FTX Customers in Data Privacy Battle: Will Their Personal Information Be Shielded in Bankruptcy?

The FTX saga continues to unfold, and amidst the financial turmoil, a critical issue of customer data privacy has taken center stage. Imagine your personal details, your name, address, and transaction history, suddenly becoming public knowledge as part of a bankruptcy proceeding. Sounds alarming, right? This is precisely the concern for a group of non-US FTX customers who are now fiercely advocating for their right to privacy in the ongoing Chapter 11 bankruptcy case.

Why are FTX Customers Fighting for Privacy?

A collective of non-US FTX users, identifying themselves as the “Ad Hoc Committee of Non-US Customers of FTX.com,” is pushing back against the potential public disclosure of their personal information. They’ve filed a legal request to redact their names and private details from court documents, and their reasons are compelling:

• Risk of Identity Theft: Publicly revealing names and personal information makes these customers vulnerable to identity theft. In the digital age, such data can be exploited for various malicious activities.
• Targeted Attacks: Disclosure increases the risk of targeted attacks, both online and offline. Individuals who held assets on FTX could become targets for scams, phishing attempts, or even physical threats.
• “Other Injury”: The committee uses this broad term to encompass a range of potential harms, highlighting the unpredictable nature of risks associated with publicizing sensitive personal data in such a high-profile and sensitive case.

In essence, these customers argue that exposing their data would be akin to re-victimizing them after they’ve already suffered losses due to the FTX collapse. As the Ad Hoc Committee stated in their Dec. 28 filing,

“Requiring the Debtors to reveal the names and other identifying information of the FTX.com customers to the general public would cause irreparable harm, further victimizing the FTX.com customers whose assets were misappropriated.”

This isn’t a small group either. While the Ad Hoc Committee comprises 15 representatives, they claim to represent a much larger, yet unspecified number of individuals, collectively holding approximately $1.9 billion in locked assets on FTX.com. This significant sum underscores the scale of the potential impact and the seriousness of their concerns.

What is a ‘Joinder’ and Why is it Important?

You might be wondering about the term “joinder” mentioned in the context of this case. Simply put, a joinder is a legal maneuver where multiple suits are combined, or a new party aligns with an existing filing. Think of it as adding your voice to an existing chorus.

In this scenario, the Ad Hoc Committee isn’t initiating a new motion but rather joining the “Motion of Debtors for Entry of Interim and Final Orders.” This original motion, among other things, seeks to protect confidential customer information. The Ad Hoc Committee’s joinder strengthens this motion by adding the weight of customer concerns and reinforcing the urgency of data protection.

Specifically, the Ad Hoc Committee’s filing emphasizes their support for redacting customer names and identifying information from all publicly accessible documents related to the bankruptcy proceedings. This includes crucial documents like:

• Creditor Matrix: A comprehensive list of creditors in the bankruptcy case.
• Consolidated Top 50 Creditors List: A list of the 50 largest creditors.
• Schedules and Statements: Financial disclosures and statements filed as part of the bankruptcy process.

The Transparency Argument: Why is Public Access Being Demanded?

The fight for privacy isn’t without opposition. On December 12, the U.S. Trustee, a government official overseeing bankruptcy cases, raised an objection. Their argument hinges on the principle of transparency in bankruptcy proceedings. They contend that keeping customer information private could undermine the public’s right to scrutinize the process and understand the affairs of FTX.

Adding fuel to the fire, major financial news outlets like The Wall Street Journal (WSJ), The New York Times, Bloomberg, and The Financial Times have also intervened, advocating in court for public access to this information. They argue that transparency is standard practice in bankruptcy cases, citing the need for public accountability.

As WSJ journalist Andrew Scurria aptly pointed out on Dec. 29,

“Bankruptcy courts normally require transparency into the affairs of troubled businesses, including their creditors, in exchange for the protections of chapter 11.”

This highlights the inherent tension between the need for transparency in legal proceedings and the fundamental right to personal data privacy. It’s a balancing act with significant implications for both the FTX case and future bankruptcy proceedings involving crypto platforms.

Celsius Bankruptcy: A Cautionary Tale

The FTX customers’ privacy concerns are not unfounded. A recent and highly relevant precedent exists in the Celsius Network bankruptcy case. In October, court documents in the Celsius case inadvertently revealed private information of thousands of customers. This incident sparked outrage within the crypto community and served as a stark reminder of the potential consequences of data exposure in bankruptcy scenarios.

The Celsius case underscores the very real risks that FTX customers are trying to avoid. It demonstrates that data breaches in bankruptcy proceedings are not just hypothetical possibilities but have already occurred, causing distress and potential harm to affected individuals.

What Happens Next?

The legal battle over data privacy in the FTX bankruptcy is ongoing. The court will need to weigh the arguments from both sides – the Ad Hoc Committee’s plea for privacy and the U.S. Trustee and media outlets’ push for transparency. The outcome of this case could set a significant precedent for how customer data is handled in crypto bankruptcy proceedings moving forward.

For FTX customers, and indeed for the broader crypto community, this is a crucial moment. It raises fundamental questions about data protection, user rights, and the responsibilities of crypto platforms and legal systems in safeguarding personal information during times of financial distress.

Will the court prioritize transparency or privacy? The world is watching to see how this delicate balance will be struck in the FTX bankruptcy case.