The Tribune

• Ignore his push for US legal system control

• Says Gov’t, ‘many Bahamians’ are creditors

• Bahamian regulator slams ‘misstatements’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FTX’s new US chief has accused the Prime Minister and Attorney General of “a complete stonewall” over his push for The Bahamas to embrace the US legal system as the primary venue for solving the collapsed crypto exchange’s woes.

John Ray, who has replaced the now-arrested and indicted Sam Bankman-Fried as head of 134 FTX entities, revealed in legal filings earlier this week that he has written two letters to Philip Davis KC and Ryan Pinder KC calling for greater co-operation with himself and that The Bahamas should submit to the Delaware Chapter 11 proceedings rather than seek to wind-up the local subsidiary via the Supreme Court.

However, he asserted that his outreach has prompted no response from either Mr Davis or Mr Pinder. The only reply was a December 7, 2022, letter from Robert Adams KC, the Delaney Partners attorney representing the Securities Commission, who - while holding out the possibility of co-operation over FTX’s insolvency - warned Mr Ray not to “impede” or “interfere” with the Bahamian regulator’s own probe into the crypto exchange’s collapse.

Suggesting that the Bahamian government is itself an FTX creditor, Mr Ray alleged: “The debtors have reached out repeatedly to the joint provisional liquidators and the Government of The Bahamas - the Prime Minister, the Attorney General and the Securities Commission of The Bahamas (the “Commission”), the true party in interest, about level setting the factual record and having frank conversations about a path forward.

“In response, the debtors have received nothing other than a stone wall; a complete refusal to provide any information whatsoever, including an accounting of diverted assets (see other article on Page 1B).” The filings provide further insight into the escalating jurisdictional battle between The Bahamas and Delaware (Mr Ray) for control of FTX’s winding-up and the tracing/securing of assets that can compensate investors and creditors.

“The abrupt failure of the FTX Group has shocked the financial world in general, and the world of cryptocurrency more specifically,” Mr Ray’s first letter, on November 27, said. “Within a matter of days, millions of parties around the world went from being customers, employees and suppliers of the FTX Group to being creditors holding billions of dollars of claims. Among those creditors are the Government of the Bahamas and many Bahamian citizens.

“In the early chaotic days following FTX’s fall, the speed of events unfortunately did not allow your team and mine to co-ordinate appropriately. This, I believe, resulted in potential misunderstandings concerning our respective obligations to secure the assets of the FTX Group under our respective control.

“I write to you today to open a new line of communication so that we can collectively move forward on a co-ordinated basis recognising that we both owe duties to our respective creditors.” Mr Ray then sought to sell Mr Davis and Mr Pinder on the merits of bowing to the Delaware Chapter 11 proceedings, something that they and the Government are highly unlikely to do given that it would effectively mean surrendering Bahamian legal sovereignty.

“I believe that the Government of the Bahamas and Bahamian citizens are important stakeholders in the global restructuring effort,” Mr Ray added. “To that end, I would like to speak with you at your earliest convenience about how the Government of The Bahamas can participate directly and meaningfully in the Chapter 11 proceedings on behalf of itself and Bahamian citizens in general.

“This sort of participation by non-US governmental actors has occurred in other cross-border restructurings with great success. For example, in the Eastman Kodak Chapter 11 proceeding, the UK’s pension regulator served on the Official Creditors Committee playing an important role in those Chapter 11 cases.”

No two liquidation cases are alike, however, but Mr Ray offered to visit The Bahamas and meet with government officials to help further his cause. “I believe that direct participation by the Bahamas in the Chapter 11 proceedings will be far more promising for all Bahamian stakeholders than the independent pursuit of a stand-alone liquidation of FTX Digital Markets under Bahamian law,” he argued.

“This is particularly true where there is mutual recognition (and co-ordination) of the Chapter 11 proceedings and the liquidation of FTX Digital Markets in both jurisdictions. Chapter 11 is a uniquely powerful statute. It is wholly transparent. It is overseen by a specialised judiciary comprised of sophisticated former practitioners. It is widely recognised by courts across multiple jurisdictions. It allows assets around the world to be sold in open auction settings for the highest prices.

