Is there something special about a crypto company to justify the nondisclosure of the names of its creditors and customers?
Evidently not, in the opinion of Bankruptcy Judge Martin Glenn of New York. In his September 28 ruling, he only allowed the debtor to redact the home and email addresses of individual customers and creditors, “to protect the individuals from harassment and identity theft.”
Judge Glenn is requiring the crypto debtor to file schedules showing the creditors’ names and how much they are owed, without showing individual creditors’ home or email addresses. However, the debtor must show the physical and email addresses of corporate or business customers and creditors.
To ensure that redaction will not hinder securities law regulators, Judge Glenn dropped a footnote to say that he would “consider releasing unredacted information” for “good cause shown on motion of any party in interest.”
Judge Glenn conceded that his decision is at odds with a recent case in New York and two from the bankruptcy court in Delaware.
The Crypto Debtor
The debtor described itself as “one of the largest and most sophisticated cryptocurrency-based finance platforms in the world [with] clients across more than 100 countries.” In addition to holding customers’ deposits of crypto assets, the debtor said that its users could “take loans using those transferred crypto assets as collateral.” The debtor claimed to have “more than 1.7 million registered users and approximately 300,000 active users with account balances greater than $100.”
Before bankruptcy, Judge Glenn described how the debtor “froze all customer accounts, refusing to permit any withdrawals of crypto assets. That step,” he said, “has not won many fans among Debtors’ customers,” as shown by “the flood of pro se filings on the docket.”
About two weeks after the chapter 11 filing, the debtor filed a motion to redact information in court filings regarding customers, creditors, officers and employees.
More specifically, the debtor wanted authorization from Judge Glenn to redact (1) the home and email addresses of individual U.S. citizens, including customers, creditors and the debtor’s employees and shareholders; and (2) the names, home addresses and email addresses of any citizens of the U.K. or E.U. countries and anyone whose citizenship was unknown.
Later, the debtor filed a motion to expand the redactions to include all individuals’ names, not just their email and physical addresses. The objective was to disassociate account balance with customers’ claims.
Judge Glenn quoted the debtor’s papers as saying that “retaining anonymity is one of the key features of holding crypto assets.” The debtor, he said, argued that “customers, employees, directors, and officers . . . fear for their safety and their families’ safety if their home addresses, email addresses, and/or names are published on the public court docket.”
The official creditors’ committee supported the redaction motion, but the U.S. Trustee opposed.
The Statutory Criteria
Judge Glenn began with the “strong presumption and public policy in favor of public access to court records” and comprehensively laid out the various statutes and rules that allow sealing or redaction.
The principal authority for authorizing redactions is found in Section 107(b), which allows the court to protect trade secrets “or commercial information.” A debtor is not required to show good cause for redacting commercial information, which need not rise to the level of a trade secret. However, the debtor must how that disclosing the information would give “an unfair advantage” to competitors.
Under Section 107(c), the court, “for cause, may protect an individual . . . to the extent the court finds that disclosure of such information would create undue risk of identity theft or other unlawful injury to the individual.” The protected information is “[a]ny means of identification.” According to the Collier treatise, the purpose is to obviate “an undue risk of identity theft or unlawful injury to the individual or the individual’s property.”
The debtor argued that redacting the names of customers and creditors was necessary to prevent competitors from poaching the debtor’s customers. Judge Glenn rejected the idea, saying it was not “sufficient evidence to support sealing of the names of all creditors.” [Emphasis in original.]
“[A]t least for individuals who maintained accounts with the Debtors,” Judge Glenn held that the “Debtors should redact home addresses, telephone numbers and email addresses, but not the creditors’ names, from any Court filings, to protect the individuals from harassment and identity theft.” [Emphasis in original.] He went on to say that his ruling would give the debtor protection for “whatever commercial value may flow from that information.”
Judge Glenn emphasized that he was “only granting that protection with respect to addresses of individual customers, not for corporate, LLP or LLC customers.” He explained that “personally identifiable information” is defined in Section 101(41A) as covering only information provided to a debtor by “an individual.” He said “it does not include information provided by business entities.”
Once email and physical addresses for individuals are removed, Judge Glenn ruled that the names of 300,000 customers “[do] not meet the standard for confidential ‘commercial information’ under section 107(b)(1).” He reasoned that names alone would not provide “a viable means” for poaching customers, “assuming that alone would be enough to justify protection.”
To protect the debtor’s employees, officers and directors from harassment, Judge Glenn authorized the debtor to redact their home and email addresses.
In short, Judge Glenn said he was authorizing “the redaction of the home addresses and email addresses, but not the names, of the individual account holders.”
Because he did not see Section 107(c) as covering businesses, Judge Glenn refused to permit the redaction of the “names, email addresses and physical addresses to the extent the sealing requests apply to business entities and not individuals.”
The debtor wanted all information redacted regarding customers who reside in the U.K. and the E.U., because disclosure might violate regulations in those countries. Judge Glenn said he would “not treat the UK and EU citizens differently than the United States citizens implicated in this case filed in New York.”
Judge Glenn said the debtor provided “no legal authority explicitly dictating why [laws in Europe] should apply to the bankruptcy cases of the Debtors filed in the United States, or specifically, why the foreign laws would take precedence in a situation where United States law requires the disclosure of the information.”
Judge Glenn made several other rulings of moment. Applicants for professional retention must disclose the identity of those covered in their conflict checks. However, he allowed counsel to redact the identity of parties that might participate in financing.
Finally, Judge Glenn dealt with the debtor’s separate motion to disassociate creditors’ names from the amount of their claims. He denied the debtor’s request because creditors should be able to consult the schedules to ascertain whether their claims were listed and whether they were disputed or undisputed.
Is there something special about a crypto company to justify the nondisclosure of the names of its creditors and customers?
Evidently not, in the opinion of Bankruptcy Judge Martin Glenn of New York. In his September 28 ruling, he only allowed the debtor to redact the home and email addresses of individual customers and creditors, “to protect the individuals from harassment and identity theft.”
Judge Glenn is requiring the crypto debtor to file schedules showing the creditors’ names and how much they are owed, without showing individual creditors’ home or email addresses. However, the debtor must show the physical and email addresses of corporate or business customers and creditors.
To ensure that redaction will not hinder securities law regulators, Judge Glenn dropped a footnote to say that he would “consider releasing unredacted information” for “good cause shown on motion of any party in interest.”
Judge Glenn conceded that his decision is at odds with a recent case in New York and two from the bankruptcy court in Delaware.