FTX Bankruptcy Judge Approves Redaction of FTX Creditors

The presiding judge in the FTX bankruptcy case, John Dorsey, approved FTX’s request to redact its creditors. A legal team representing FTX’s unsecured creditors supported FTX’s request, citing privacy reasons.

The legal team for the unsecured creditors said that exposing their identities could discourage investors from participating in the bankruptcy process and harm their ability to recover at least some of their funds. Many participants in the crypto economy, including investors, value privacy in their financial dealings and revealing the identities of unsecured creditors could compromise that privacy.

The Department of Justice’s Trustee’s Office opposed the motion, saying that transparency was necessary for the process.

Dorsey cited security concerns when approving the request to redact the list of creditors. FTX already lost $600 million in a hack that occurred shortly after it filed for bankruptcy in the Delaware court. Another $477 million had been feared stolen by hackers, but it turned out that Bahamas-appointed liquidators took control of the assets held in FTX’s systems.

FTX says it hired an unnamed security firm to help it tighten up security for its systems in the wake of the hack. It is also challenging the Bahamian liquidators’ actions, saying that they gained unauthorized access to its systems. FTX’s legal team alleges that the liquidators failed to provide clarity on its plans for the assets.

Since FTX filed for bankruptcy, Sam Bankman-Fried stepped down as CEO and several other executives also left. Bankman-Fried’s replacement, John Ray III, described lax business practices that included a communications app that auto-deleted messages often.

John Ray III has experience with guiding companies through bankruptcy. His most famous case was the Enron scandal, which erupted in 2001. His comments implied that he didn’t believe that even Enron was this bad.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” he said.

During FTX’s first bankruptcy hearing, legal teams described the events leading up to its collapse and described FTX as Bankman-Fried’s persona fiefdom. Bankman-Fried gave executives liberties that they likely wouldn’t get away with at other, more honestly operated businesses. Besides the creditors, FTX could now be picked apart by regulators like the United States’ CFTC and Bahamas’ Securities Commission, both of which are now scrutinizing FTX more closely.

The attorneys say Sam Bankman-Fried and other FTX executives used customers’ funds to buy luxury real estate. One attorney placed the value of the properties at more than $300 million. Other sources say that FTX funded more than $100 million in real estate purchases in the Bahamas, most of it beachfront properties that its employees could live in. It also funded the purchase of at least one historical property for Sam Bankman-Fried’s parents.

FTX is based in the Bahamas, which initially challenged whether the United States would have jurisdiction in the bankruptcy case in a New York court. The Bahamas says it will move its case from New York to Delaware.

FTX’s creditors, including users who lost funds when it suspended withdrawals, should file a claim by January 3. Court filings indicate that FTX could owe $3.1 billion to its 50 top creditors, all of which it classified as a “customer.” An updated filing indicates that FTX could have more than one million creditors.