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Former US Secret Service Officer Warns of FTX Customer Targeting Risk

Jeremy Sheridan, a former assistant director of the United States Secret Service Office of Investigations, has warned of the potential risks to FTX customers if their personal information is made public. In an April 20th declaration, Sheridan supported a motion from the debtors of FTX, a failed cryptocurrency exchange, to withhold the confidential information of its users from public release.

According to Sheridan, who is currently a managing director for FTI Consulting, the release of names associated with the failed crypto exchange could lead to severe consequences. He stated that such disclosure could impose “a severe and unusual risk of identity theft, asset theft, personal attack, and further online victimization” on FTX customers.

The former Secret Service officer went on to explain that the public disclosure of FTX customers’ names would provide potential malefactors with an itemized list of vulnerable targets. He warned that releasing the schedules of assets and liabilities of FTX customers could provide attackers with a menu of potential targets and the cryptocurrency holdings of each debtor.

Sheridan’s warning comes in the wake of FTX’s recent bankruptcy filing in the United States. The company had been struggling financially for some time, and the filing was seen as an inevitable step for the exchange.

The motion to withhold confidential information was supported by Sheridan and several other experts in the field. They argued that the release of personal information could have a significant impact on FTX customers, particularly given the prevalence of identity theft and cybercrime.

In recent years, the number of cyberattacks and data breaches has increased dramatically, with companies and individuals around the world falling victim to hackers and other malicious actors. In many cases, these attacks have resulted in the theft of personal and financial information, leaving victims vulnerable to further exploitation.

Given this threat, it is clear that the release of personal information could have a severe impact on FTX customers. The potential for identity theft and asset theft, as highlighted by Sheridan, is a very real concern, and it is essential that measures are taken to protect the privacy and security of FTX users.

In conclusion, Sheridan’s warning highlights the need for caution when it comes to the release of personal information. As we move further into the digital age, it is clear that cybersecurity will become an increasingly important issue, and it is essential that individuals and companies take steps to protect themselves from the risk of cybercrime.

Court approves BlockFi's disclosure statement conditionally

BlockFi Inc. and its affiliates announced that the United States Bankruptcy Court for the District of New Jersey conditionally approved the company’s Disclosure Statement on August 2, 2023. The approval is part of BlockFi’s Chapter 11 Plan, aimed at maximizing recovery for clients and ensuring the quickest possible distributions.

The plan, recommended by both BlockFi and the Official Committee of Unsecured Creditors, is set to bring the Chapter 11 cases to a fair conclusion, returning client funds as quickly as possible. All parties entitled to vote on the plan must do so by the September 11, 2023, voting deadline.

Mark Renzi of Berkeley Research Group, BlockFi’s Chief Restructuring Officer, stated, “BlockFi’s mission through this process has been to maximize recoveries for our creditors, and conditional approval of our Disclosure Statement moves us one step closer to accomplishing that goal.”

The plan includes provisions for returning digital assets held in BlockFi Wallet Accounts to clients and safely and securely returning non-Wallet assets to creditors. It also outlines a wind-down of the company’s affairs. Clients who do not opt out of a voluntary third-party release will be offered releases from all claims and causes of action BlockFi may have against them, except for those whose withdrawals from BlockFi Interest Accounts or BlockFi Private Client Accounts on and after November 2, 2022, are greater than $250,000.

Under the plan, BlockFi will not claw back amounts under $250,000 that clients properly transferred before the Platform Pause on November 10, 2022. Clients with claims under $3,000, or those electing to reduce their claim to $3,000, will be included in a Convenience Claim Class and will receive a one-time cash distribution from the BlockFi Estate. Creditors in this class will receive a one-time distribution of 50% of their claim in cash.

If the plan is confirmed, BlockFi will focus on pursuing claims and causes of action in litigation against several entities, including Alameda, FTX, 3AC, Emergent, Marex, and Core Scientific, to maximize recoveries for clients. The success or failure in these matters could make a difference to client recoveries of over $1 billion.

