Crypto Failure in the Shadows

During the “crypto winter” that began in 2022, several giants of the crypto industry collapsed into bankruptcy. Their failures grabbed headlines as billions of dollars in assets seemingly vanished into thin air. As the bankruptcy cases have progressed, evidence of mismanagement, theft, misuse of customer assets, and other wrongdoing has come to light. Crypto executives have faced criminal charges or are fugitives from the law, and the bankruptcy system is laboring to recover missing assets and generate recoveries for injured creditors. Bankruptcy is a common resting place for companies mired in these kinds of scandals. But when a company files for bankruptcy relief, it gains the benefits afforded only by agreeing to undertake the duties inherent in the bankruptcy process. Chief among these duties is the obligation to disclose extensive details of the debtor’s financial life. Debtors must therefore learn to swim in bankruptcy’s glass “fishbowl,” where strong norms of disclosure and information sharing prevail. Considering bankruptcy’s foundational disclosure norms, as well as the public’s interest in understanding the causes and ramifications of these crypto collapses, it might come as some surprise that large swaths of recent crypto bankruptcy proceedings have been shielded both from stakeholders and the public at large. Crypto debtors, relying heavily on the information-privacy expectations of their customers, have obtained court approval to keep many of their documents in the shadows. While the privacy concerns motivating such orders are no doubt salient, the collective result of so many individualized sealing orders is that crypto bankruptcies have developed anti-transparency norms out of line with bankruptcy policy. This Article confronts the tension between bankruptcy’s disclosure regime and concerns relating to personal data privacy in recent crypto bankruptcy cases. It explains the importance of public access to bankruptcy court records and provides a normative framework for how privacy-related concerns ought to be analyzed in light of bankruptcy’s strong transparency goals. It also challenges the notion that crypto creditors are inherently more vulnerable, or otherwise more deserving of protection, than any other individuals whose data is swept into bankruptcy’s fishbowl. The Article concludes with broader thoughts about the protection of sensitive data in bankruptcy cases of all sizes.