Molly WhiteFTX hearing this morning in bankruptcy court.
Judge Dorsey begins by condemning the letter sent by four US Senators about Sullivan & Cromwell's role in the FTX bankruptcy as an "inappropriate ex parte communication".
More on the letter: https://www.ft.com/content/f760ae83-9802-4f12-a90b-c37773b1616c
FTX attorney says that the line of credit extended to Alameda Research via the FTX backdoor was effectively $65 billion.
One item on the agenda today is the request by FTX to redact all creditor names and information. FTX wants to enter a declaration by attorney Kevin M. Cofsky, media companies' lawyers and US Trustee object to him as an expert.
Media companies in this case are Bloomberg, Dow Jones & Company, New York Times, and The Financial Times, who are objecting to the redaction of creditor names.
Kevin M. Cofsky is going to testify, and they'll handle objections to his opinion and/or expertise as they go. He's the debtors' proposed investment banker, and wants to speak to the value of the creditor list as an asset to FTX that could be devalued by disclosure.
The customer list includes names and personal information of ~9.5 million FTX customers. Media companies have objected specifically to redaction of the names, but do not object to sealing addresses and contact information.
The US Trustee does not object to filing under seal the addresses of creditors who are individuals. However, they believe all names and the addresses of non-individual creditors should be disclosed.
FTX has recently proposed kicking the can down the road by asking the judge to authorize redaction for a period of six months.
FTX and Cofsky are expressing concerns that publishing names but redacting addresses and other information would not be sufficient to protect the value of the customer lists, due to the uniqueness of some names on the list that could be identified via online searches etc.
FTX lawyers arguing that the court should ignore precedent set in the Celsius bankruptcy to disclose debtors as an "outlier", and instead use precedent set in the Cred, Inc. bankruptcy case in the same district.
The argument today is that if they narrow the decision to only whether to seal the customer data for six months, they can focus solely on discussion of potential value of the data as an asset and not also go into the question of protecting customer privacy.
Unsurprisingly the debtors are reserving the right to request extensions, and to argue that the data should remain sealed in perpetuity.
Judge Dorsey says that the case does present "extraordinary circumstances" based on the length of the list of names and the difficulty in distinguishing between creditors and customers.
Dorsey has overruled the objections and allowed the list of names to remain sealed for three months (not the requested six), in hopes that there will be more clarity on creditors vs. customers by that point.
Dorsey also wishes to hear arguments pertaining to risk to individuals if the names were disclosed, and is concerned about protecting individuals from harm.
He wants to hear more about the question of distinguishing creditors vs. customers at the next hearing (Jan 20), with the intention of disclosing people who are only creditors, not customers.
Further hearings on §107(b) and (c) will be held in three months, at which point they will also address questions on foreign law including GDPR and two Japanese laws (APPI and FIEA).
Courtroom stream has cut out :( #FTX
aaand we're back!
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I would like to enter a request that cough drops be provided in quantity in these courtrooms.
So far there is no indication that rank and file employees at FTX were complicit in fraud, says debtor attorney. US Trustee objects to entering that into the record at the moment.
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That conversation was in the context of possible sales of FTX businesses, which debtors say is still in fairly exploratory stages.
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Jeff@molly0xfff I don't quite know how to feel about releasing that much customer data, especially given how poor FTX's records have sounded so far. What do you think about the redacting/sealing?
Quest@jabshire @molly0xfff
I think the entire thing is sus.
SBF is spinning a different story today. https://sambf.substack.com/p/ftx-pre-mortem-overview
S&C's involvement before and after the bankruptcy raises a lot of questions. Sealing the creditor list is doing nothing but casting shade to protect the big players involved. It has little to do with protecting the small individual customers.
This entire thing looks like a bunch of bad actors just trying to blame each other. Sunlight is what is needed.
FTX Pre-Mortem Overview
Summary In mid November, FTX International became effectively insolvent. The FTX saga, at the end of the day, is somewhere between that of Voyager and Celsius. Three things combined together to cause the implosion: a) Over the course of 2021, Alameda’s balance sheet grew to roughly $100b of Net Asset Value, $8b of net borrowing (leverage), and $7b of liquidity on hand.
The more I think about it the more it bothers me that S&C is even involved in the bankruptcy.
Any past payments from FTX et al to S&C could be considered under clawbacks. How is their involvement in (and further compensation for) the bankruptcy representation not at the most basic level a conflict of interest.
Only way I can figure they haven't recused themselves is their hands are so dirty they have to clean it up themselves.
@jabshire it's a tough balance, but i think that transparency is needed. the suggestions from the media/US Trustee seem fairly reasonable: only disclosing names and not addresses for individual customers, for example
Darryl Ramm@molly0xfff IRS tax fraud Glengarry lead list.