FTX Is Allowed To Hide The Identity Of Its 50 Biggest Creditors
By Steven Church, Jeremy Hill and Yueqi Yang
FTX creditors, including rich investors who don’t want their names made public, can remain anonymous and still participate in the company’s bankruptcy case for now, a judge ruled at the company’s first court hearing on November 22.
U.S. Bankruptcy Judge John Dorsey agreed to let the fallen crypto exchange redact the names of the 50 biggest unsecured creditors owed a total of $3.1 billion. The U.S. Bankruptcy Code normally requires the names be filed in documents available to the public. Representatives for FTX argued those creditors are also customers and disclosure would allow rivals to steal their business.
The sudden fall of Sam Bankman-Fried’s crypto empire into bankruptcy Nov. 11 was so fast, and so disorganized that many standard procedures, including the November 22 hearing, have been subject to delays. The hearing began with FTX attorney James Bromley saying a “substantial amount” of the group’s assets “have either been stolen or are missing.”
At least two groups of crypto creditors sent lawyers to the hearing to support the company’s request to keep their identities secret. One included members that are among FTX’s largest unsecured creditors—likely setting the stage for future fights for assets among various groups.
Dorsey agreed to hold a hearing next month to give objectors, including the U.S. Trustee, the federal bankruptcy watchdog, the chance to convince him to release the names.
“There is certainly a pull and tug here” between privacy and the public nature of the U.S. court system, said Dorsey, who is based in Wilmington, Delaware.
FTX made its first appearance in bankruptcy court on November 22 following a Chapter 11 filing one of its lawyers called “unprecedented.” Dorsey approved standard motions allowing the company to continue operating and paying employees while Chief Executive Officer John J. Ray III and advisers pore over the company’s books in search of cash, cryptocurrency and assets that could be sold to help repay creditors.
“Unfortunately, the FTX debtors were not particularly well run, and that is an understatement,” said Bromley, co-head of the restructuring practice at law firm Sullivan & Cromwell. “We stand here today with an absence of information.”
Dorsey also let the company keep secret details about the firms tracking down assets and those protecting the platform from cyber attacks. Normally, every major firm hired by a bankrupt company must be made public in a court filing.
Asset protection and recovery is one of the top objectives for the case, Bromley said at the hearing. Maximizing value is key for the process, whether it means selling or reorganizing businesses, and FTX will likely ask Dorsey for permission to sell some assets “quite quickly,” he added.
Bromley said the types of controls put into the system at FTX now include traditional market-standard accounting, audit, data management and human resources. The FTX team is also coordinating with regulators in the U.S. and around the world. Advisers are in frequent communication with the U.S. Justice Department and the Southern District of New York’s cyber-crimes unit, which has opened a criminal investigation related to FTX, Bromley said.
In addition, the U.S. House and Senate have requested that Ray, the new CEO, testify at some point in December.
A separate case filed in federal court in New York related to liquidation proceedings in the Bahamas will be transferred to Delaware, Dorsey ruled. FTX’s U.S. restructuring advisers and regulators in the Bahamas will try to work out rules for sharing information and assets, attorney Chris Shore said.
“There is a tension that is going on right now,” Shore said, referring to bankruptcy rules in the U.S. and efforts by the Bahamas liquidators to get control of assets and information about FTX’s collapse.
The case is FTX Trading Ltd., 22-11068, U.S. Bankruptcy Court for the District of Delaware.
—With assistance from Claire Boston.
This article was provided by Bloomberg News.
