Bitwise Industries file photo

With dwindling assets and a heap of litigation at their feet, parties in the Bitwise Industries bankruptcy are leaning toward a mediation process that could yield a “global settlement.”

That’s the word from Jeoffrey L. Burtch, interim Trustee appointed June 28 to the bankruptcy proceedings in Delaware. In an Aug. 11 court filing through his counsel, Burtch also called for a 90-120 day adjournment to the hearing. The extra time would accommodate mediation to avoid burning through some of the only assets possibly available to creditors.

Burtch was responding to a filing last month from former Bitwise directors Ollen Douglass and Joseph T. Proietti requesting access to up to $5 million from an insurance policy to cover legal bills. The directors also want to restrict policy access to former Bitwise officers Jake Soberal and Irma Olguin Jr.

The Trustee laid out the playing field in his filing this week, stating there are at least five pending legal actions against Bitwise debtor companies that name former officers and directors as defendants. At least eight law firms representing officers and directors could have fees and costs payable under the insurance policy.

Butch himself has started identifying causes of action against former Bitwise officers and directors for “breach of fiduciary duty to the Bitwise Debtors,” according to the filing.

But he noted more litigation would only exhaust the policy with legal fees and the cost of governmental investigations.

The solution — after discussion with the parties — appears to be mediation, according to the filing.

“All parties, including the Former Directors, appear to be amenable to moving forward with a mediation process to attempt to reach a global settlement of the various claims against the former officers and directors of the Bitwise Debtors,” according to the filing.

Burtch also intends to oppose a request by Fresno-based creditors to change the bankruptcy court venue from Delaware, where Bitwise was incorporated, to the Central Valley. 

The Trustee filing said his office spent hundreds of hours on the case, trying to identify why Bitwise failed and how best to marshal assets and make a return to creditors. But it was made more challenging by allegations of mismanagement and fraud, lack of funding to administer the case, parallel government investigations, records in disarray and the “existence of several non-debtor subsidiaries and other affiliates, which may have operations and/or assets and may need to become part of these proceedings.”

If the court does allow the Bitwise directors to use the policy, the Trustee requested the court impose a $1 million cap for legal fees.