A United States magistrate dismissed the filing, describing it as a “poor faith” tactic.
Banq, a crypto neobank, has rejected its application to file for Chapter 11 in a U.S. bankruptcy court in the district of Nevada.
The bank’s bankruptcy application was characterized by Judge Natalie M. Cox as a “poor faith” strategy to “obtain an advantage in pending litigation” rather than to reorganize.
Judge Cox stated in her ruling that the bankruptcy proceeding was a scheme to protect Banq and its founder, Jon Jiles, from an investor lawsuit initiated by N9, a major creditor in the company with a $3 million stake. The lawsuit alleges that Jiles failed to fulfil his fiduciary obligations by prioritizing the interests of Prime Trust (where he was the founder and managing member) over Banq’s. The N9 lawsuit states that “Jiles promptly demonstrated that his loyalty was to Prime Trust, not Banq.”
N9’s lawsuit also asserts that Jiles, in his capacity as Banq’s chair, neglected to establish a non-compete agreement with former Banq CEO Scott Purcell, instead establishing one between Purcell and Prime Trust. N9 asserts in the lawsuit that Jiles leveraged his control over Banq to benefit Prime Trust, prioritizing its interests and resulting in Banq’s downfall.
After purportedly redirecting the company’s attention from crypto payments to NFTs, Purcell transferred $17.5 million in assets and technology to a competitor he established, Fortress NFT Group, which is a critical component of Banq’s bankruptcy claims. Banq is currently pursuing legal action against Purcell.
According to Judge Cox, Banq’s bankruptcy plan was not a valid business reorganization due to the absence of revenue sources. Rather, the organization’s business operations are “almost exclusively” focused on the pursuit of litigation against Purcell.
“The totality of the circumstances clearly indicate that the Debtor’s true objective in filing this case is not to effectively reorganize,” Cox wrote. He also mentioned that Jiles had provided the bankruptcy proceedings with a $225,000 loan through his company, NVF LLC.
In an effort to impede N9’s capacity to pursue Jiles for breach of fiduciary duty, Cox authored the case. “In essence, this case appears to be filed as a litigation tactic to advance the self-interest of the Jiles litigants,” the filing states. Rather, Cox argued that this case is a dispute between Banq, Purcell, and Jiles, rather than a bankruptcy.
