Crypto creditors anonymous? | Financial Times

One of the most annoying things about cryptocurrency is its persistent misrepresentation as an “anonymous” technology. It is very much not that.

Cash is anonymous. Let’s say you drop a fiver, and someone picks it up and spends it. Not only will you not know who got it, you might not even realize it was gone.

Crypto, on the other hand, leaves a trail. Often, this is recorded on a blockchain, which is public and immutable. Public! And immutable! To avoid creating this record, you need to go “off chain” and take the risk of trusting a private network. One like FTX.

In short: the promise of crypto is not anonymity, but the decentralization of power through transparency. Big traders and investors — those who have tens of millions of dollars’ worth of crypto deposited with FTX — should already know this. (They also probably already trade with FTX’s competitors, since Binance had a massive market share even before FTX’s collapse.)

FTX’s lawyers argued last month that the platform’s biggest 50 creditors should get to be anonymous anyway. “Many customers invest in cryptocurrency in part to not be publicly identified,” said Sullivan & Cromwell’s Brian Glueckstein in a November 22 hearing. “It’s a highly sensitive issue in the customer community.”

Now, it makes sense that FTX’s biggest creditors/customers would want to stay anonymous. Their involvement could draw scrutiny from global government or taxation authorities, the press, or possibly their own clients. Remember, the smallest creditor on the top 50 list is owed $21.3mn by FTX, whether from a deposit or some other type of unsecured loan.

Glueckstein also said “the immediate identification of the debtors’ customers with exposure to FTX would have the effect of further destabilizing the broader crypto markets.”

That may be true, but it isn’t clear why a US bankruptcy court needs to protect the stability of crypto markets, which are unregulated by design.

Still, we aren’t US bankruptcy lawyers. So we asked Jared Ellias, a professor of corporate bankruptcy and governance at Harvard Law School, to explain.

“Because everything is such a mess and it’s so early in the case, if you’re the judge, right now if you keep things a little closer to the vest, it gives the rest of the situation time to develop,” he said.

But “clearly the identities of the largest creditors should not remain private forever,” he said.

He continued:

There is a long history of the investment industry fighting having their interests disclosed in public bankruptcy proceedings. . . I’m sure those institutions right now are embarrassed. It’s conceivable that if a name was disclosed, and let’s imagine their [limited partners] didn’t know, you could see an exodus of money, a blow to reputation . . . something like that. But those don’t really feel like the types of exceptions that would warrant deviating from the general principle that, when a company files for bankruptcy, there should be a certain amount of publicness.

For a wealthy individual, for somebody with $30mn at FTX, one could imagine that person being motivated to keep things secret because they’re embarrassed, because that money might belong to somebody else, perhaps that money could be used to pay taxes that aren ‘t paid. Those aren’t really the types of arguments that we would usually accept to shroud the identities of major creditors in a Chapter 11 bankruptcy.

Another argument from FTX’s lawyers is that creditors in the UK and EU have “additional privacy protections” through GDPR regulations, so the disclosure of US creditors’ identities wouldn’t be fair.

But there’s a problem with that, too: the list of Alameda’s top unsecured creditors was not redacted at all. It includes a $55,319 tab at the “Margaritaville Beach Resort” in the Bahamas (owned by guess who).

There is also public information available about people who are curious about FTX’s bankruptcy, even if it isn’t clear that those people have a material interest in the proceedings.

See the public sign-in list for attendees of the November 22 hearing. Most names on that list are lawyers representing anonymous creditors or “interested parties”, distressed-debt analysts, journalists and other public gawkers. But not all of them are.

So we thought we would collect some of the names that don’t fit neatly into the above categories. For decency’s sake, we excluded those who seem to be small investors (those who aren’t senior executives or advisers in the crypto space).

Do these people or institutions have any money on FTX’s platform, or any plans to participate? We have no ideas! They could simply be rubbernecking a car crash, or even have lawyers on retainers doing the gawking without their knowledge. It doesn’t seem like full details were required, as some people signed on with pseudonyms (“John Doe” etc).

The names on the list include:

• BlockFi: This is not especially surprising, as the crypto lender filed for Chapter 11 restructuring in New Jersey and is has sued FTX, claiming that its founder pledged Robinhood shares as collateral for a loan before the exchange collapsed.

• Jump Trading: This is the only major trading firm and crypto investor we saw on the list; a representative declined to comment. The lawyer who signed in as representing the firm is Peter Siddiqui, co-chair of Katten Muchin Rosenman LLP’s restructuring practice. At pixel time he hadn’t yet responded to a call or email.

• BitGo: This platform was almost part of a $1.2bn deal with Michael Novogratz’s Galaxy Digital, until Galaxy withdrew its bid. BitGo is suing Galaxy in Delaware Chancery Court over the deal’s termination. The firm’s website says it “remains safe as the custodian for WBTC and has no exposure to Alameda / FTX”. An attendee signed in to the FTX bankruptcy hearing as Jane VanLare, a restructuring attorney with Cleary Gottleib, representing BitGo. VanLare didn’t respond to a phone call or email requesting comment by pixel.

• Ward Benson, an attorney with the Tax Division of the US Department of Justice. We checked that he does in fact exist, and is listed as counsel on other cases. (Other attorneys listed from the DOJ focus on Chapter 11 proceedings or are affiliated with the US Trustee’s office.)

• Jeff Sabin and Andrew Curry, lawyers with Venable LLP, signed into the hearing in person representing a firm called Digital Augean, LLC. Digital Augean doesn’t have much of a web presence, but a firm with that name was registered in Delaware on November 17 of this year. That’s about a week after FTX filed for bankruptcy.

• JD Barnea, co-chief of the tax and bankruptcy unit for the US Attorney’s Office in the Southern District of New York.

• Ileana Cruz, a lawyer for Miami-Dade County, who wants to exit his 19-year naming rights deal with FTX. The county has filed a motion that will also be heard December 16.

• An attorney named Matt Silverman from Pryor Cashman LLP listened in, and said he was representing Brett Harrison, former head of FTX US.

• Gregory Pepin, head of Io FinNet and an executive at Deltec.

• Travis Kling, head of Ikigai Asset Management, where a “large majority” of assets are tied up on FTX.

• George Roberts with Onix Capital. If he and this “George R” on LinkedIn are the same person, he’s head of trading at London-based Onix. That George didn’t respond to a LinkedIn request for comment by pixel.

• Greg Xethalis, general counsel from Multicoin Capital. A representative for Multicoin declined to comment.

To reiterate, none of this means these people are going to be participating as creditors. And we will of course update with any comments from the folks above.

We almost certainly missed some noteworthy names: If you don’t want to deal with PACER or Kroll, you can find the full list uploaded here. Feel free to flag anything interesting.

But these names stood out on the list primarily because they are fairly sophisticated. The less sophisticated creditors — small depositors — are being even more public. They are talking to the press, signing on to Zoom hearings with their video on, or interrupting court recess to play music. Their names are getting out there, while plenty of other domestic and global creditors remain anonymous.

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