XClaim, an agency that helps investors claim their assets from entities that have gone bankrupt, is set to go under sanctions hearing in U.S. Bankruptcy courts. XClaim is part of the team helping account holders recover funds from entities like Celsius. U.S. Bankruptcy judges claim the startup has received illegal fees from parties they went into agreement with including Epiq and Stretto.
What Were the Proceedings Claims?
On August 25, 2022, Judge Martin Glenn of the Southern District of New York started a dramatic proceeding headed as a “Matter of Certain Claims and Noticing Agents’ Receipt of Fees in Connection with Unauthorized Arrangement with XClaim Inc.” Judge Glenn directed all authorized claims agents to submit a notification that contains the following information.
The hearing revealed a list of bankruptcy cases where the claims agent served as a court-approved agent. XClaim also enabled at least one claims trade from which the approved claims agent received, or will receive, a fee or any other payment or reimbursement from XClaim, along with a notation indicating the district in which the case was filed.
The responses to Judge Glenn’s order revealed, among other things, that there are much more claims and noticing agents than previously imagined. The court is also unfamiliar with some of the organizations that are allegedly on the list of approved claims agents. The seven largest providers—the aforementioned Stretto and Epiq, Kroll Restructuring Administration LLC (“Kroll”), Kurtzman Carson Consultants (“KCC”), Donlin Recano & Company Inc. (“Donlin”), Omni Agent Solutions Inc. (“Omni”), and BMC Group (“BMC”)—seemed to receive the majority of XClaim’s attention.
XClaim Plead Their Case against the Sanctions
Effective October 26, at 2 p.m. ET, a rebuttal from Xclaim disputing fines were issued by former judge Kevin Carey, who presently practises at Hogan Lovells LLP law firm. The case filed by the former judge did indeed raise questions about XClaim’s credibility.
The Department of the United States Trustee in the Southern District of New York then joined the conflict on October 18, 2022. It filed a letter that elaborated on and essentially backed Judge Glenn’s fact-finding assignment. The UST demanded a “full history of the Unusual Proceeding,” with a particular emphasis on the five claims’ failure to formally disclose the Xclaim partnership by the five claims agents.
On Celsius’s bankruptcy case hearing that took place earlier this week, Judge Glenn greenlighted the appointment of a privacy ombudsman. The judge had the support of the U.S. Trustee, who believed the appointment was dire if Celsius were to engage in selling a list of their customers.
In early October, Celsius saw the release of court documents that revealed transactional information from thousands of accounts within its network.
Bankruptcy Service Providers on the Spotlight
In a significant chapter 11 hub, providers of legal services that support the country’s largest corporate bankruptcies are under fire. This comes after their side transactions with a claims-trading company were discovered.
Judges in the bustling U.S. Bankruptcy Court in New York are closely examining those agreements. This is in conjunction with the legal services who were employed as claims agents in chapter 11 cases to handle the enormous quantity of administrative work brought on by significant corporate restructurings. According to the startup, four of the top six companies in the industry have agreements to give Xclaim Inc. claims data from their bankruptcy cases.