 Telephone: (302) 485-3900 Facsimile: (302) 351-8711 -and- Timothy W. Walsh (admitted pro hac vice) Darren Azman (admitted pro hac vice) Joseph B. Evans (admitted pro hac vice) 340 Madison Avenue New York, NY 10173-1922 Telephone: (212) 547-5400 Facsimile: (212) 547-5444 Counsel to the Official Committee of Unsecured Creditors


EXHIBIT A




ORDER GRANTING EMERGENCY MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR AN ORDER (I) HOLDING JAMES ALEXANDER IN

CONTEMPT OF COURT AND (II) ISSUING A BENCH WARRANT FOR THE ARREST AND DETENTION OF JAMES ALEXANDER

Upon the motion (the “Motion”),2 of the Official Committee of Unsecured Creditors (the

“Committee”) of Cred Inc., et al. (the “Debtors”), for entry of an order (i) finding James

Alexander in contempt for violating the Order Approving the Emergency Motion of the Official

Committee of Unsecured Creditors for Entry of an Order Granting (I) Temporary Restraining

Order and Preliminary Injunction Against James Alexander and (II) Related Relief [Docket No.

486] (the “Emergency Order”); and (ii) issuing a an appropriate remedy to compel Alexander to

comply with the Emergency Order, including issuing a bench warrant for Alexander’s arrest and

detention until he complies, pursuant to Bankruptcy Code section 105(a), Rule 37(b) of the

Federal Rules of Civil Procedure, as made applicable to this proceeding by Bankruptcy Rule

7037(b), Bankruptcy Rule 9020, and Rule 9013-1 of the Local Rules of Bankruptcy Practice and

Procedure of the United States Bankruptcy Court for the District of Delaware; and the Court

having jurisdiction to consider the Motion and the relief requested therein in accordance with 28

1 The Debtors in these chapter 11 cases, along with the last four digits of each debtor’s tax identification number,

as applicable, are as follows: Cred Inc. (8268), Cred (US) LLC (5799), Cred Capital, Inc. (4064), Cred Merchant Solutions LLC (3150), and Cred (Puerto Rico) LLC (3566). The Debtors’ mailing address is 3 East Third Avenue, Suite 200, San Mateo, California 94401.

2 Capitalized terms used but not otherwise defined herein have the meanings ascribed to them in the Motion.


2

U.S.C. §§ 157 and 1334(b); and venue being proper before this Court pursuant to 28 U.S.C. §§

1408 and 1409; and sufficient notice of the Motion was given to interested parties in accordance

with the Federal Rules of Bankruptcy Procedure; and the Court having reviewed the Motion and

all supporting documents thereto; and after due deliberation and sufficient cause appearing

therefor, its hereby ORDERED that:

1. The Motion is GRANTED.

2. James Alexander is in civil contempt of this Court for his noncompliance with the

Emergency Order.

3. The Clerk of this Court shall prepare and issue a Bench Warrant for James

Alexander’s arrest.

4. The United States Marshals are directed, pursuant to such Bench Warrant, to

arrest James Alexander and deliver him to federal custody in the District of Delaware.

5. James Alexander shall be coercively incarcerated until he complies with the

Emergency Order.

6. This Order shall be effective and enforceable immediately upon its entry.

7. This Court shall retain jurisdiction with respect to any matters, claims, rights, or

disputes arising from or related to the implementation of this Order.


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