Bahamas liquidators detect ‘serious fraud’ signs at FTX



• Yet to gain full control of local subsidiary’s assets

• Legal filings hint at control battle with Chapter 11

• SBF probed for US law breaches before collapse


Tribune Business Editor


FTX’s Bahamian provisional liquidators have yet to gain control of all its assets amid signs that “serious fraud and mismanagement” may have caused the group’s collapse, it has been revealed.

Brian Simms KC disclosed in a November 15, 2022, affidavit filed with the southern New York federal bankruptcy court that the provisional liquidators presently cannot determine the financial position of FTX Digital Markets, the group’s Bahamian subsidiary, because they lack access to the necessary documents and other information.

The Lennox Paton senior partner, who is working with PricewaterhouseCoopers (PwC) duo, Kevin Cambridge and Peter Greaves, on FTX Digital Markets’ provisional liquidation made the disclosures in legal filings requesting that the US court recognise them and the Bahamian liquidation as “a foreign main proceeding” under American federal bankruptcy laws.

This will affirm the trio as FTX Digital Markets’ foreign representatives in the US, and thus enable them to secure bank accounts and other assets; trace money flows; issue any subpoenas that are necessary; and obtain all relevant documents that will aid with the Bahamian subsidiary’s likely full liquidation and winding-up.

And the Bahamian provisional liquidators’ filings also hint at a potential battle for control of FTX’s insolvency proceedings, and the group’s remaining assets, with the Chapter 11 bankruptcy protection proceedings initiated by the failed crypto exchange last Friday.

Those proceedings are before the Delaware federal bankruptcy court, and Mr Simms’ affidavit alleged that only he could have authorised the Chapter 11 filing given his appointment as provisional liquidator by the Bahamian Supreme Court the day prior. Such permission was not granted, and he “rejects the validity” of any efforts to place FTX’s affiliates in Chapter 11 protection.

Mr Simms argued that control of FTX Digital Markets and the crypto exchange’s worldwide operations resided in The Bahamas since Sam Bankman-Fried, its co-founder and chief executive until last Friday, together with senior management all resided here.

As a result, the focal point of efforts to wind-up FTX in an orderly fashion should be The Bahamas rather than the Delaware bankruptcy court, especially since the “vast majority” of the exchange’s international (meaning non-US clients) are likely to be creditors of the Bahamian subsidiary.

“The joint provisional liquidators’ findings to-date indicate that serious fraud and mismanagement may have been committed with respect to FTX Digital and the FTX affiliates,” Mr Simms alleged, although no figures and few details were provided given that the probe is at an early stage.

“At the most basic level, the joint provisional liquidators are presently unable to ascertain FTX Digital’s financial position, its assets and liabilities more generally, and does not have the totality of the information necessary to protect FTX Digital’s assets.”

Tribune Business can also reveal that Mr Bankman-Fried and FTX were already being investigated for potential violations of US securities laws prior to the crypto exchange’s spectacular implosion last week, which has sent shockwaves through the global digital assets industry and wider financial services markets.

A class action lawsuit filed over FTX’s collapse on Tuesday in the south Florida court, naming Mr Bankman-Fried and a host of sporting and other celebrities used to promote the crypto exchange as defendants, disclosed that Texas securities regulators were probing if its interest-bearing crypto currency accounts were an “offering of unregistered securities”.

The revelation was contained in an October 14, 2022, declaration by Joseph Rotunda, the Texas State Securities Board’s director of enforcement, that was filed in connection with Chapter 11 bankruptcy proceedings involving Voyager Digital Holdings - an entity that FTX and Mr Bankman-Fried has been hoping to acquire before their operations came crashing down.

“I am also familiar with FTX Trading, doing business as FTX as described herein,” Mr Rotunda alleged. “As more fully explained throughout this declaration, I am aware that FTX Trading, along with West Realm Shires Services, doing business as FTX US, may be offering unregistered securities in the form of yield-bearing accounts to residents of the US.

“These products appear similar to the yield-bearing depository accounts offered by Voyager Digital Ltd, and the enforcement division is now investigating FTX Trading, FTX US and their principals, including Sam Bankman-Fried.” 

One Bahamian financial services industry source, speaking on condition of anonymity, said of the Texas revelations: “What did the Securities Commission of The Bahamas know and when should they have known it? What does the Securities Commission have to say about this unravelling at the same time.”

Mr Simms, meanwhile, said he had given no permission for FTX Trading and 134 other group affiliates to file for Chapter 11 bankruptcy protection in the Delaware court despite being appointed provisional liquidator of the Bahamian subsidiary the day before.

Noting that FTX Digital Markets was not among the entities covered by the Chapter 11 proceedings, the Lennox Paton partner said: “As of the date of the Delaware petition, no person other than me, as provisional liquidator, was authorised to take any act including, but not limited to, filing the Delaware petition in connection with FTX Digital and FTX Digital’s subsidiaries to the extent the authority of FTX Digital’s directors and management was requisite.

