Crypto Neobank Banq’s Bankruptcy Case Dismissed by U.S. Judge

As a seasoned crypto investor with a knack for deciphering financial intricacies, I must admit that this Banq saga is as confusing as a Rubik’s cube with all its corners scrambled. The latest turn of events, where the bankruptcy application was dismissed, seems to be more about courtroom strategy than a genuine attempt at reorganization.

The U.S. bankruptcy court in Nevada has denied the request made by the digital bank Banq, known as a crypto neobank, which previously filed for Chapter 11 protection.

In the court case under her jurisdiction, Judge Natalie M. Cox deemed the bank’s bankruptcy filing as a “strategy of ill intent” used primarily to “seize an edge in ongoing legal disputes,” rather than for genuine reorganization purposes.

In her decision, Judge Cox stated that the bankruptcy case was apparently used as a strategy by Banq and its owner, Jon Jiles, to evade an investor lawsuit initiated by N9 – a significant creditor holding a $3 million stake in the company. The lawsuit accuses Jiles of breaching his duties as a fiduciary by putting Prime Trust’s interests (where he was the founder and managing member) ahead of Banq’s.

“Jiles quickly showed that his loyalty belonged to Prime Trust, not Banq,” the N9 lawsuit reads.

In addition to its other claims, N9 asserts in their lawsuit that Jiles, while serving as Banq’s chairman, neglected to establish a non-compete agreement with former CEO of Banq, Scott Purcell. Instead, Jiles only set up such an agreement between Purcell and Prime Trust. N9 alleges that Jiles exploited his power over Banq to favor Prime Trust, putting its interests first and ultimately contributing to Banq’s decline.

In legal action against Purcell, Banq asserts that he steered the company away from cryptocurrency transactions towards Non-Fungible Tokens (NFTs). This alleged move occurred prior to transferring $17.5 million in assets and technological resources to a competitor, Fortress NFT Group, which he established and is now central to their claims of bankruptcy.

According to Judge Cox’s decision, Banq’s proposed bankruptcy strategy did not constitute a valid business restructuring since the company lacked any income streams. In reality, the main focus of Banq’s business activities was primarily centered around suing Purcell rather than generating revenue through regular operations.

In a clear indication, considering all the factors at play, it seems that the primary intention of the Debtor in initiating this case is not to achieve a successful reorganization, as stated by Cox. He pointed out that Jiles financed the bankruptcy proceedings with a $225,000 loan from his company NVF LLC.

In the case at hand, as Cox stated, its design aimed to impede N9 from pursuing Jiles regarding a potential breach of fiduciary responsibility.

In other words, it seems that this legal action was initiated for strategic purposes, primarily benefiting the parties involved in the Jiles case.

Instead, Cox wrote, this case is a dispute between Banq, Purcell, and Jiles – not a bankruptcy.