FTX’s bankruptcy case: missing money and mystery creditors

One thing to start: Activist investor Nelson Peltz will try to force his way on to the board of Disney after the company declined to nominate him as a director, setting the stage for one of the biggest proxy fights in the US in years.

In today’s newsletter:

FTX’s creditors stay under wraps

We may never know which firms took the biggest hit on FTX.

In a Delaware court on Wednesday, a judge ruled that the 9mn creditors of the imploded cryptocurrency exchange will remain sealed for at least three months, over-ruling a bid by the US trustee and media organisations, including the FT, to make the list public.

“A customer list in any bankruptcy is something that is protected . . . as a trade secret,” said judge John Dorsey. FTX had asked to keep the list private for at least six months, but Dorsey said he would revisit the issue sooner.

The vast majority of the FTX creditor list is going to be sealed forever.

(Judge Dorsey said 3 months – clear from hearing he’ll extend.)

Which big firms took a hit on FTX? No-one’s allowed to know. https://t.co/nrnFugIhbc

— kadhim (＾ｰ^)ノ (@kadhim) January 11, 2023

It’s a much-welcome win for FTX advisers who’ve been tasked with sorting through the rubble in search of assets that could be sold to help pay off creditors.

The restructuring team led by the company’s chief, John Ray, has so far identified $5bn in cash, liquid crypto and securities (excluding illiquid crypto tokens that it could not easily sell) to help fill the hole, Andrew Dietderich, a partner at Sullivan & Cromwell representing FTX, said in court.

Just how far that void of missing assets owed to creditors goes, like the creditors themselves, remains a mystery. “The amount of the shortfall is not yet clear,” Dietderich said.

It turns out that the trail of deception plodded by FTX founder Sam Bankman-Fried and his closest associates could go further than has been previously disclosed.

The former crypto wunderkind instructed the company’s co-founder and chief technology officer, Gary Wang, to create a secret route for their trading firm Alameda to borrow billions of dollars in FTX client assets without customers’ permission, Dietderich alleged on Wednesday.

“Mr Wang created the back door by inserting a single number into millions of lines of code,” Dietderich said. He added that Alameda used the funds it borrowed to spend on “planes, house . . . parties [and] political donations” as well as sport sponsorships and investments.

“[Alameda] gambled on cryptocurrency investments, often unsuccessfully,” he added.

Bankman-Fried has denied wrongdoing. Wang pleaded guilty to US fraud charges.

The alleged luxury splurges and crypto bets weren’t the only gambles taken by SBF.

In late 2021, SBF invested $20mn in Paradigm, a large venture capital fund and big backer of crypto start-ups that took a stake in his FTX cryptocurrency exchange group, the FT’s Kadhim Shubber and Joshua Oliver reported earlier this week.

In other words, SBF invested in and received financing from that single pot of money.

Those arrangements look “just weird”, according to Cornell Law School professor Charles Whitehead. There was “nothing inherently wrong” with such arrangements he said, but “it raises your eyebrows”.

It’s a glimpse into the close ties between SBF and some of his backers. Paradigm, launched in 2018 by former Sequoia Capital partner Matt Huang and Coinbase co-founder Fred Ehrsam, made a general conflicts-of-interest disclosure to investors that said the fund may invest in companies run by its limited partners, a spokesperson said.

While the fund wrote down its total $278mn investment in FTX to zero in November, the situation is hardly top of mind for SBF, who faces eight criminal counts related to what prosecutors have coined “one of the biggest financial frauds in American history”.

SBF has pleaded not guilty to US charges of fraud and money-laundering after the collapse of FTX in November.

At least his parents’ multimillion-dollar California home near Stanford University, where they both work as law professors, is a nice place to wait things out on house arrest.

The unexpected new epicentre of European antitrust

When people think about antitrust enforcement, Brussels usually comes to mind. But officials in Berlin have been sharpening a new law to tackle some of the world’s largest tech companies and their anti-competitive behaviour, DD’s Javier Espinoza reports.

German regulators say that the rule, Section 19a of the German Competition Act, is years ahead of its equivalent in Brussels, where regulators are still ironing out the details on what constitutes anti-competitive behaviour.

The new legislation is future-proof, say its defenders, because it has the potential to capture even more illegal conduct by being less prescriptive on what constitutes anti-competitive behaviour.

“[The German law] is more open. It is not only backward looking but also forward looking, because if we have new tactics by the companies we will be able to catch them also,” said Andreas Mundt, head of the German Federal Cartel Office.

