Top 3 things learned on FTX’s first day in bankruptcy court

Lawyers and executives representing failed cryptocurrency platform FTX appeared in court on Tuesday where they revealed an ongoing investigation into the company’s assets formerly controlled by its founder and former CEO Sam Bankman-Fried.

They also pleaded to keep the names of the firm’s clients protected from public view.

The two-hour hearing was a traditional measure intended to authorize FTX’s requests to pay its consultants, employees and suppliers, as well as address disputes about how the case is progressing in its early stages.

But what unfolded in the first hearing reaffirmed speculation that FTX’s Chapter 11 reorganization could be one of the most unusual cases ever brought before a U.S. bankruptcy court — “an unprecedented matter,” according to the FTX attorney.

Here are the three biggest takeaways.

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

An ‘absence’ of asset information

As expected, US Bankruptcy Judge John Dorsey, presiding over the case, granted FTX the right to pay ongoing business expenses. Bankman-Fried and his former senior deputies who have now resigned from their roles on the platform have been explicitly denied compensation.

However, in a filing to the court, FTX attorney James Bromley of Sullivan & Cromwell noted the extraordinary circumstances preventing the crypto exchange’s new managers and forensic investigators from identifying its assets.

“Substantial progress has been made, but we are here today, Your Honor, in the absence of information,” Bromley he told Judge Dorsey. “We do not have the traditional amount of information that a debtor would traditionally have. But every day we generate more and more”.

Bromley went on to criticize Bankman-Fried for running FTX lacking corporate and accounting controls.

“Your Honor, what we have is a worldwide organization, but an organization that was effectively run as a personal fiefdom by Sam Bankman-Fried,” he said.

However, the potential recovery of more assets is a positive sign to customers and other creditors hoping to recoup their lost investments. Bromley said in court that “a significant amount of the debtor’s assets were stolen or missing”.

To determine whether the $400 million in stolen crypto assets can be recovered, FTX recruited Nikki Friedlaender, former head of Complex Frauds and the Cybercrime unit in the Southern District of New York, and Steve Pekin, former director of enforcement for i Securities and Exchange Commission, as well as blockchain analytics firm Chainalysis and investigative firm Nardello.

As of Tuesday, the exchange had disclosed about $9 billion in liabilities and $1.24 billion in cash and cash equivalents. Leveraged companies expect $459 million in cash in the week ended Dec. 23, after ongoing expense payments, according to FTX management.

FTX client names must remain sealed for now

A dispute also emerged during Tuesday’s hearing over the identity of FTX’s more than 1 million customers whose funds are now stuck in the bankruptcy.

The US trustee, a government representative appointed in US bankruptcy cases, objected to FTX’s position that its clients’ names should remain under seal.

“We argue that excessive redactions do not serve transparency in these cases,” Ben Hackman said on behalf of the US trustee, noting that the names should be made public unless a foreign law such as the European Union’s GDPR mandates it. prohibit disclosure.

Judge Dorsey eventually granted FTX’s request to keep identifying names and addresses withheld from the public on an interim basis only, until the matter is addressed in a subsequent hearing.

Withholding creditor names for cryptocurrency companies remains an open issue in US federal bankruptcy courts. In September, Celsius Network lost its bid to keep the names of its creditors private in the Southern District of New York.

“The court took the safe route for now and put customer privacy and security concerns first,” Jason DiBattista, head of legal analysis at Levfin, told Yahoo Finance about today’s decision.


In anticipation of disagreement over which country has the authority to administer FTX’s assets – the United States or the Bahamas, where FTX is headquartered – FTX noted two factors that could weigh in favor of the US bankruptcy court.

FTX Global Employee Base as of October 31, 2022

FTX Global Employee Base as of October 31, 2022

As of October 31, 2022, the debtor companies in the U.S. filing collectively employed 330 workers worldwide, with the largest number – 127 – working in the U.S.

As for the company’s global clients, he added, most reside in the Cayman Islands and the Virgin Islands, followed by clients from China, Britain and Singapore. Among FTX’s international entities, 94% of their clients were clients of the US debtor, FTX Trading Ltd. Approximately 6% were clients of FTX Digital Markets Ltd., a Bahamian entity.

Through, the company has also completed $300 million in real estate purchases in the Bahamas.

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 stock markets. Follow him on Twitter at @DsHollers.

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