Judge in FTX bankruptcy case dismisses media challenge, says client names can be kept secret

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

After a two-day hearing, Judge John Dorsey rejected arguments from attorneys for several media outlets and the US Bankruptcy Trustee, which acts as the government watchdog in Chapter 11 reorganization cases, defying FTX’s request that the names of clients and creditors be kept confidential.

Dorsey ruled that the clients’ identities constituted a trade secret. He also said that FTX customers need to be protected from bad actors who might target them by searching for their personal information on the Internet and the “dark web”.

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

Katie Townsend, a media attorney, argued that the press and the public had a “compelling and legitimate interest” in knowing the names of those affected by the spectacular collapse of FTX.

“This 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, at the individual and institutional level, were hitting the hardest, and which institutions might have the greatest exposure, or no exposure at all.”

But lawyers for FTX and its official committee of unsecured creditors have argued that its client list is valuable assets and confidential business information. They maintain that confidentiality is necessary to protect FTX clients from potential theft and fraud, and to ensure that potential competitors do not “hunt” FTX clients. FTX believes its client list can prove its value as part of any asset sale, or as part of a reorganization.

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

FTX entered bankruptcy in November when the global stock exchange ran out of money after the equivalent of running a bank. Founder Sam Bankman-Fried pleaded not guilty to charges that he defrauded investors and plundered customer deposits to make lavish real estate purchases, campaign contributions to politicians, and risky trades at Alameda Research, the cryptocurrency hedge fund trading firm. Three former FTX executives have pleaded guilty to fraud charges and are cooperating with investigators.

In January, Dorsey ruled that FTX could redact the names of all customers, and the addresses and email addresses of non-individual customers, from court filings for 90 days. It also allowed FTX to keep the addresses and e-mail addresses of individual creditors and equity holders permanently secret.

On Friday, the judge agreed to permanently seal the names of individual clients and extended confidentiality 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 equity holders who are citizens of the UK or EU countries and are covered under the consumer protection program known as the GDPR, or GDPR. FTX has sought similar treatment for individuals covered by Japanese data privacy laws.

Dorsey said that, in response to an objection from the US trustee, FTX has provided no evidence to show that these foreign individuals could be harmed, or that FTX could be subject to sanctions, if their names were disclosed.

Dorsey also rejected a request by lawyers to create an ad hoc panel of non-US clients to keep the names of its members confidential. He said if the committee wants to participate in the case, the names of its members must be disclosed.

According to revised court filings, the ad hoc committee currently has 35 members, with estimated economic interests in FTX ranging from $64,434 to $1.5 billion. Dorsey noted that some members may decide to opt out based on his ruling.