“It provides a global platform for the potential reorganisation of elements of the FTX business that may survive as well as the ability to raise capital from international investors. It allows for the prioritisation of certain creditor recoveries, which may benefit Bahamian creditors in particular,” Mr Ray continued.

“Chapter 11 provides powerful investigation tools and the opportunity for the various US and non-US law enforcement and regulatory agencies that are investigating FTX to interact more efficiently. And, finally, Chapter 11 respects non-US substantive and regulatory law both in connection with claims made against the FTX global debtors, as well as with respect to any issues presented by the wind-down, sale or reorganisation of any of the FTX businesses.”

However, the very same day that Mr Ray wrote the letter, Mr Pinder gave his national TV address on FTX where he accused the Chapter 11 chief executive of deliberately making inaccurate, misleading and incorrect statements over the Securities Commission’s efforts to protect FTX Digital Markets investors and creditors by transferring some $300m in assets to its safekeeping as a safeguard against hackers.

Mr Ray’s attitude noticeably hardened as a result in a subsequent December 1, 2022, letter to Mr Davis and Mr Pinder. He wrote that “certain information” was needed prior to any meeting with the Prime Minister, adding that he “respectfully disagrees” with the Attorney General’s assertion that his inaccurate comments about The Bahamas were motivated by a desire to earn high legal and consultancy fees if Delaware was the centre of FTX’s liquidation.

“As I stated in my letter to you of November 27, 2022, I believe that an opportunity exists for the FTX global debtors, the joint provisional liquidators, the [Securities] Commission and the Bahamian government in general to work co-operatively. Such co-operation could include, among other things, having Bahamian representatives participate in the Chapter 11 proceedings,” Mr Ray reiterated.

“Like the joint provisional liquidators, the FTX global debtors act as fiduciaries under court supervision...... As we have noted repeatedly, the FTX global debtors are prepared to negotiate a cross-border protocol - one that provides for transparency and reciprocity - that will allow us to move forward collectively for the benefit of the creditors of both the FTX global debtors and FTX Digital Markets.”

However, such co-operation seems a long way off after the Securities Commission, in a statement issued yesterday, hit back at the contents of Mr Ray’s legal disclosures which it said contained “key misstatements”. The regulator blasted that the filings “do not appear to be concerned with facts but, rather, appear intended only to make headlines and advance questionable agendas”.

Asserting that it was the world’s first regulator to take action over FTX’s collapse, using the Digital Assets and Registered Exchanges Act (DARE) to revoke the crypto exchange’s licence and petition the Supreme Court for the appointment of joint provisional liquidators, the Securities Commission reiterated that the transfer of “potentially commingled digital assets of FTX Digital Markets and affiliates” was approved by the Supreme Court.

Mr Ray should be aware of this, as his legal filings contain the relevant Supreme Court orders giving the Securities Commission the legal go-ahead. And the regulator also voiced concern that Mr Ray, as did many members of the House of Representatives yesterday, is conflating the Government, Securities Commission and joint provisional liquidators into one even though they are separate and operating independently.

“The Commission also finds it disturbing that, either deliberately or through ignorance, Mr Ray’s filings and communications continue to wrongfully confuse as one the actions of the Government of The Bahamas, the Securities Commission of The Bahamas and the court-appointed, court-supervised joint provisional liquidators,” it added.

“The Securities Commission continues to conduct a comprehensive and diligent investigation into the causes of FTX’s failure, working in co-operation with law enforcement and regulatory authorities both in The Bahamas and other jurisdictions. The Securities Commission will make all appropriate findings and recommendations in the appropriate forum at the conclusion of its investigation.

“Persons who are found to have engaged in misconduct will be held accountable in accordance with Bahamian law. Unfortunately, it has been necessary for the Securities Commission to make a request to Mr Ray’s representatives to not obstruct that investigation. Mr Ray has not once reached out to the Securities Commission to discuss any of his concerns before airing them publicly.”