Bahamas regulators seize FTX funds as looms of jurisdictional battle

Bahamas regulators seek to take partial, if not full, control over US court proceedings, angering FTX's newly appointed restructuring management team.

The Securities Commission of the Bahamas said it has seized a large portion of the funds of bankrupt crypto exchange FTX because it has not taken full control of the proceedings from US courts, angering FTX’s newly appointed restructuring management team. In case of partially wants to get.

Revelations that the Bahamas Securities Commission on Saturday quietly seized funds belonging to part of Sam Bankman Fried’s sprawling FTX empire added confusion and chaos to an already unsettled bankruptcy process. are adding

It appears that the new management of FTX Group, the central bank responsible for guiding more than 130 companies (including FTX and FTX US Exchanges and the trading firm Alameda Research) through bankruptcy, will have to invest in consumer money. What is left is agitated to be divided.

Under Bankman-Fried, FTX allegedly illegally transferred billions of dollars of client funds in its custody to Alameda Research, which was then forfeited.

In a press release on Nov. 17, the commission said that pursuant to an order issued by the Supreme Court of the Bahamas, it had “directed the transfer of all digital assets of FTX Digital Markets Limited (“FDM”). A digital To protect the wallet, which is controlled by the commission, immediate interim regulatory action was necessary to protect the interests of FDM’s clients and creditors.

It could be up to $186 million.

The action was taken on Saturday, November 12, a day of chaos after allegations that FTX allowed someone in the Bahamas to reopen returns after they had been frozen, to company insiders at the time. was seen as a possible move to empty their accounts. . FTX said at the time that this was done at the behest of Bahamian authorities.

Who is in charge?

On November 12, the Securities Commission of the Bahamas (SCB) tweeted a statement that it “did not direct, authorize or recommend FX Digital Markets Ltd. to prioritize withdrawals for Bahamian clients.”

SCB also said it would not prioritize the company’s clients, saying that doing so “could be characterized as impermissible preferences under the bankruptcy system and could result in the return of funds from Bahamian customers.” Taking may result.”

Two days later, the SCB described the bankruptcy proceedings as “multijudicial in nature” and asserted that it was “the lead authority in the Bahamas investigating the events and parties, including FTX Digital Markets Ltd. are, but not limited to, (a regulated entity), FTX Trading Ltd., Alameda Research Ltd. and other related entities… located in the Bahamas.
The situation was further muddled by what is being called a major hack on November 12 that saw around $477 million stolen in what experts have described as a “horrific” fashion as an inexperienced thief tried to cover his tracks and steal the stolen crypto. tries to change. More Liquid Tokens – This suggests that the two fund drains are not correlated.

A total of $663 million was taken from the FTX digital wallet at the time, and it was unclear what happened to the remaining $186 million.

SCB did not say how much money it seized.

Confusing the issue

Things came to a head on Nov. 16, when SCB’s court-appointed liquidators filed a separate bankruptcy case for just FTX Digital Markets in the Southern District of New York. This was under Chapter 15 of the US Bankruptcy Code – which asks the court to recognize foreign proceedings.

FTX Group’s new leadership under restructuring specialist John Ray III filed an angry brief in Delaware bankruptcy court on Nov. 17 asking it to take over the case, calling the Chapter 15 filing “a decision of this court.” described as an overt attempt to evade surveillance and maintain [FTX Digital Markets] isolated from management of the rest of the lenders, which comprise the remaining majority of the FTX Group.

He also accused Bankmann Freud of supporting the Bahamas initiative.

Noting that Ray described the condition of FTX as extraordinarily chaotic to the point where it is not even certain how many and what kind of assets the company has, the company accused SCB of “Directed unauthorized access to debtors’ systems for the purpose of obtaining digital assets of debtors” — noting that the seizure is a Delaware bankruptcy court’s freeze of all assets. After giving the order, it was implemented.

The Bahamas “floundered” a Delaware court’s previous stay of freezing all of FTX’s assets, it complained, saying that under the jurisdiction, FTX Digital Markets is a subsidiary of FTX Trading, which is a separate entity. Country, registered in Antigua and Barbudas.

Different preferences

On November 17, SCB announced in a release that acting under an order from the Supreme Court of the Bahamas it had seized the assets of FTX Digital Markets, stating two things.

First, that it acted to “protect the interests of clients and creditors” of FTX Digital Markets.

Second, it said “it is not the Commission’s understanding that [FTX Digital Markets] is a party to the US Chapter 11 bankruptcy proceeding.”

That means SCB wants to keep the case — and the assets it seized — separate to “achieve the best possible outcome” for creditors, clients and stakeholders of [FTX Digital Markets]. Can.”

Unlike the rest of FTX’s customers.

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