German watchdogs have already opened probes against the likes of Amazon, Facebook and Google, and insiders tell DD to expect more action in 2023. And contrary to Brussels, where fines seem to be a big feature in antitrust decisions, the Germans are more focused on changing behaviour, said Mundt.

“I don’t think that fines change behaviour,” he added. “If you want to see a change of conduct, then you need to change the behaviour and make it competitive.”

Berlin isn’t the only one seeking the limelight. Italy, France and the Netherlands are also getting in on the action. The Dutch competition authority, for instance, has already forced Apple to change some of its business practices following competition concerns.

New blood and nepotism at LVMH

“Dreams do not have a price tag!” Pietro Beccari told the FT last year. The 55-year-old Italian executive made the same pitch to LVMH billionaire owner Bernard Arnault shortly after taking over at Dior in 2018.

The costly and highly effective makeover of the French fashion house has paid off handsomely for Beccari, who is taking over as the new boss of LVMH’s flagship brand Louis Vuitton — a move cementing his rise as one of the most powerful names in luxury.

After helping nearly triple annual sales to about €10bn in only four years, Beccari will fill the luxury loafers of veteran executive Michael Burke, who during his decade at the helm turned the high-end brand into a powerhouse accounting for almost two-thirds of LVMH’s annual operating profit.

Delphine Arnault, the oldest of the LVMH boss’s five children and the second-in-command at Louis Vuitton, will take over at Dior.

The Arnault patriarch isn’t conducting a random game of musical chairs. The so-called wolf in cashmere — known for his aggressive dealmaking tactics — is notoriously strategic. And he will have to choose a successor eventually.

But Bernard doesn’t appear to be going anywhere anytime soon, as Lex notes. The 73-year-old grandmaster who manoeuvred LVMH into the most valuable company in Europe has plenty of moves left in him yet.

It’s still unclear whether Arnault is leaning towards a loyal lieutenant outside the family or one of his offspring to inherit the throne someday.

The Arnault’s holding company Financière Agache, which holds a 48 per cent stake in LVMH, maintains a distinctive legal status known in France as société en commandite, designed to help protect family-owned companies from takeover.

The move was seen as a way to facilitate future governance and control within the family. In the age of heirs and spares and the simultaneous public criticism and fascination with “nepo babies”, the performance of Arnault’s children will be under particular scrutiny no matter how high they climb up the ladder.

Job moves 

• Disney’s board has named Nike veteran Mark Parker as its next chair, succeeding Susan Arnold, whose leadership came under question last year over the company’s handling of former chief executive Bob Chapek’s final months in the job.

• Freshfields’ former global co-chair of M&A Simon Marchant has launched Rosemont Advisors, a management consultancy firm focused on law firms.

• Former Lazard president Alex Stern has joined IBM as senior vice-president of strategy and M&A, replacing Tom Rosamilia, who will retire in June.

• Tobias Martínez, the founder and chief executive of Europe’s largest mobile tower company Cellnex, is stepping down in June.

• Chris Raff, Deutsche Bank’s former head of UK M&A, has joined Moelis as a managing director in London.

• Thomas Fisher is rejoining Clifford Chance as a partner in London. He was most recently counsel at Weil, Gotshal & Manges.

Smart reads

Under oath In his Wirecard days, Oliver Bellenhaus tried to persuade auditors that the group’s Asia operations were real. He’s now tasked with doing the exact opposite in the fraud trial against the fallen German payments group, the FT’s Olaf Storbeck reports. (Catch up on the latest coverage of the case here.)

Plight of the shareholder Famed stockpicker and Unilever shareholder Terry Smith accused the consumer goods group Unilever of having “lost the plot” by focusing on “purpose”. But his anti-woke venting risks overshadowing some decent points, the FT’s Helen Thomas writes.

Digging for value Just before last year’s crypto crash Sam Bankman-Fried’s hedge fund made a $1bn bet on crypto mining group Genesis Digital Assets. It’s now one of the biggest assets in FTX’s bankruptcy, The Wall Street Journal reports.

News round-up

Goldman Sachs makes ‘brutal’ job cuts in quest for lower costs (FT)

BlackRock plans to cut 500 jobs worldwide following 2022 sell-off (FT)

UK commercial property dealmaking at lowest level in over a decade (FT)

Britishvolt shareholders pitch rival bid to thwart Indonesian takeover (FT)

Darktrace shares slump below IPO price after new customers slow (FT)

Deloitte agrees deal to sell UK pensions unit to Isio (FT)

Activist Coast Capital sells Vodafone stake within a year (Bloomberg)