Attorneys for the U.S. bankruptcy trustee in Delaware and several major media outlets are challenging an effort by cryptocurrency exchange FTX to withhold names of the company’s customers and creditors from the public.
At a hearing Friday, the judge presiding over FTX’s bankruptcy granted a motion by The Financial Times, New York Times and other newsrooms to intervene for the purpose of objecting to the sealing of creditor information. In a court filing earlier this week, an attorney for Delaware’s acting U.S. trustee noted that “disclosure is a basic premise of bankruptcy law.”
“The debtors simply cannot seek bankruptcy protection and then do business behind a shield of secrecy” Juliet Sarkessian wrote.
Sarkessian warned that allowing FTX to shield creditor lists and financial schedules would be a “slippery slope” and create an unfavorable precedent for bankruptcies in which creditors are also customers.
Last month, Dorsey temporarily granted a request by FTX to redact the names and addresses of clients and creditors from court filings, even though such information is typically public. The judge did direct FTX to file an unredacted creditor matrix under seal with the court, but the company has yet to do so.
Lawyers for FTX have argued that its customer list is both a valuable asset and confidential commercial information. They contend that secrecy is needed to protect FTX accounts from potential theft and to ensure that potential competitors do not “poach” FTX customers.
“Debtors have been accused of lack of transparency in their business. That mindset appears to have carried over to this bankruptcy,” attorney David Finger wrote in court documents.
Media companies argue that FTX is trying to hide information that historically has been public. While the trustee and media companies have not objected to the withholding of addresses and contact information for customers and creditors who are individuals, they argue that the names must be revealed.
“The court should not treat foreign citizens differently than the United States citizens implicated in this case,” Finger wrote in a court filing last week.
FTX was one of the world’s largest cryptocurrency exchanges before it suddenly failed last month. Users withdrew roughly $5 billion of crypto assets in a single day as concerns mounted over the exchange’s solvency. Its former CEO Sam Bankman-Fried has been arrested and charged with fraud and money laundering. He currently sits in jail in the Bahamas awaiting extradition to the U.S.
John Ray III, who stepped in as CEO after Bankman-Fried’s resignation on Nov. 11, said in a House hearing this week that about $7 billion was lost in the collapse. Ray alleged that Bankman-Fried and others at FTX misused customer funds, contributing to the losses.
Federal authorities have charged Bankman-Fried of knowingly mixing customer funds with investments FTX made through its hedge fund, Alameda Research.
FTX became the fourth crypto-focused company to declare bankruptcy this year, joining BlockFi, Celsius Network and Voyager Digital.
