A U.S. judge has dismissed the bankruptcy filing of crypto neobank Banq, calling it a “bad faith” strategy intended to gain leverage in a legal battle rather than reorganize the business.
Banq filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Nevada. However, Judge Natalie M. Cox ruled that the company’s filing was an attempt to avoid an investor lawsuit from N9, one of Banq’s creditors, rather than a genuine effort to restructure.
Bankruptcy Filing Seen as Litigation Tactic
Judge Cox’s ruling indicates that Banq, along with its founder Jon Jiles, used the bankruptcy process to sidestep N9’s lawsuit. N9, which holds a $3 million stake in Banq, accuses Jiles of breaching his fiduciary duties by prioritizing the interests of Prime Trust, a company where he also held leadership roles, over Banq’s success.
According to N9’s lawsuit, Jiles failed to establish a non-compete agreement between Banq’s former CEO, Scott Purcell, and Banq itself. Instead, the only non-compete agreement Purcell signed benefited Prime Trust. N9 claims that this mismanagement and divided loyalty undermined Banq, contributing to its downfall.
Conflict with Scott Purcell and Asset Transfer Allegations
Banq’s legal battle also extends to Purcell, whom the company accuses of shifting its business strategy from crypto payments to NFTs. Banq alleges that Purcell later transferred $17.5 million in assets and technology to Fortress NFT Group, a competing company he founded. This dispute forms a key element of Banq’s bankruptcy claims.
Judge Cox: No Reorganization, Just Litigation
In her decision, Judge Cox emphasized that Banq had no meaningful revenue streams or business operations beyond pursuing lawsuits. She stated that the bankruptcy case was not a legitimate effort to reorganize but instead a tool to delay N9’s claims against Jiles.
The bankruptcy filing was funded by a $225,000 loan from Jiles’ company, NVF LLC, which further signaled to the court that the filing was designed to serve the personal interests of Jiles and his associates.
“This case appears to be filed as a litigation tactic to advance the self-interest of the Jiles parties,” Cox wrote in her ruling.
Judge Cox concluded that the case represented a dispute between Banq, Jiles, and Purcell, not a legitimate bankruptcy proceeding. As a result, the court dismissed the case, paving the way for N9 to continue pursuing its claims against Jiles.
