Bittrex’s customer repayment plan objected by US government.

Bankrupt crypto exchange Bittrex’s proposal to return customer cash and crypto is facing a legal challenge from the U.S. The country is still owed millions for sanctions violations, according to a court filing on Wednesday. Bittrex’s U.S. branch filed for bankruptcy on May 8 after regulators accused it of running an unlawful securities exchange. It also settled for about $30 million with the Treasury for allowing customers in Iran, Cuba, and Crimea. Just four days later, the company sought court permission to allow customers to withdraw their holdings without the expense and delay of litigation. However, the U.S. government, owed $5 million by the company’s Financial Crimes Enforcement Network (FinCEN), says it’s not fair to favor some creditors over others. The government’s filing said that “siloing creditors into subordinated classes outside of the confirmation hearing is improper.” The Bittrex companies have not explained why the ownership of cryptocurrency assets must be decided before the confirmation of the bankruptcy plan. Bittrex’s U.S. branch holds $50 million in customer cash and $250 million in customer crypto. The Maltese operating company, which also filed for bankruptcy, has $120 million in customer cash and crypto. Both have enough assets to honor withdrawals, according to lawyers representing the companies in Delaware court. The government has previously intervened to scuttle cryptocurrency bankruptcy plans. The Securities and Exchange Commission (SEC) delayed an offer from Binance to purchase the assets of defunct cryptocurrency lender Voyager. The SEC argued that the fine print would have absolved those involved from breaches of tax or securities law. Binance has since been sued by the SEC. A hearing on Bittrex’s plan to allow withdrawals is scheduled for June 14. Edited by Sheldon Reback.

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