Banq Chapter 11 Bankruptcy Filing Denied, Judge Calls It a Strategy to Shield Founder from Lawsuit
The crypto Neobank Banq has had its Chapter 11 application denied by a U.S. bankruptcy judge in the district of Nevada. Judge Natalie M. Cox, who oversaw the case, described the bank’s bankruptcy filing as a bad faith strategy to obtain an edge in ongoing litigation rather than to reorganize.
In her ruling, Judge Cox stated that this bankruptcy process was a ruse to protect Banq and its founder, Jon Jiles, from an investor lawsuit brought by N9, a significant creditor in the business with a $3 million stake. The case alleges that Jiles disregarded Banq’s interests in favor of Prime Trust, of which he was a founding and managing member, in violation of his fiduciary obligations.
Judge Calls Out Lack of Revenue and Purcell Lawsuit Focus
In his role as Banq’s chair, Jiles allegedly neglected to draft a non-compete agreement with former Banq CEO Scott Purcell, instead establishing one between Purcell and Prime Trust, according to N9’s lawsuit. Jiles used his power over Banq to Prime Trust’s advantage, putting its interests first and causing Banq to fail, according to N9’s lawsuit.
A major component of Banq’s bankruptcy allegations is that Purcell transferred $17.5 million in assets and technology to a rival firm he formed, Fortress NFT Group, after allegedly shifting the company’s focus from cryptocurrency payments to NFTs. Judge Cox stated in her decision that Banq’s bankruptcy plan was not a valid business reorganization due to the company’s lack of income streams. Rather, the company’s business activities are virtually entirely focused on bringing legal action against Purcell.
It is apparent from the totality of the circumstances that Debtor’s actual purpose in filing this case is not to successfully reorganize,
Cox
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