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

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

They also asked to keep the names of the company’s clients shielded from public view.

The two-hour hearing was a traditional measure intended to authorize FTX’s demands to pay its consultants, employees and vendors, as well as address disputes over how the case would proceed in its initial stages.

But what transpired in the first hearing reaffirmed speculation that FTX’s Chapter 11 reorganization could be one of the most unusual cases ever to come before a US bankruptcy court – “a matter without precedent,” according to FTX’s own lawyer.

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)

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)

‘Absence’ of asset information

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

However, in a presentation to the court, FTX’s lawyer, James Bromley of Sullivan & Cromwell, noted the extraordinary circumstances that are preventing the new crypto exchange managers and forensic investigators from identifying the his assets.

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“Substantial progress has been made, but we are here today, your honor, with a lack of information,” Bromley he told Judge Dorsey. “We don’t have the traditional amount of information that a debtor traditionally has. But every day, we generate more and more.”

Bromley continued to slam Bankman-Fried for operating FTX under a lack of corporate and accounting controls.

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

However, the potential that more assets can be recovered is a positive sign for customers and other creditors hoping to recover lost investments. Bromley said in court “a significant amount of the debtor’s assets are stolen or missing.”

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

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As of Tuesday, the exchange had disclosed approximately $9 billion in liabilities and $1.24 billion in cash and cash equivalents. According to the management of FTX, the debt companies forecast $ 459 million in cash in the week that ended on December 23, after payments for ongoing costs.

The names of FTX clients remain under seal — for now

During Tuesday’s hearing, a dispute also arose regarding the identity of more than a million FTX customers whose funds are now tied up in bankruptcy.

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

“We submit that overly broad redactions do not serve transparency in these cases,” argued Ben Hackman on behalf of the US Trustee, noting that names should be made public unless a foreign law such as the GDPR European Union prohibits their disclosure.

Judge Dorsey ultimately granted FTX’s request that identifying names and addresses be withheld from the public on an interim basis only, pending the issue at a later hearing.

Redaction of creditor names for crypto companies is still an open question 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.

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


In anticipation of a disagreement over which country has the authority to manage FTX’s assets — the United States or the Bahamas where FTX is headquartered — FTX noted two factors that could weigh in favor of the -United States 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 filing US debtor companies collectively employed 330 workers worldwide, with the largest number — 127 — working in the United States.

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

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

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

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