FTX debtors attempt to seal corporate identities to obfuscate bankruptcy proceedings

According to documents filed on Dec. 12, the Debtors of FTX are attempting to obfuscate the bankruptcy hearing by continuing to insist all individual and corporate client identities are sealed unless specifically requested to be revealed.

Sealing of personal information

While the personal information of individual investors can rightly be viewed as private information that should not be made available to the public, the identities of corporate clients of FTX may not be subject to the same moral objections.

On Dec. 9, several popular media organizations filed a motion to have the identities of all individuals made public. Bloomberg L.P., Dow Jones & Company, Inc., The New York Times Company, and The Financial Times Ltd filed a joint claim as the “Media Intervenors” to

“Move to intervene for the limited purpose of objecting to Debtors’ Motion for Entry of a Final Order Authorizing the Debtors to Redact or Withhold Certain Confidential Information of Customers and Personal Information of Individuals.”

If passed, such a claim would reveal individual investors’ identities in FTX, thus similarly doxing ordinary retail users to the Celsius bankruptcy. Given the turmoil already suffered by investors, leaking private information could only lead to further heartache and pain.

However, the identity of corporate clients of FTX arguably should be brought into the public domain. The current proposition would shield companies with exposure to FTX to seal all client information unless it is specifically requested.

Not only does this method allow companies to avoid public scrutiny, but it will also slow down the bankruptcy court’s due diligence and discovery process. In a claim filed on Dec. 12, the U.S. Trustees requested

“authority for a wholesale redaction from “any paper filed or to be filed with the Court or made publicly available in these chapter 11 Cases,” of the following information: (a) the names, addresses and email addresses of all customers (who are also creditors of the Debtors), whether such customers are individuals, or legal entities.”

U.S. Trustee’s objections to the claim

However, the claim continued to assert that the “U.S. Trustee does not object to the filing under seal of the addresses or email addresses of customers or other creditors who are individuals.” The names of individuals not protected by laws such as GDPR in the U.K. and E.U. are, nevertheless, still required to be unsealed under the claim.

The motivation for the filing was asserted to be “fundamental to the operation of the bankruptcy system,” stating that the debtors held “nothing more than vague statements supporting the request.”

The claim cited the Celsius case as a precedent for not redacting customer names while protecting user addresses and email addresses.

Further, it argued that the Debtors’ proposition to provide unredacted copies to the Court only “upon request” is “contrary to the procedures for sealing outlined in the Local Rules of this Court.”

Lastly, the claim uses FTX’s privacy policy against it. The policy allows the sharing of customer information concerning bankruptcy procedures.

The claim further asserted

“It is well settled that, as a matter of promoting the integrity of the judicial system, bankruptcy proceedings must be open and transparent.4 Accordingly, the Debtors’ request should be denied.”

The omnibus hearing under which the relevant claims will be heard will occur on Dec. 16 in the District of Delaware.