The 3 most important things learned during FTX’s first day in bankruptcy court

Lawyers and executives representing collapsed cryptocurrency platform FTX appeared in court on Tuesday, revealing they are continuing to investigate the company’s assets previously controlled by its founder and former CEO Sam Bankman-Fried.

They also requested that the names of the company’s clients not be released.

The two-hour hearing is a traditional measure to authorize FTX’s request to pay its consultants, employees and suppliers, and to resolve disputes over how the case proceeded in its initial stages.

But what happened at the first hearing reaffirmed speculation that FTX’s Chapter 11 reorganization could be one of the most unusual cases ever to come before U.S. bankruptcy courts — according to FTX’s own lawyers. is “unprecedented”.

Here are the three biggest takeaways.

FTX CEO Sam Bankman-Fried attends a press conference at the FTX Arena in downtown Miami, Friday, June 4, 2021.  (Matias J. Ocner/Miami Herald/Tribune News Service via Getty Images)

FTX CEO Sam Bankman-Fried attends a press conference at the FTX Arena in downtown Miami, Friday, June 4, 2021. (Matias J. Ocner/Miami Herald/Tribune News Service via Getty Images)

“Lack of” asset information

As expected, US Bankruptcy Judge John Dorsey, presiding over the case, granted FTX the right to pay for its ongoing operations. Bankman-Fried and his former top lieutenant, who have now resigned from their positions at the platform, have been explicitly denied compensation.

However, FTX’s attorney, James Bromley of Sullivan & Cromwell, noted in a statement to the court that exceptional circumstances prevented the cryptocurrency exchange’s new manager and forensic investigators from identifying its assets.

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“Substantial progress has been made, but we stand here today, Your Honor, without any information,” Bromley said. Tell Judge Dorsey. “We don’t have the traditional amount of information that debtors traditionally have. But every day, we’re generating more and more stuff.”

bromley Continue to bash Bankman-Fried for operating FTX with a lack of corporate and accounting controls.

“Your Honor, what we have is a global organization that operates effectively as Sam Bankman-Fried’s personal fiefdom,” he said.

Still, the possibility of recovering more assets remains a positive sign for customers and other creditors looking to recoup investment losses. “Substantial assets of the debtor were stolen or lost,” Bromley told the court.

To determine whether $400 million in stolen crypto assets can be recovered, FTX hired Nikki Friedlaender, former head of the Southern District of New York’s Complex Fraud and Cybercrime Unit, and Steve Pekin, former director of enforcement at the Securities and Exchange Commission, along with blockchain analysis firm Chainalysis and survey firm Nardello.

As of Tuesday, the exchange disclosed an estimated $9 billion in liabilities and $1.24 billion in cash and cash equivalents. After paying ongoing charges, the indebted company expects to have $459 million in cash on hand for the week ended Dec. 23, according to FTX’s management.

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FTX Client Names Temporarily Confidential

The dispute over the identities of more than 1 million of FTX’s clients, whose funds are now frozen in bankruptcy, also arose during Tuesday’s hearing.

The US Trustee, a government representative appointed in US bankruptcy cases, objected to FTX’s position that the names of its clients should be kept private.

“We believe that overly broad redacts are detrimental to transparency in these cases,” Ben Hackman argued on behalf of the U.S. trustee, noting that names should be made public unless foreign laws such as the EU’s GDPR prohibit their disclosure.

Judge Dorsey ultimately granted FTX’s request to withhold identifiable names and addresses from the public on an interim basis only until the matter is dealt with at a later hearing.

Redacting creditor names for cryptocurrency companies remains an open issue in U.S. federal bankruptcy court. In September, Celsius Network failed to keep the names of its creditors private in the Southern District of New York.

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“The court has taken the security line for the time being, prioritizing concerns of customer privacy and security,” Jason DiBattista, director of legal analysis at Levfin, told Yahoo Finance of today’s decision.


FTX pointed to two factors that could work in favor of the U.S. bankruptcy court due to the expected disagreement over which country has jurisdiction to manage FTX’s assets (the United States or the Bahamas, where FTX is headquartered).

FTX Global Employee Base as of October 31, 2022

FTX Global Employee Base as of October 31, 2022

As of October 31, 2022, U.S.-filed debtor companies employed a total of 330 people worldwide, with the largest number working in the U.S. — 127

As for the company’s global clients, he added that the majority reside in the Cayman Islands and the Virgin Islands, followed by clients from China, the United Kingdom and Singapore. Of FTX’s international entities, 94% are clients of the US debtor FTX Trading Ltd. About 6% are clients of Bahamian entity FTX Digital Markets Ltd.

Through, the company also purchased $300 million worth of Bahamas real estate.

Alexis Keenan is a legal reporter for Yahoo Finance.Follow Alexis on Twitter @alexiskweed. David Hollerith is a senior reporter at Yahoo Finance, covering cryptocurrencies and the stock market.Follow him on Twitter @DsHollers.

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