Anonymous crypto creditors? updated | FinancialTimes

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One of the most annoying things about cryptocurrency is its persistent misrepresentation as an anonymous technology. It’s not that at all.

The money is anonymous. Let’s say you lay down a five, and someone picks it up and spends it. Not only will you not know who got it, but you might not even realize it’s missing.

Crypto, on the other hand, leaves a mark. Often this is recorded on a blockchain, which is public and immutable. Audience! And immutable! To avoid creating this record, you have to get out of the 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. Large traders and investors who have tens of millions of dollars of crypto deposited with FTX should already know this. (They are probably already trading with FTX competitors, since Binance had a massive market share even before the FTX crash.)

FTX lawyers argued last month that the platform’s 50 largest creditors should be anonymous anyway. Many clients invest in cryptocurrency in part to not be publicly identified, Sullivan & Cromwells Brian Glueckstein said in a Nov. 22 hearing. This is a very sensitive issue in the customer community.

Now, it makes sense that FTX’s biggest creditors/customers want to remain anonymous. Their involvement could attract the attention of world government or tax authorities, the press or possibly their own clients. Remember that the smallest creditor in the top 50 list owes FTX $21.3 million, whether it’s a deposit or some other type of unsecured loan.

Glueckstein also said that immediately identifying debtor clients exposed to FTX would further destabilize the broader crypto markets.

That may be true, but it’s unclear why a US bankruptcy court needs to protect the stability of crypto markets, which are unregulated by design.

Yet we are not bankruptcy attorneys in the United States. So we asked Jared Ellias, professor of bankruptcy and corporate governance at Harvard Law School, to explain.

Because it’s all 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 grow, he said.

But it is clear that the identities of the biggest creditors must not remain private forever, he said.

He continued:

The investment industry has long struggled to have its interests disclosed in public bankruptcy proceedings…I’m sure these institutions are currently embarrassed. It is conceivable that if a name were leaked, and imagine their [limited partners] I didn’t know, you could see a money drain, a reputational blow… something like that. But these don’t really sound like the kinds of exceptions that would justify departing from the general principle that when a company files for bankruptcy there should be some publicity.

For a wealthy individual, for someone with $30 million at FTX, one would imagine that person is motivated to keep things a secret because they’re embarrassed, because that money might belong to someone else , maybe this money could be used to pay taxes that are not being paid. These aren’t really the kinds of arguments we would usually accept to conceal 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 disclosing the identity of US creditors would not be fair.

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

There is also publicly available information about people with an interest in FTX’s bankruptcy, although it is not clear that these people have a material interest in the proceedings.

See the public registration list for participants at the November 22 hearing. Most of the names on this list are lawyers representing anonymous creditors or interested parties, distressed debt analysts, journalists and other public onlookers. But not all are.

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

Do these people or institutions have money on the FTXs platform, or are they planning to participate? We have no idea! They might just be covering up a car accident, or even have attorneys on the hook unknowingly ambush. It doesn’t seem like all the details were needed, as some people signed up with pseudonyms (John Doe, etc.).

Names on the list include:

BlockFi: This isn’t particularly surprising, as the crypto lender filed for Chapter 11 restructuring in New Jersey and sued FTX, claiming its founder pledged shares of Robinhood as collateral for a loan before the collapse of the exchange.

Jump Trading: This is the only major crypto trading company and investor we have seen on the list; a rep declined to comment. The attorney who has signed on as the firm’s representative is Peter Siddiqui, co-chairman of the restructuring firm of Katten Muchin Rosenman LLP. At the time of the pixel, he had yet to respond to a call or email.

BitGo: The company’s website says it remains safe as a WBTC custodian 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.] Cleary Gottleib restructuring attorney Jane VanLere has signed on to represent the firm.

Ward Benson, attorney in the tax division of the US Department of Justice. We have verified that it exists and is listed as counsel in other cases. (Other attorneys listed by the DOJ focus on Chapter 11 proceedings or are affiliated with the U.S. Office of Administrators.)

Jeff Sabin and Andrew Curry, attorneys for Venable LLP, registered for the in-person hearing, representing a company called Digital Augean, LLC. Digital Augean doesn’t have much of a web presence, but a company with that name was registered in Delaware on November 17 of this year. This is about a week after FTX filed for bankruptcy.

JD Barnea, Co-Head of the Tax and Bankruptcy Unit of the US Attorney’s Office for the Southern District of New York.

Miami-Dade County attorney Ileana Cruz, who wants to end her 19-year naming rights deal with FTX. The county has filed a motion that will also be heard on Dec. 16.

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

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

Travis Kling, head of Ikigai Asset Management, where a large majority of assets are linked to FTX.

George Roberts with Onix Capital. If he and that George R on LinkedIn are the same person, he’s head of trading at London-based Onix. This George did not respond to a LinkedIn request for comment by pixel.

Greg Xethalis, General Counsel of Multicoin Capital. A representative for Multicoin 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 people above.

We almost certainly missed a few notable names: if you don’t want to deal with PACER or Kroll, you can find the full list uploaded here. Feel free to report anything interesting.

But these names stood out on the list mainly because they are quite sophisticated. Small, less sophisticated creditor depositors are even more public. They speak to the press, tune into Zoom hearings with their video, or interrupt court recess to play music. Their names are released, while many other national and global creditors remain anonymous.

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