NASSAU, BAHAMAS — The Securities Commission of The Bahamas (SCB) last night defended its decision to transfer all digital assets of FTX into digital wallets under its control for the benefit of clients and creditors of FTX Digital Markets.
In a statement, the commission said that it was “unfortunate” that in Chapter 11 filings, the new CEO of FTX Trading Ltd had misrepresented the action.
The SCB said it determined that the customers and creditors of FTX Digital Markets were in need of the protection of the DARE Act on November 10, 2022. The commission suspended FDM’s license to conduct business and subsequently filed a petition before the Bahamian Supreme Court to place FDM into provisional liquidation.
“This action – the first commenced globally against an FTX entity – placed FDM under the control of a court-appointed fiduciary and removed prior management from exercising any authority over FDM,” said the commission.
The commission said it determined that placing FDM into liquidation was not sufficient to protect the customers and creditors of FDM given the nature of digital assets, and the risks associated with hacking and compromise.
“Accordingly, on 12 November 2022, the Commission sought an additional Order from the Supreme Court of The Bahamas for authority under the DARE Act to transfer all digital assets of FTX into digital wallets under the exclusive control of the Commission for the benefit of clients and creditors of FDM,” it continued.
“It is unfortunate that in Chapter 11 filings, the new CEO of FTX Trading Ltd. misrepresented this timely action through the intemperate and inaccurate allegations lodged in the Transfer Motion. It is also concerning that the Chapter 11 debtors chose to rely on the statements of individuals they have (in other filings) characterized as unreliable sources of information and potentially “seriously compromised.”
The commission said: “Further, the statements made by the purported officers of FTX Trading Ltd. and the other purported Chapter 11 debtors – that they have suffered significant thefts, that their systems were compromised, and that they continue to face new hacking attempts – reinforces the wisdom of the Commission’s prompt action to secure these digital assets,” the Commission said.
John Ray III took over as CEO of FTX after its founder Sam Bankman-Fried resigned.
Ray said: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated, and potentially compromised individuals, this situation is unprecedented.”
The SCB said that it will continue to evaluate the FTX situation, continue to act in accordance with directions issued by the Supreme Court of The Bahamas, collaborate with other supervisory authorities, and take such further actions as needed to preserve the assets of FDM and to safeguard the interests of customers and creditors of FDM.
“In addition, the Commission will continue to investigate the facts and circumstances regarding FTX’s liquidity crisis and any potential violations of Bahamian law and hold any responsible companies and individuals accountable, in cooperation with other regulatory agencies and law enforcement both in The Bahamas and in other affected countries in connection with their own investigations,” the commission said.
“The Commission also looks forward to continuing to cooperate with the authorities in other jurisdictions to ensure the cooperative and vigorous resolution of all necessary proceedings to effectuate those ends.”
The FTX Chapter 15 bankruptcy petition filed in New York by the Bahamian-appointed joint liquidators has been transferred to a Delaware bankruptcy court.
FTX Trading Ltd. had filed for Chapter 11 bankruptcy in the US Bankruptcy Court for the District of Delaware back on November 11. However, the liquidators appointed by The Bahamas Supreme Court later filed a Chapter 15 suit in the Southern District of New York for FTX Digital Markets its Bahamian subsidiary.
In the first hearing into FTX’s collapse on Tuesday, the provisional liquidators agreed to transfer their bankruptcy case to the Delaware Court.
James Bromley, a partner with Sullivan & Cromwell law firm hired by FTX’s debt holders said during a hearing yesterday that FTX spent around $300 million buying houses in the Bahamas for senior executives. He also claimed that a substantial amount of FTX’s assets are either missing or stolen, calling the FTX the “personal fiefdom” of co-founder Sam Bankman-Fried.
According to court documents, the cryptocurrency exchange owes creditors $3.1 billion. FTX has reportedly claimed in filings that it has between $10 billion and $50 billion in estimated liabilities and assets.
The Securities Commission has taken action to freeze the assets of FTX Digital Markets and related parties, in the wake of the company’s collapse.
FTX moved its headquarters from Hong Kong to The Bahamas last year, and earlier this year announced plans to invest around $60 million towards the development of a boutique hotel, commercial center, and its new headquarters on nearly five acres of land at Bayside Executive Park.