Delaware judge blocks Papaya Gaming from moving US funds offshore

A federal bankruptcy judge in Delaware ordered Papaya Gaming Inc. to stop moving money from its US accounts offshore. On Oct. 27, U.S. Bankruptcy Judge Mary F. Walrath ordered Papaya to cease transferring assets from the company’s U.S. accounts to offshore holdings. A three-day evidentiary hearing held Oct. 14–16 revealed that Papaya had been transferring roughly $30 million per month from its U.S. holdings to accounts in Israel. Moving forward, every ordinary-course transaction must be reported to the designated U.S. trustee on a confidential basis and be pre-funded at 115% of the transaction amount. Papaya is additionally prohibited from making payments to affiliates and company insiders.

Papaya is an Israeli-based mobile gaming operator that was convicted earlier this year of violating the federal Lanham Act and New York General Business Law. In April, a federal jury in the Southern District of New York found that Papaya financially harmed Skillz Platform Inc., a subsidiary of Firy Inc., through false advertising. While Papaya promised faster matchmaking in real-money games, players were routinely paired against automated computer bots rather than live human opponents. US District Judge Denise Cote ordered Papaya to pay Skillz $719 million in disgorgement of unjust profits, prompting Papaya to file for Chapter 15 cross-border bankruptcy protection.

Although Tel Aviv-headquartered Papaya Gaming Ltd. generates roughly 90% of its revenue via its U.S. arm, Judge Walrath recognized the Israeli debt restructuring over Skillz’s objections. Walrath noted during the hearing that Papaya CEO Oriel Bachar was “not credible” in his testimony. Walrath said the company failed to inform the U.S. District Court about financial transfers that likely would have altered that court’s decision on restraining Papaya’s domestic assets. Walrath said Papaya’s fraudulent conduct was extraordinary.

Papaya had proposed using future operating profits to pay Skillz the $719 million judgment over a 6.5-year period. An Israeli court rejected the proposed 6.5-year payment plan. Papaya is scheduled to present a revised payoff outline in the coming days, with the Tel Aviv District Court’s temporary stay of proceedings set to expire on Nov. 25.