NASSAU, BAHAMAS — Provisional liquidator Brian Simms KC has rejected the validity of FTX’s Chapter 11 filings in the United States.
Brian Simms, KC, one of the three provisional liquidators appointed to the case stated in a declaration in support of a petition for recognition under Chapter 15 of the bankruptcy code stated, “I did not authorize the Chapter 11 filings and reject the validity of such filings to the extent that such filings required the authorization and consent of FTX Digital Officers and Management. Additionally, none of the Joint Provisional Liquidators have authorized the Chapter 11 filings since the appointment of the Joint Provisional Liquidators.”
Simms said it is believed the vast majority of International (non-US) account holders with accounts on the FTX cryptocurrency exchange showing credits of cryptocurrency are creditors of FTX Digital.
In addition, there are other creditors including investors of FTX Digital. FTX Digital is presently cash flow insolvent and is likely to be balance sheet insolvent.
Simms noted that since his appointment, he has engaged counsel and professional advisors in The Bahamas and the United States.
“I have authorized certain limited functions of FTX Digital’s directors and management,” he continued.
“I have been working to gather FTX Digital’s books and records and have obtained access to the FTX Digital office space. I have collected or am in the process of collecting FTX Digital assets. Moreover, in the ordinary course of work as the Joint Provisional Liquidators, we have learned that FTX Digital was headquartered in The Bahamas, that Sam Bankman-Fried (SBF) effectively controlled and owned FTX Digital, that SBF resided in The Bahamas, that the power to transfer the digital assets held by the FTX exchanges is centralized in The Bahamas, that the operations of all FTX Brand entities operated out of The Bahamas through FTX Digital, and that the possessory, custodial, control and equitable property interests in all FTX Digital property is maintained in The Bahamas,” said Simms.
Simms noted that chapter 15 of the US Bankruptcy Code includes provisions granting broad discovery rights to the foreign representative(s) upon recognition. He noted that those discovery rights are critical to the orderly and effective liquidation of FTX Digital for the benefit of all creditors and stakeholders, as the primary assets and business practices of FTX Digital, FTX Brand, among others, remain under investigation.
Simms said that at the most basic level, the Joint Provisional liquidators are presently unable-ascertain FTX Digital’s financial position, its assets, and liabilities more generally, and do not have the totality of the information necessary to protect FTX Digital’s assets.
“Most importantly, digital assets can be readily exchanged for digital currencies and to others on the underlying blockchains throughout the United States and elsewhere, and these digital assets can be converted to fiat currency and deposited into bank accounts or other fiat-based financial accounts,” he said.
“Additionally, funds deposited into bank accounts could be dissipated through wire transfers. Thus, the requested discovery in the Petition is essential because the Joint Provisional Liquidators cannot accurately trace assets and re-create the flow of FTX Digital assets without the ability to issue subpoenas.
“This may include the need to access information concerning digital asset accounts maintained by exchanges and/or fund transfers maintained by correspondent or intermediary banks,” said Simms.
Simms said that US records of FTX Digital and the FTX Brand are likely to be of critical importance to the Bahamian Liquidation for multiple reasons as the documents could provide a clear picture of the reasons for the insolvency ofFTX Digital, and allow the Joint Provisional Liquidators to make an informed judgment as to the potential third party claims available to FTX Digital, and to determine if FTX Digital holds additional, undisclosed assets.
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