Worried that their names and other personal information will be disclosed as part of the crypto exchange’s bankruptcy proceedings, FTX creditors are likely to breathe a sigh of relief, at least temporarily. The first hearing for FTX took place after the bankruptcy event. Here’s what happened…
First hearing for FTX held
Delaware District Court Judge John Dorsey provisionally approved a motion at a hearing Tuesday that allowed FTX to rectify information, including names and addresses, in its payee matrix. The US Board of Trustees, the wing of the Justice Department responsible for overseeing bankruptcy proceedings, opposed part of the motion, arguing that transparency is a necessary part of the process.
Lawyers for Sullivan & Cromwell, the law firm that represents FTX, backed off, arguing that it’s important to protect FTX’s clients from inadvertent exposure as investors. They also claimed that FTX’s client list is one of the firm’s most valuable assets and should be protected from competing exchanges.
Lawyers representing a group of FTX’s unsecured creditors supported FTX’s motion, arguing that privacy and confidentiality are key drivers of participation in the crypto market, and that disclosure of customer information could “deter participation” in the bankruptcy process and “impair creditors’ ability to recover from it.” “I need to make sure I’m protecting the interests of these people,” Dorsey said. He also used the following expressions:
This is an area where it is done over the internet. And everyone in this room knows that the internet is full of potential dangers. Hacking happens, people’s accounts get hacked. And I think it’s important that we protect those who want to participate [in the bankruptcy process].
A hearing was adjourned to 16 December
Client accounts weren’t the only accounts FTX lawyers were concerned about. James Bromley of Sullivan & Cromwell told the court that FTX has continued to suffer from cyberattacks since the hack that consumed hundreds of millions of dollars in crypto the night it declared bankruptcy. “Significant amounts of assets were either stolen or lost,” Bromley said. “We are exposed to cyber attacks both on the date of the petition and in the days that follow.”
Bromley sued in court that under the new leadership of John Jay Ray III, FTX said that “those who have launched cyberattacks on the company and their assets will use this information for their own benefit.” Dorsey also decided that FTX could continue to pay salaries to its current employees and pay foreign and domestic vendors up to $1 million and $8.5 million, respectively.
As we reported on cryptokoin.com, FTX filed for bankruptcy in Delaware on November 11 as it faced a liquidity crunch after a series of events that began with a report that raised questions about Alameda’s balance sheet. Another hearing was adjourned to 16 December.
Comment by lawyers: “An unprecedented collapse
“You’ve probably witnessed one of the most sudden and difficult collapses in corporate America’s history,” said an attorney for FTX at the company’s first bankruptcy hearing in Delaware on Tuesday. Another attorney said he has more than 100 different debtors tied to the FTX group, which has filed for bankruptcy. Bromley tacitly acknowledged the chaos of FTX’s bankruptcy, which had witnessed a hack the night it filed for bankruptcy and a few days before typical first-day filings were filed, calling the case an “unprecedented matter.”
Bromley said the new team at FTX, including new CEO John Ray III, has formed a “research team” that includes former enforcement officers from the Securities and Exchange Commission, the Commodity Futures Trading Commission and former prosecutors. FTX has also hired crypto analytics firm Chainalysis to help the company research its assets. Bromley also acknowledged the number of investigations into FTX.
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