US trustee, media challenging secrecy in FTX bankruptcy
Attorneys for the US 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 brief hearing Friday, the judge presiding over the FTX bankruptcy granted a motion by media outlets to intervene for the purpose of objecting to the sealing of creditor information.
A separate objection by the US trustee, the government watchdog that oversees Chapter 11 reorganisations, also was on the agenda for Friday’s hearing but was postponed by Judge John Dorsey until January 11, when he likely will also hear arguments from the media.
In a court filing earlier last week, an attorney for Delaware’s acting US 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 unfavourable 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.
FTX also has sought to withhold the names and addresses of non-customer individual creditors who are citizens of the United Kingdom or European Union nations, citing a consumer protection programme known as the General Data Protection Regulation, or GDPR.
“Debtors have been accused of lack of transparency in their business. That mindset appears to have carried over to this bankruptcy,” wrote attorney David Finger, who is representing Bloomberg LP, Dow Jones & Company, The New York Times and the Financial Times. The media companies argue that FTX is trying to hide information “that historically has been quintessentially public in nature”.
The trustee and media companies argue that FTX’s statements in favour of secrecy are conclusory and that the company has failed to overcome the presumption of public access to court records.
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. They reject arguments that FTX is prohibited from releasing certain information under the GDPR, saying it does not supersede United States bankruptcy law.
“The court should not treat foreign citizens differently than the United States citizens implicated in this case,” Finger wrote in a court filing.
Sarkessian, meanwhile, noted that FTX has not explained how it would determine which customers are citizens of the European Union or the United Kingdom, given that the only contact information for some is an email address.
In other bankruptcy developments, an official committee of unsecured creditors was appointed by the US trustee last week. The committee includes units of crypto lending platform Genesis and crypto market maker Wintermute.
Also Thursday, FTX attorneys sought court permission to sell two affiliated debtor holding companies, FTX Japan Holdings and FTX Europe AG, and two non-debtor businesses, Embed Financial Technologies Inc, and LedgerX LLC.
FTX says each of the recently acquired businesses has experienced “significant customer and employee attrition pressures” and that selling them could allow them to continue or restart operations, while maximising the value of the bankruptcy estate.
AP