⚖️ FTX's day in court

Plus: Tesla's harsh reality | Wednesday, November 23, 2022

Open in app View in browser   Presented By Vint   Axios Markets By Emily Peck and Matt Phillips · Nov 23, 2022 💬 "Your honor, what we have is a worldwide organization ... that was run effectively as a personal fiefdom of Sam Bankman-Fried." ... That's what FTX lawyer James Bromley of Sullivan & Cromwell said yesterday in bankruptcy court. More on the hearing below. Also: We'll be off tomorrow and Friday. Enjoy your Thanksgiving holiday. See you back here Monday. Today's newsletter is 1,086 words, 4 minutes.     1 big thing: Transparency vs. safety in crypto bankruptcies Illustration: Sarah Grillo/Axios   FTX appeared before the Delaware Bankruptcy Court yesterday asking — among other things — that the names of everyone (everyone!) it owes money be redacted from the official record, for the time being, Axios' Brady Dale writes. Why it matters: On the one hand, a core value of the U.S. bankruptcy system is transparency. On the other, listing everyone's names could put a target on the backs of FTX customers, who have it bad enough right now. Flashback: This focus on privacy comes after an outcry in the bankruptcy case of crypto lender Celsius Network, which earlier this year filed with the court the names and crypto transactions of thousands of users. Doubtless, few users of either service ever suspected their identities or holdings might be exposed in this way. Cryptocurrency customers are unique, FTX lawyers from Sullivan & Cromwell argued. "Many customers invest in cryptocurrency in part not to be publicly identified," said S&C's Brian D. Glueckstein. "Identifying the personal contact of the customers ... could put them in the crosshairs of bad actors." He also said such revelations might lead to "further destabilizing the broader crypto markets." Indeed, we are watching one industry pillar wobble right now. But, but, but: The motion for redaction was definitely not just about privacy. The new executives at FTX believe the customer list is a valuable asset — one they could potentially even sell in order to recoup more funds to repay creditors. "Public dissemination of the Debtors' customer list could give the Debtors' competitors an unfair advantage to contact and poach these customers," Edgar W. Mosley of Alvarez & Marsal, an FTX adviser, wrote in a court document. The other side: The U.S. Trustee, which is the Department of Justice bankruptcy watchdog, objected to redaction, particularly when it comes to institutional clients. Ben Hackman of the U.S. Trustee office argued that case precedent shows that in a bankruptcy proceeding, companies should expect to be in a "fishbowl." The upshot: Judge John T. Dorsey granted an interim motion to redact the names of all creditors, but that will be revisited in a Dec. 16 hearing before he issues a final order. "I need to make sure I'm protecting the interest of these individuals. This is a space where everything is done over the internet ... Hacking happens all the time," the judge said. For a blow-by-blow of the developing FTX situation, subscribe to Axios Crypto.     2. Catch up quick 💰Credit Suisse shareholders approve a $4.2 billion capital raise. (CNBC) 🏫 Pause on student loan payments extended to June 2023. (Axios) 📲 Apple workers in China clash with security over COVID restrictions. (Bloomberg)     3. The customers who can't get their money back Illustration: Sarah Grillo/Axios   Some FTX customers are willing to tell their stories — and the picture looks grim, Emily writes. Why it matters: FTX customers understood they were trading volatile assets. But many appeared to assume their money (or crypto) was safe, in the sense that even if it dropped in value, they could still get it back — as with a bank or a brokerage. FTX was neither. "It definitely seemed credible, like a Charles Schwab of crypto," 25-year-old Drake Lyle told the Wall Street Journal. (Remember the Super Bowl ads?) Matthew Way in Illinois told the WSJ he had $1,800 in cash parked with FTX, waiting to use it to buy bitcoin, but can't get it back. "My blood is boiling," he said. Zoom out: Putting money into FTX US was nothing like putting money in an FDIC-insured bank account, where your deposit is protected and guaranteed up to $250,000. FTX was absolutely not FDIC-insured and was actually reprimanded by the agency just a few months ago for saying customer money was kept in insured accounts. Between the lines: Banks don't go bankrupt — as FTX has — they go into receivership, says Aaron Klein, a senior fellow at Brookings who focuses on financial technology and regulation. For customers that means fairly seamless access to your cash. What's next: It's possible that some of the FTX customers could get money back through the bankruptcy process, Klein tells Axios. But there are no guarantees — and it could take a while. Of note: New York was the only state that refused to let FTX operate there. "Sometimes the best regulatory answer is 'no,'" says Klein.     A message from Vint The Picassos of fine wine and rare spirits     Vint is making it possible to invest in the rarest and most sought-after wine and spirit assets in the world. Here's why: Low correlation with traditional markets. 8.5% average annual returns over 121 years. Insulation from market downturns. Diversify your portfolio.     4. 😭 The harsh reality of Tesla's plunge Data: FactSet; Chart: Axios Visuals Analysts have been slow to slash their target prices on Tesla — despite a price drop that's destroyed more than half a trillion dollars in paper gains over the last year, Matt writes. The big picture: The fact that analysts still think Tesla should be worth $290 a share — 70% above the current market price of $170 — reflects the difficulty the market is having in adjusting to the new reality of higher interest rates. (H/t to Bloomberg, which spotlighted the growing gap between analysts and the market on Tesla.) Between the lines: As we've written (again and again and again) high-interest rates are kryptonite for share prices of tech-driven companies. This is especially true for companies that make relatively little money now but expect vast profits in the future when their products inevitably change the world. Tesla is the textbook example of just such a company. Catch up quick: After the Fed cut interest rates to almost zero during the COVID crisis in March 2020, the stock exploded upward. It rose a seemingly absurd 1300% between late March 2020 and early November 2021, when the Fed signaled it would start raising rates to combat inflation. Since then, Tesla has collapsed by nearly 60%, vaporizing more than $700 billion in market value. Yes, but: Tesla is not alone here. Other highly valued technology shares have gotten crushed by the change in interest rates, most notably Meta. The bottom line: Given the incredible run that Tesla had at times over the last couple of years, it's understandable why analysts are slow to recognize the new reality. But when they do, it could set off a new bout of selling.   Share Axios and earn rewards If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. Be a good friend and share   5. A deal derailed A freight train travels through Houston on Sept. 14. Photo: Brandon Bell/Getty Images   "Why vote 'yes' on something I'm unhappy with? We've taken enough concessions," Matthew Weaver, a member of BMWE, one of the railroad unions who voted down the Biden-brokered labor agreement, told Emily yesterday. What's happening: Negotiations between the railroad unions and their employers are edging toward a cliff, now that four of 12 unions — making up a majority of workers — rejected the deal. What to watch: The new deadline is Dec. 9 — if these guys can't work it out before then, you might see a strike — or, more likely, Congress will intervene. Read more     A message from Vint Wine investing — it's not complicated like crypto     Why invest in wine? There are reasons the rich have turned to it for centuries: Low correlation with traditional markets. 8.5% average annual returns over 121 years. Insulation from market downturns. Invest alongside Vint, which has produced a 28.3% annualized return since inception.   Was this email forwarded to you? Sign up here to get Axios Markets in your inbox. Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece. Why stop here? Let's go Pro. Join the thousands of professionals using Axios Pro to keep up with the companies, deals and trends changing their industries.   Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here. 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