FTX trading customers’ names can be shielded from public disclosure, rules Delaware bankruptcy judge

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10th June 2023 – (New York) Individual customers of FTX Trading, a cryptocurrency exchange that collapsed in November 2021, can have their identities permanently shielded from public disclosure, ruled a Delaware bankruptcy judge on Friday. The decision followed a two-day hearing in which lawyers for several media outlets and for the US bankruptcy trustee challenged FTX’s request to keep the names of customers and creditors secret.

Judge John Dorsey rejected the arguments of those challenging FTX’s request, ruling that customer identities constitute a trade secret and that FTX customers need to be protected from bad actors who might target them. Dorsey stated that he wants to ensure that FTX customers are protected from any types of scams that might be happening out there.

Lawyers for FTX and its official committee of unsecured creditors argued that its customer list is both a valuable asset and confidential commercial information. They contend that secrecy is needed to protect FTX customers from theft and potential scams, and to ensure that potential competitors do not “poach” FTX customers. FTX believes its customer list could prove valuable as part of any sale of assets or as part of a reorganisation.

FTX entered bankruptcy 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 cheated investors and looted customer deposits to make lavish real estate purchases, campaign contributions to politicians, and risky trades at Alameda Research, his 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 from court filings for 90 days. He also authorised FTX to permanently keep secret the addresses and email addresses of individual creditors and equity holders.

On Friday, the judge approved the permanent sealing of individual customer names and extended the secrecy regarding the names of institutional customers for another 90 days. However, Dorsey refused to allow FTX to shield the names of individual creditors or equity holders who are citizens of the United Kingdom or European Union nations covered under a consumer protection program known as the General Data Protection Regulation (GDPR). FTX sought similar treatment for individuals covered under Japanese data privacy laws.

Dorsey said that FTX had presented no evidence to show that those foreign individuals might be harmed or that FTX might be sanctioned if their names are disclosed. Dorsey also rejected a request by attorneys for an ad hoc committee of non-US customers to keep the names of its members secret. If the committee wants to participate in the case, then the names of its members must be disclosed, he said.