BlockFi’s eligible creditors have the opportunity to vote in favor of the plan and will receive detailed voting instructions and additional information. The deadline for votes to be counted is September 11, 2023, at 4:00 p.m. prevailing Eastern Time. BlockFi encourages all clients, including those not eligible to vote, to read the Disclosure Statement and other materials in their Solicitation Packages to learn more about the plan.

Advisors to the company during this process include Haynes and Boone LLP, Kirkland & Ellis LLP, and Cole Schotz P.C. as legal counsel; Moelis & Company as investment banker; and Berkeley Research Group as financial advisor. C Street Advisory Group, LLC is serving as strategy and communications advisor, and Joel Edwards of EY Bermuda Ltd and Eleanor Fisher of EY Cayman Ltd are serving as Joint Provisional Liquidators of BlockFi International Ltd, a Bermuda-incorporated entity.

About BlockFi

BlockFi is a bankrupt crypto lender and which filed for Chapter 11 bankruptcy on November 28, 2022, encompassing all eight of its companies. A simultaneous petition for bankruptcy was submitted to the Supreme Court of Bermuda by BlockFi International.

BlockFi sought permission from a U.S. bankruptcy court to enable customers to withdraw digital assets stored in BlockFi wallets. Filed on December 19, the lender referred to this as an “essential step” in its Chapter 11 proceedings. Hearings were scheduled for January 9 in the U.S. and January 13 in Bermuda.

On April 22, 2023, BlockFi was granted an extension until May 15 to submit a bankruptcy exit plan. The company’s controversial decision to offer high-yield crypto-backed accounts led to regulatory scrutiny and legal battles, including a cease-and-desist order from the SEC in January 2022.

A report submitted on July 14, 2023, to the United States Bankruptcy Court for the District of New Jersey revealed that BlockFi’s failure was attributed to fundamentally flawed business models and ignored risk warnings. CEO Zac Prince allegedly dismissed concerns over lending assets to Alameda Research, leading to a $217 million loan despite warnings. BlockFi had $1.2 billion in assets tied to FTX and Alameda Research at the time of bankruptcy in November 2022.

SEC Raises Objections to Celsius Network's Restructuring Plan Involving Coinbase

Key Takeaways

SEC files limited objection against Celsius Network’s restructuring plan.

Concerns raised over the company’s proposed engagement with Coinbase.

SEC’s ongoing lawsuit against Coinbase cited as complicating factor.

Next bankruptcy court hearing scheduled for October 5, 2023.

Background and Timeline

Celsius Network filed for Chapter 11 bankruptcy after announcing a $14 million agreement with Core Scientific, a mining company. Since filing for bankruptcy in July 2022, Celsius has reportedly failed to meet its payment obligations to Core Scientific. The restructuring plan has undergone several amendments since its initial filing in March 2023, with the fourth iteration submitted in August 2023. The bankruptcy court has yet to approve the plan, and the next hearing is scheduled for October 5, 2023.

SEC’s Concerns

The SEC’s limited objection focuses on Celsius Network’s proposed engagement with Coinbase, which is intended to act as a Distribution Agent for international customers under the restructuring plan. The SEC argues that the role of Coinbase in the arrangement “goes far beyond the services of a distribution agent,” potentially implicating brokerage and master trading services. These services are central to the SEC’s ongoing lawsuit against Coinbase, initiated in June 2023. The SEC has reserved the right to object further based on the outcome of this and other related cases.

Coinbase’s Response

Coinbase CEO Brian Armstrong and Chief Legal Officer Paul Grewal took to social media to express their support for Celsius Network. They questioned why the SEC would object to a “trusted US public company” taking on the role of distributing assets back to Celsius customers. The statement raises questions about the SEC’s motives and adds another dimension to the ongoing legal complexities.

Implications and Next Steps

The SEC’s objection could potentially delay or alter the terms of Celsius Network’s restructuring plan. It also raises questions about the regulatory landscape for crypto companies engaging with traditional financial institutions. The bankruptcy proceeding is set to continue, with the next hearing scheduled for October 5, 2023. The SEC reserves the right to object further based on the outcome of this and other related cases.

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