By NEIL HARTNELL
Tribune Business Editor
The joint provisional liquidators for FTX’s Bahamian subsidiary have revealed a month-long block on access to the company’s records is “frustrating” their efforts to secure and protect assets.
Blaming John Ray, chief executive of the 134 FTX entities subject to Chapter 11 bankruptcy protection, over the access denial, the provisional liquidation trio are warning it is becoming time-critical that this be restored given that some documents related to the collapsed crypto exchange “expire” after a 60-day period and will be permanently lost.
Asserting that negotiations with Mr Ray have made little to no progress, Brian Simms KC, senior partner with the Lennox Paton law firm, and Kevin Cambridge and Peter Greaves, the PricewaterhouseCoopers (PwC) accounting duo, on Friday night filed an emergency motion with the Delaware bankruptcy court requesting that it order Mr Ray to grant the necessary access that has been denied since November 12, 2022.
Otherwise, the joint provisional liquidators assert, their work will be severely curtailed without access to FTX Digital Markets’ books and records, and they will be unable to fulfill their Supreme Court-ordered mandate to protect assets and maintain their value for the benefit of the Bahamian company’s numerous creditors.
“As a fundamental part of their court-mandated duties, the joint provisional liquidators urgently require access to certain electronic records related to FTX Digital’s property and financial affairs so that they can identify the company’s assets, investigate potential claims and maintain value available to FTX Digital’s creditors,” Mr Simms and the PwC duo alleged.
“Access to this information, however, was abruptly cut off on or about November 12, 2022, and the US debtors [Mr Ray] have the ability to restore it. Despite some encouraging statements from US debtors’ counsel, no progress has been made in restoring that access, frustrating the ability of the joint provisional liquidators to perform their duties mandated under Bahamian law.
“Since the first day hearing, the joint provisional liquidators have engaged with the US debtors in an attempt to find a mutually agreeable solution, but so far no access to the systems or other information has been shared.” The Delaware legal filings thus explain the November 30 statement in which the joint provisional liquidators said their work had been “hampered” by the inability to access the company’s books and financial records stored on “cloud-based servers”.
Mr Ray was not identified as the alleged culprit then, but the latest documents claim the entities under his control denied the joint provisional liquidators and FTX’s Bahamian employees access within 24 hours of his appointment as chief executive for the imploded crypto exchange’s US entities to replace embattled founder, Sam Bankman-Fried, on November 11.
The joint provisional liquidators did not respond to Tribune Business’ request for comment before press time last night, but their filings confirmed that all FTX’s worldwide entities used the same Google and Amazon cloud-based web services to perform their daily tasks and provide services to clients. These formed the underlying technology platform for the FTX.com website, meaning that the Bahamian subsidiary used the same IT “architecture” as the rest of the group.
“On or about November 12, 2022, access to the recorded information of FTX Digital was restricted,” Mr Greaves alleged in an affidavit. “The joint provisional liquidators instructed FTX Digital employees to attempt to gain access, but they were denied. After multiple attempts by employees, the joint provisional liquidators asked their counsel to communicate access requests with the US debtors’ counsel.”
He added that White & Case, their US attorneys, sent two letters to Mr Ray’s attorneys and also had two conversations in which the restoration of access was discussed. “While I am not sure who abruptly cut off access to the recorded information or why access has not been restored, I understand the US debtors have the ability to restore FTX Digital’s access to this information promptly,” Mr Greaves added.
“In order to perform our court-appointed duties to identify, preserve and maintain the value of FTX Digital’s assets, the joint provisional liquidators urgently require access to the recorded information.” The documents sought include trading data, as well as e-mail and Slack chat records for FTX Digital Markets employees, documents stored on Google Drive and the accounting systems.
“The US debtors refusal to provide access to the recorded information is frustrating the ability of the joint provisional liquidators to carry out our duties under Bahamian law, and placing FTX Digital’s assets at risk of dissipation,” Mr Greaves alleged. “The US debtors’ refusal also creates the risk that critical information will be automatically deleted and irretrievably lost, as I understand that certain information expires after a fixed period of time, for example, 60 days.”
White & Case, on the joint provisional liquidators’ behalf, had demanded that their access be restored by last Thursday, a deadline that has come and gone with no reply, thus provoking Friday’s legal move. The only response was allegedly a “vague request” for a meeting this week. “The joint provisional liquidators have been cut off from those systems and their access must be immediately restored,” Brian Pfeiffer, a White & Case partner, wrote.
“Without access, there are potentially severe adverse impacts and possible damage to the company because the company’s assets are at real risk of dissipation. Moreover, information key to the joint provisional liquidators’ investigation is expected to be automatically wiped over time if not preserved.” Mr Pfeiffer added that access to a cloned copy of the information requested would be acceptable.
The situation, if it persists, threatens to bring the provisional liquidation of FTX Digital Markets to a near-standstill. It also highlights the complex cross-border jurisdictional issues surrounding the imploded crypto currency exchange’s restructuring, winding-up and potential sale of viable entities and technology.
The alleged cut-off suffered by FTX’s Bahamian subsidiary occurred two days after it was placed into Supreme Court-supervised provisional liquidation on November 10, 2022. It also came one day after FTX posted on social media that it was “prioritising” Bahamian withdrawals, and amid rumours of a Bahamas-based ‘back door’ channel through which investors could access their funds.
The access denial also coincided with the Securities Commission of The Bahamas, the very same day, obtaining a Supreme Court order authorising it to transfer FTX Digital Markets’ assets to a secure electronic wallet amid fears they were about to be hacked or stolen.
It is unclear whether the records block is related to this. It could also be a further sign of the competition for assets, and control of FTX’s winding-up, between Mr Ray and the Chapter 11 process in Delaware and the joint provisional liquidators in The Bahamas. The access bar would give Mr Ray leverage to use in negotiations with the Bahamian trio over the information sharing protocol they are seeking to negotiate with him, establishing his primacy
“The joint provisional liquidators have been, and remain willing, to explore an information sharing protocol with the US debtors, though any such protocol would be subject to authorisation by the Bahamian court and it is not certain such relief will be granted,” Mr Simms and the PwC duo added.
“Because time is of the essence, however, and FTX Digital’s assets are at risk of dissipation, the joint provisional liquidators have requested the US debtors to immediately restore access to the recorded information.... While the joint provisional liquidators are happy to engage in dialogue with the US debtors, their refusal to promptly restore access has frustrated the ability of the joint provisional liquidators to carry out their duties under Bahamian law and placed FTX Digital’s assets at risk of dissipation. The US debtors’ refusal also creates the risk that critical information will be automatically deleted and irretrievably lost.”