Media dispute secrecy in FTX bankruptcy

Lawyers for the US bankruptcy trustee in Delaware and several major media outlets are challenging cryptocurrency exchange FTX’s efforts to hide the names of the company’s customers and creditors from the public.

At a hearing on Friday, the judge presiding over FTX’s bankruptcy granted a motion by the Financial Times, New York Times and other newsrooms to intervene in an effort to oppose the sealing of creditor information. In a court filing earlier this week, an attorney for the acting U.S. trustee in Delaware noted that “disclosure is a basic premise of bankruptcy law.”

“Debtors simply cannot file for bankruptcy protection and then do business behind the shield of secrecy,” wrote Juliet Sarkessian.

Sarkessian warned that allowing FTX to protect creditor lists and financial calendars would be a “slippery slope” and set a bad precedent for bankruptcies in which the creditors are also customers.

Last month, Dorsey temporarily granted a request by FTX to remove the names and addresses of customers and creditors from court records, even though that information is generally public. The judge ordered FTX to file an unredacted creditors matrix under seal with the court, but the company has yet to do so.

FTX’s lawyers argued that its client list is both a valuable asset and confidential business information. They argue that secrecy is necessary to protect FTX accounts from potential theft and to ensure that potential competitors do not “poach” FTX customers.

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“The debtors have been accused of a lack of transparency in their affairs. This mindset appears to have carried over to this bankruptcy,” attorney David Finger wrote in court documents.

Media companies claim that FTX is trying to hide information that has always been public. Although the trustee and the media companies have not objected to the withholding of addresses and contact details of customers and creditors who are individuals, they argue that the names should be revealed.

“The court should treat foreign citizens no differently than US citizens implicated in this case,” Finger wrote in a court filing last week.

FTX was one of the largest cryptocurrency exchanges in the world before it was suddenly failed last month. Users withdrew around $5 billion worth of crypto assets in a single day as concerns mounted over the solvency of the exchange. Its former CEO, Sam Bankman-Fried, was arrested and charged with fraud and money laundering. He is currently in jail in the Bahamas awaiting extradition to the United States.

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John Ray III, who stepped in as CEO after Bankman-Fried resigned on Nov. 11, told a House hearing this week that about $7 billion was lost in the collapse. Ray alleged that Bankman-Fried and others at FTX misused client funds, contributing to the losses.

Federal authorities have accused Bankman-Fried of knowingly mixing client funds with FTX investments made through its hedge fund, Alameda Research.

FTX has become the fourth crypto-focused firm to declare bankruptcy this year, joining BlockFi, Celsius Network and Voyager Digital.

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