Judge in FTX bankruptcy says customer names can remain secret

DOVER, Del. >> The names of individual clients of the collapsed cryptocurrency exchange FTX Trading can be permanently protected from public disclosure, a Delaware bankruptcy judge ruled Friday.

After a two-day hearing, Judge John Dorsey rejected arguments from lawyers for various media outlets and the US bankruptcy trustee, who acts as a government watchdog in Chapter reorganization cases. 11, challenging FTX's request to keep the names of customers and creditors secret.

Dorsey ruled that the identities of the clients constituted a trade secret. She also said that FTX customers need to be protected from bad actors who could target them by scouring the Internet and the "dark web" for their personal information.

“Customers are the most important issue here,” he said. “I want to make sure they are protected and that they don't fall victim to any kind of scam that may be going on.”

Katie Townsend, a media lawyer, had argued that the press and the public have a "compelling and legitimate interest" in knowing the names of those affected by FTX's shocking collapse.

“That crash sent shockwaves through not just the cryptocurrency industry, but the entire financial industry,” Townsend said. "And at this point, we don't even know where the shock waves have hit the hardest, both individually and institutionally, and which institutions may have the most exposure, or none at all, as a result."

But FTX's lawyers and its official committee of unsecured creditors argued that its client list is both a valuable asset and confidential business information. They maintain that secrecy is needed to protect FTX customers from theft and possible scams, and to ensure that potential competitors do not "poach" FTX customers. FTX believes that its client list could prove valuable as part of any asset sale or as part of a reorganization.

“Debtors are in a position to derive value from these client lists,” FTX attorney Brian Glueckstein said.

FTX went bankrupt in November when the global exchange ran out of money after the equivalent of a bank run. Founder Sam Bankman-Fried has pleaded not guilty to charges that he misled investors and looted client deposits to make lavish real estate purchases, campaign contributions to politicians and risky deals at Alameda Research, his trading firm. of cryptocurrency hedge funds. Three former FTX executives have pleaded guilty to fraud charges and are cooperating with investigators.

In January, Dorsey ruled that FTX could remove all client names and non-individual client addresses and email addresses from court filings for 90 days. He also authorized FTX to permanently keep the addresses and email addresses of individual creditors and shareholders secret.

On Friday, the judge approved the permanent sealing of the names of individual clients and extended the secrecy regarding the names of institutional clients for another 90 days.

However, Dorsey refused to continue to allow FTX to protect the names of individual creditors or shareholders who are citizens of the United Kingdom or European Union nations and are covered by a consumer protection program known as the General Regulation of Data Protection, or GDPR. FTX sought similar treatment for people covered by Japanese data privacy laws.

Dorsey said that, in response to an objection from the US receiver, FTX had not presented evidence to show that those foreign persons could be harmed or that FTX could be penalized if their names were disclosed.

Dorsey also refused a request by lawyers for an ad hoc committee of non-US clients to keep the names of its members secret. If the committee wants to be involved in the case, then the names of its members must be released, she said.

According to redacted court documents, the ad hoc committee currently has 35 members, with estimated financial interests in FTX ranging from $64.434 million to $1.5 billion. Dorsey noted that some members may decide to retire based on their decision.

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