Bankruptcy Judge Blocks Papaya Gaming From Moving Assets Offshore After CEO Testimony

A federal bankruptcy judge in Delaware has barred Papaya Gaming from transferring assets outside the United States as the company undergoes debt restructuring in Israel. 

Papaya is an Israeli-based mobile gaming operator that was convicted earlier this year of violating the federal Lanham Act and the New York General Business Law. On Oct. 27, US Bankruptcy Judge Mary Walrath ordered Papaya to cease moving assets from the company’s US accounts to offshore holdings.

A three-day evidentiary hearing held on Oct. 14-16 revealed that Papaya transferred roughly $30 million a month from its US holdings to accounts in Israel. Moving forward, every ordinary-course transaction must be relayed to the designated US trustee (on a confidential basis) and be pre-funded at 115% of the amount paid.

Papaya is additionally prohibited from making payments to affiliates and insiders. The evidentiary hearing showed that Papaya paid its shareholders tens of millions of dollars during the federal lawsuit in the US District Court for the Southern District of New York.

Papaya Secures Israeli Recognition

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 such as Solitaire Cash, Bingo Cash, and Bubble Cash, 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 US arm, Papaya Gaming Inc., Walrath recognized the Israeli debt restructuring over Skillz’s objections. As a result, the court designated the Tel Aviv proceeding as the main proceeding and the US case as the nonmain proceeding.

Walrath said during the hearing that Papaya CEO Oriel Bachar was “not credible” in his testimony and that the company did not inform the US District Court for the Southern District of New York about transfers that likely would have changed that court’s decision on restraining Papaya’s US assets.

In September, Casino.org reported on surging downloads for Papaya’s mobile games in the immediate months following the court’s ruling that the company duped customers by employing computer bots in real-money games.

Papaya to Present New Payoff Plan

Papaya had proposed using profits from future operations to pay Skillz the $719 million it’s owed over 6.5 years. Papaya said the company remains profitable despite no longer using bots, but without a financing plan over several years, the company would be unwilling to pay the judgment.

An Israeli court rejected the 6.5-year payment plan. Papaya is to present a new payoff outline in the coming days, with the Tel Aviv District Court’s temporary stay of proceedings set to expire on Nov. 25.