NASSAU, BAHAMAS- Liquidators for FTX Digital Markets have accused the company’s US arm of violating a cooperation agreement reached back in January as both sides appear locked in a jurisdictional battle regarding the ownership of customer accounts amounting to billions of dollars.
More than a week ago lawyers for FTX US filed a complaint in a US bankruptcy court claiming that the company’s Bahamian subsidiary FTX Digital Markets is a legal and economic ‘nullity,’ which had been merely created as a ‘front’ to facilitate fraudulent transfers. FTX Digital Markets (FTX DM), was placed into liquidation by the Bahamas courts on November 10th, 2022 by the Securities Commission while the wider corporate group filed for bankruptcy in Delaware the following day igniting a jurisdictional battle.
In a recent court filing, the court appointed joint provisional liquidators of FTX Digital Markets who are seeking to invoke the jurisdiction of the Bahamas court to allow for the process of cross-border judicial coordination and resolution to unfold dismiss claims that only six percent of the company’s International Customers are customers of FTX Digital.
“The US Debtors’ campaign to disenfranchise the JPLs and the Bahamas Court needs to stop,” the JPLs state in recent court filings, noting that the adversary proceeding initiated more than a week ago was was made in direct violation of the cooperation Agreement and FTX Digital’s own automatic stay which came into effect when the US bankruptcy court issued FTX Digital’s recognition order.
The JPL’s assert, “There is no legitimate reason for the US Debtors to prevent the Bahamas Court from ever obtaining jurisdiction over any of the threshold Non-US Law Customer Issues, particularly while the US Debtors are spending tens of millions of dollars a month on professionals based on the untested legal assumption that the money that they are spending is benefitting their own customers. In short, lifting the stay would allow the Bahamas Court presiding over the Provisional Liquidation, which regularly considers similar issues of English, Antiguan, and Bahamian law, to begin to address fundamental questions in a timely and efficient manner to the benefit of all stakeholders, without impinging on this Court’s jurisdiction over the US Debtors’ cases.”
The JPLs contend that in good faith, the have sought to engage the US Debtors to address an efficient legal mechanism for resolving the Non-US Law Customer Issues.
“The US Debtors have never actually engaged, and instead have simply proceeded to administer their cases and expend material resources as if no accountholder or customer ever migrated, ultimately initiating a litigation in breach of FTX Digital’s chapter 15 stay and the Cooperation Agreement,” the JPLs contend.
According to the JPLs filings, from January 20, 2022 through November 12, 2022, the FTX Digital Accounts maintained in FTX Digital’s name had receipts of $13.4 billion and outflows of the same amount and from January 20, 2022 through October 31, 2022, the institutional International Customer account in FTX Digital’s name had receipts of $9.2 billion and withdrawals of $8.9 billion.
