Crypto creditors anonymous? updated | Financial times

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

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 may 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 must go “off chain” and risk trusting a private network. One like FTX.

In short: the promise of crypto is not anonymity, but the decentralization of power through transparency. Major traders and investors – those who have deposited tens of millions of dollars worth of crypto with FTX – should already know this. (They’re probably already trading with FTX’s competitors as well, as Binance had a huge market share even before the collapse of FTX.)

FTX’s lawyers argued last month that the platform’s 50 largest creditors should go anonymous anyway. “Many clients partially invest in cryptocurrency so as not to be publicly identified,” Sullivan & Cromwell’s Brian Glueckstein said at a hearing on Nov. 22. “It’s a very sensitive issue in the customer community.”

Now it makes sense that FTX’s biggest creditors/clients would want to to remain anonymous. Their involvement could attract the attention of global government or tax authorities, the press, or possibly their own clients. Remember, the smallest creditor on the top 50 list owes $21.3 million from FTX, whether it’s a down payment or another type of unsecured loan.

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

That may be true, but it’s not clear why a US bankruptcy court should protect the stability of crypto markets, which are by design unregulated.

Yet we are not American 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, now if you keep things a little bit closer to the vest, it gives the rest of the situation time to develop, ” he said.

But “it is clear that 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 to disclose their interests in public bankruptcy proceedings. . . I’m sure those institutions are now ashamed. It is conceivable that if a name was revealed, and let’s imagine them [limited partners] I didn’t know, you saw an exodus of money, a blow to the reputation. . . something like that. But that doesn’t really feel like the kind of exceptions that would warrant deviating from the general principle that when a company files for bankruptcy, there should be some degree of public disclosure.

For a wealthy person, for someone with $30 million in FTX you could imagine that person being motivated to keep things a secret because they’re embarrassed because that money could belong to someone else maybe that money could become used to pay taxes that have not been paid. Those aren’t really the kinds of arguments we would usually accept to disguise the identities of major creditors in a Chapter 11 bankruptcy.

Another argument put forward by FTX’s lawyers is that creditors in the UK and the EU have “additional privacy protections” through GDPR regulations, so disclosing the identities of US creditors would not be fair.

But there’s also a problem with that: the list of Alameda’s largest unsecured creditors has not been redacted at all. It includes a $55,319 bill at the “Margaritaville Beach Resort” in the Bahamas (owned by guess what).

Public information is also available about people curious about FTX’s bankruptcy, even though it’s not clear that those people have a material interest in the proceedings.

See the public registration list for participants in the November 22 Hearing. Most of the names on that list are attorneys representing anonymous creditors or “interested parties,” distressed debt analysts, journalists, and other public gawkers. But they are not all.

So we thought we’d round up some names that don’t fit neatly into the above categories. For the sake of decency, we’ve excluded those who appear to be small investors (those who aren’t senior executives or advisors in the crypto space).

Do these people or institutions have money on the FTX platform or plans to participate? We have no idea! They may just stand in the way of a car accident, or even employ lawyers who do the yawning without their knowledge. It seems no full details were needed as some people applied using pseudonyms (“John Doe”, etc.).

The names on the list include:

  • BlockFi: This isn’t particularly surprising given that the cryptocurrency lender has filed for Chapter 11 restructuring in New Jersey and sued FTX, claiming that its founder pledged Robinhood stock as collateral for a loan before the stock market collapsed.

  • Jump Trading: This is the only major trading firm and crypto investor we’ve seen on the list; a representative declined to comment. The attorney who has signed on to represent the firm is Peter Siddiqui, co-chairman of the restructuring practice of Katten Muchin Rosenman LLP. At pixel time, he hadn’t responded to a phone call or email.

  • BitGo: The company’s website says it “remains secure as a custodian of WBTC and has no exposure to Alameda/FTX.” [UPDATED at 11:51pm: BitGo was chosen by FTX chief executive Ray as the custodian for $740mn in assets, which may help explain the appearance.] Jane VanLere, a restructuring attorney for Cleary Gottleib, signed on to represent the company.

  • Ward Benson, attorney with the tax division of the United States Department of Justice. We have verified that he does indeed exist and is listed as counsel in other cases. (Other DOJ attorneys focus on Chapter 11 litigation or are affiliated with the U.S. Trustee’s office.)

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

  • JD Barnea, co-chief of the tax and bankruptcy division of the U.S. law firm in the Southern District of New York.

  • Ileana Cruz, a Miami-Dade County attorney, who wants to end the 19-year naming deal with FTX. The province has filed a motion that will also be heard on December 16.

  • An attorney named Matt Silverman of 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 “big majorityof assets are tied to FTX.

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

  • Greg Xethalis, General Counsel of Multicoin Capital. A Multicoin representative declined to comment.

Again, none of this means that these people will participate as creditors. And we will of course update with any comments from the folks above.

We almost certainly missed some notable names: if you don’t want to deal with PACER or Kroll, you can upload the full list here. Feel free to mark anything interesting.

But these names especially stood out on the list because they are fairly sophisticated. The less sophisticated creditors – small savers – are even more public. They talk to the press, log into Zoom hearings with their video on, or interrupt the courtroom to play music. Their names are coming out, while numerous other domestic and global creditors remain anonymous.

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