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The judge overseeing the bankruptcy case of fallen crypto exchange FTX today agreed to continue bankruptcy proceedings in Delaware and keep the names and addresses of the top 50 creditors—owed approximately $3.1 billion—redacted for now.
Judge John Dorsey made the decision Tuesday at the Delaware bankruptcy court during FTX’s first hearing. A document filed Saturday by FTX showed the exchange owes $3.1 billion to its top 50 creditors.
“I think it’s important that we protect those individuals who are seeking to participate,” Judge Dorsey said, referring to the creditors.
Judge Dorsey also said he would formally move a Chapter 15 bankruptcy case filed by Bahamian liquidators from New York to Delaware.
According to James Bromley, counsel to FTX’s new management, the liquidators overseeing the exchange's assets in the Bahamas agreed to the move. "We had filed with your Honor a motion to transfer that case from the Southern District of New York to the district of Delaware, and we are pleased to report that we have reached an agreement with the joint provisional liquidators to do just that, bring the case from New York and here to Delaware."
Regulators in the Bahamas previously wanted to take control of FTX’s bankruptcy proceedings. A filing last week by FTX alleged “credible evidence” that the Bahamian government directed unauthorized access to clients’ funds. Several FTX wallets were drained of funds the day the embattled exchange went bankrupt.
Bromley confirmed that FTX maintains some of those transfers were the result of a hack, apart from other purportedly unauthorized transfers directed by Bahamian officials. A "substantial amount" of the exchange's assets are missing or have been stolen, according to Bromley, who added that the exchange was "in the control of inexperienced and unsophisticated individuals" as it was drained of funds during the late night hours of November 11.
Update: Confirmed during first day hearing those funds were officially hacked/stolen https://t.co/1tkXUeQzi4
— ZachXBT (@zachxbt) November 22, 2022
Bromley described the fall of the exchange as one of the “most abrupt and difficult collapses in the history of corporate America,” during the highly publicized case—which attracted hundreds of people today via a Zoom call.
The lawyer added that ex-FTX CEO Sam Bankman-Fried also used digital asset exchange FTX as his “personal fiefdom” and said that at the exchange there was a “lack of corporate controls.”
Following Judge Dorsey’s decision to redact names of the top creditors, Benjamin Hackman, the lawyer representing U.S. Trustee, which oversees the bankruptcy court, said he opposed the redaction of customers who aren’t individuals, citing transparency in the case.
Judge Dorsey said he would reconsider the issue at a later date.
In a bizarre twist from today’s hearing, during a brief recess, one person on the Zoom call shouted: “I want my money back.” Others played music before being scolded for not respecting the courtroom.
Digital asset exchange FTX lost billions of dollars of investors’ cash when it imploded earlier this month in perhaps the biggest financial story of the year.
The exchange was allegedly using client money to make risky investment bets through Alameda Research, a trading firm founded by Bankman-Fried.
After a bank run, the company was forced to admit it did not hold one-to-one reserves of customer assets, which culminated in a freezing of withdrawals and subsequent bankruptcy filing.
Now, roughly 260 employees remain at FTX, today’s court heard. The company’s new CEO previously said in a court filing last week that FTX Group did not yet have a full accounting of its finances or its employees.
The fall of the exchange hit the crypto market hard—not only did the price of FTX’s native token FTT collapse, every major cryptocurrency has been battered. Bitcoin, the biggest digital asset by market cap, has plummeted and today hit its lowest level in two years.
“It happened very quickly. It was quite shocking,” Bromley said today, referring to the rapid collapse of FTX. “These businesses [FTX and its related entities] were not operated in a manner that was consistent with any sort of traditional best practices.”
The exchange’s next hearing will take place in mid-December.
Editor's note: This article was updated after publication to include additional details of the FTX bankruptcy hearing.