FTX Demands Protection of Assets from Liquidators of Bahamas Unit – What’s Going On?

Defunct crypto exchange FTX has asked a US bankruptcy judge to protect its property from the liquidators in charge of winding down its Bahamas unit. 

In a lawsuit filed against the liquidators overseeing the wind-down of its Bahamian affiliate FTX Digital Markets, FTX claimed that they are wrongly claiming ownership of the exchange’s assets, Bloomberg reported, citing an adversary proceeding filed in bankruptcy court on Sunday.

The lawsuit alleges that the Bahamian affiliate was a “corporate shell” and the “centerpiece” of founder Sam Bankman-Fried’s effort “to funnel FTX Trading customer deposits and other valuable property and rights to the Bahamas, out of the reach of American regulators and courts.”

Consequently, it is asking US Bankruptcy Judge John Dorsey to intervene and rule that the assets Sam Bankman-Fried and other employees lodged under the Bahamas unit were “fraudulent transfers,” and thus, they are owned by FTX.

The filing added that the Bahamian liquidators’ claims over FTX continue to “balloon in size and volume.” 

It also claimed that they have recently threatened to get in the way of Alameda’s preferential payments. 

Without an intervention from the US bankruptcy court, the Bahamas liquidators “will continue to assert baseless claims that will harm FTX.com customers and all other creditors of the FTX Debtors,” the filing argued. 

Bahamas Liquidators Argue Bahamian Division of FTX had a More Central Role

According to a report by Reuters, liquidators for the Bahamas division, which is known as FTX Digital Markets, recently asked the Bahamas Supreme Court to rule on which FTX entity is responsible for re-paying customers and should control its assets. 

They also argued that the Bahamian company took on a more central role for FTX.com as the company “intended to migrate existing international customers to FTX Digital,” according to a recent update in FTX.com’s terms of services. 

However, FTX disagreed, arguing that FTX Digital Markets never performed any significant services and that the “secret” change in the company’s terms of service did not transfer any property or responsibility to FTX Digital Markets.

FTX and its group of crypto companies filed for Chapter 11 bankruptcy in early November. The exchange has been in conflict with Bahamian officials ever since. 

Sam Bankman-Fried, the disgraced founder of FTX, was arrested in The Bahamas after US prosecutors formally filed criminal charges against him. 

He was eventually extradited to the US, where he was released from jail after posting a $250m bond in a New York court.

Three members of Bankman-Fried’s inner circle have already pleaded guilty and pledged to cooperate with officials. 

These include Nishad Singh, the former director of engineering at FTX, former Alameda Research CEO Caroline Ellison, and Gary Wang, FTX’s former chief technology officer. 

However, Bankman-Fried, who has been charged with eight criminal charges, has pleaded not guilty. He is facing more than 100 years in prison for the crimes he is accused of and is due in federal court in October.