FTX creditors concerned about their names and other personal information being disclosed as part of the crypto exchange’s bankruptcy proceedings can breathe a sigh of relief – at least temporarily.
Delaware District Court Judge John Dorsey approved a motion on an interim basis allowing FTX to redact information including names and addresses on its creditor matrix during a hearing Tuesday.
The U.S. Trustee’s Office – the wing of the Justice Department responsible for overseeing bankruptcy proceedings – opposed part of the motion, arguing that transparency was a necessary part of the process.
Lawyers from Sullivan & Cromwell, the law firm representing FTX, pushed back, arguing that it was important to protect FTX’s customers from being involuntarily disclosed as investors. They also claimed that FTX’s customer list was one of the firm’s most valuable assets and should be protected from rival exchanges.
Lawyers representing a group of FTX’s unsecured creditors seconded FTX’s motion, arguing that confidentiality and privacy are key drivers of participating in the crypto market and exposing customer information could “disincentivize participation” in the bankruptcy process and “impair the ability of creditors to recover from this case, which, of course, would be contrary to [their] best interest.”
“I need to make sure I’m protecting the interests of these individuals,” Dorsey said. “This is a space where it’s done over the internet. And everyone in this room knows the internet is wrought with potential dangers. Hacking happens, people’s accounts get hacked. And I think it’s important that we protect those individuals who are seeking to participate [in the bankruptcy process.]”
Customer accounts weren't the only accounts FTX’s lawyers were concerned about.
James Bromley of Sullivan & Cromwell told the court that FTX has continued to suffer from cyberattacks since the hack that drained hundreds of millions of dollars in crypto on the night the exchange declared bankruptcy.
“A substantial amount of assets have either been stolen or are missing,” Bromley said. “We are suffering from cyberattacks, both on the petition date and the days following.”
Bromley told the court that, under the new leadership of John Jay Ray III, FTX has retained the services of a unnamed cybersecurity firm, the identity of which hasn't been disclosed because of concerns that “those who are undertaking cyberattacks on the company and its assets will use that information to their benefit.”
Dorsey also ruled that FTX can continue to pay current employees their salaries and pay foreign and domestic vendors up to an interim cap of $1 million and $8.5 million respectively. FTX’s former leadership, including former CEO Sam Bankman-Fried, co-founder Gary Wang, Director of Engineering Nishad Singh and Caroline Ellison, CEO of Alameda Research, a trading firm affiliated with FTX. Wang, Singh and Ellison were fired over the weekend and won't receive any further payments.
FTX filed for bankruptcy in Delaware on Nov. 11, as it faced a liquidity crunch following a series of events that started with a CoinDesk report that raised questions about Alameda's balance sheet.
Another hearing has been scheduled for Dec. 16.
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