News Bites
FTX bankruptcy battles loom between Bahamas and United States
(Kitco News) -
New developments in the FTX saga have set up a tug-of-war between the Bahamas and the United States, and between the jurisdictions of Delaware and New York bankruptcy courts, with hundreds of millions in crypto at stake.
In a move that shocked FTX customers and market participants, the Securities Commission of the Bahamas (SCB) announced Thursday evening that they had assumed control of all assets of FTX Digital Markets (FDM), the Bahamas-based parent company of FDX subsidiaries.
In their press release, the securities regulator stated that on Nov. 12 it directed Bahamas-based FTX executives (most likely Sam Bankman-Fried) to move all of the exchange’s digital assets to a wallet owned by the Commission.
“Urgent interim regulatory action was necessary to protect the interests of clients and creditors of FDM,” they wrote. The SCB said they took control of the assets “in the exercise of its powers as regulator” and that it was done for “safekeeping.”
The SCB also insisted that the U.S. bankruptcy proceedings underway in Delaware do not apply to FDM or its assets. “It is not the understanding of the Commission that FDM is a party to the US Chapter 11 bankruptcy proceedings,” they wrote, but that they would “engage with other regulators and authorities, in multiple jurisdictions” in the coming weeks.
FDM filed for Chapter 15 bankruptcy protection in New York on Nov. 15 in an attempt to seek U.S. recognition of the bankruptcy proceedings in the Bahamas. Chapter 15 applies to bankruptcies for non-U.S. companies, so the filing is essentially a claim that FDM, and all the assets in the SCB’s possession, are under Bahamian jurisdiction.
Then yesterday, FTX Trading Ltd., also known as FTX.com, filed an emergency motion arguing that the Chapter 15 filings should also take place in the Delaware court to “end the chaos and to ensure that assets can be secured and marshaled in an orderly process.”
The emergency filing also claims there is “credible evidence that the Bahamian government is responsible for directing unauthorized access to the Debtors’ systems for the purpose of obtaining digital assets of the Debtors,” and that these actions “took place after the commencement of these cases.”
By characterizing the SCB’s actions in this way, FTX.com, which is now under the direction of new CEO John J. Ray III, appears to be rejecting their jurisdiction and treating their possession of FTX assets as illegal.
But statements from Brian Simms, one of the joint provisional liquidators appointed to oversee FTX bankruptcy proceedings in the Bahamas, show that Bahamian authorities reject that characterization. Simms’ position is that FDM is Bahamian.
“FTX Digital Markets Ltd. is a company incorporated in The Bahamas,” he wrote in the New York filings. “Despite the seemingly complex structure of the FTX brand companies, the entire FTX brand was ultimately operated from a single location: The Bahamas. All core management personnel likewise were located in The Bahamas.”
Simms outlined the structure of FTX and its subsidiaries, and went so far as to put Alameda under the FTX ‘brand’, and under Bahamas jurisdiction.
“SBF was the founder and controlling owner of the FTX network of companies that established the FTX Brand (the “FTX Brand”), and which were managed and operated by FTX Digital in The Bahamas,” he wrote. “The FTX Brand includes Alameda Research Ltd. (‘Alameda’), a quantitative digital-asset trading firm also founded by SBF.”
Simms wrote in the filings that not only does the Delaware court not have jurisdiction over FDM, but that FTX.com didn’t even have the authority to file for Chapter 11 in the first place.
“As of the date of the Delaware petition, no person other than me, as provisional liquidator, was authorized to take any act, including, but not limited to, filing the Delaware petition, in connection with FTX Digital and FTX Digital’s subsidiaries to the extent the authority of FTX Digital’s directors and management was requisite,” he wrote. “I did not authorize or approve — in writing or otherwise — any of FTX Digital’s officers, management or employees to file, or cause to be filed, the Delaware petition.”
The Delaware court under Judge John T. Dorsey has agreed to hear the emergency motion from Ray and FTX.com on Nov. 22. FTX.com wrote in its bankruptcy filing on Nov. 14 that it has more than 100,000 creditors, but the number could exceed one million.