“I did not authorise or approve - in writing or otherwise - any of FTX Digital’s officers, management or employees to file, or cause to be filed, the Delaware petition...... I reject the validity of any purported attempt to place FTX affiliates in bankruptcy insofar as such filing required FTX Digital’s officers, directors or management to approve and authorise such action....

“Despite the seemingly complex structure of the FTX brand companies, the entire FTX brand was ultimately operated from a single location: The Bahamas. All core management personnel likewise were located in The Bahamas,” Mr Simms continued. 

“Sam Bankman-Fried has resided in The Bahamas since 2021 and has confirmed that he operated the entirety of the FTX brand in and from The Bahamas. In addition, the power to transfer the digital assets held by the FTX exchanges is centralised in The Bahamas, and the possessory, custodial, control and-equitable property interests in all FTX brand property is-believed to be maintained in The Bahamas.....

“It is believed the vast majority of international (non-US) account holders with accounts on the FTX crypto currency exchange showing credits of crypto currency 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.”

Confirming that the Bahamian provisional liquidators have gained control of FTX Digital Markets’ corporate office at the Veridian Corporate Centre in west New Providence, and are seeking to secure all its assets and related documents, Mr Simms reiterated: “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 effectively controlled and owned FTX Digital, that Sam Bankman-Fried resided in The Bahamas, that the power to transfer the digital assets held by the FTX exchanges is centralised 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.”

Mr Simms’ affidavit highlights the complex cross-border issues that will at times dominate FTX’s winding-up. He indicates that The Bahamas, via the provisional liquidators and Supreme Court, will seek to exercise its authority and lead the insolvency proceedings given that FTX’s controlling mind and management was exercised from this jurisdiction. This potentially sets the stage for a battle for control with the Delaware court’s Chapter 11 process.

Noting that FTX Digital Markets was incorporated in The Bahamas as an International Business Company (IBC) on July 22, 2021, Mr Simms alleged: “FTX Digital operated a digital asset exchange, which offered functionality similar to traditional brokerage accounts. Digital asset exchanges typically generate revenue by collecting a fee for each trade they facilitate, but many also engage in trading (or other commercial use of) cryptocurrency that is transferred to them by customers.

“The FTX platform also appears to have offered customers the ability to take various leveraged or derivative positions, such as margin trading (loans), futures, options and volatility products, as well as the ability for one customer to buy or sell directly from another - serving customers outside of the US, Japan, Bahamas, Australia and Singapore.

“In addition, the owners and operators of FTX Digital created their own digital asset called the FTX token (FTT). This token allowed FTX Digital users to obtain discounts on trading fees, collateralise their futures positions and benefit from other exchange-centric uses.”

Mr Simms said recognition of the Bahamian provisional liquidators in the US was “critical to the orderly and effective liquidation of FTX Digital for the benefit of all creditors and stakeholders”. He warned that crypto assets were especially susceptible to being converted into fiat currency and “dissipated” through wire transfers and other transactions

Besides determining whether FTX Digital Markets has inter-group claims against entities such as Alameda Research, Mr Bankman-Fried’s trading firm, Mr Simms added: “US records of FTX Digital and the FTX brand are likely to be of critical importance to the Bahamian liquidation for multiple reasons.

“For example, these documents could provide a clear picture of the reasons for the insolvency of FTX 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.

“The books and records will provide valuable insight into the financial machinations that led to the alleged dissipation of FTX Digital assets at the expense of creditors. The discovery of these agreements and other financial documents will likely provide further insight into the financial engineering, which appears to have contributed to the insolvency of FTX Digital.”


Sickened 1 year ago

Oh boy! Sorting out which jurisdiction has ultimate authority may take several years. The US Bankruptcy court don't mess around. They will want control.


ThisIsOurs 1 year ago

Did anybody hear the Juan Talkie show as Tal calls it?

Pirates restored! And Im not talking about Sam.

If you recall Sam made a statement that as per regulators he was asked to restore Bahamian customers. The securities commission then said they did not give any such order.

Here was my comment on that a few days ago: "Somebody in power, not necessarily "the regulators", told him to do this. He didnt do this on air. He wanted people to know he was following instructions"

I will say over and over all the data is there, this talk about nobody could have known and backdoor and we did everything possible and who could possibly understand this etc etc... its there for everyone to see. CZ took 24 hours to see it, John Wang(?) is it, took 2 days to see it and concluded:

"this was the worst violation of regulatory controls he'd ever seen in all his experience overseeing liquidation of complex structures

All I have to say is boards have been fired for less. Brave Davis needs to revisit his statement about all regulatory controls being in order. He also needs to reconsider this Bahamian clients first... they talking about "actions" by a "state actor" now.


ThisIsOurs 1 year ago

This mess is not about crypto currency, this mess is about a bunch of college kids with alot of money who were allowed to do whatever they want. Now monkey putting question to he ma


Dawes 1 year ago

This mess is typical of here. Someone came down throwing money around and we lapped it up. Anything they wanted they got and we were happy as the money was flowing. Now its coming back to bite us. When we will learn to make sure rules are in place and followed. This will not look good on our finance industry.


Emilio26 1 year ago

ThisOurs it's no doubt the FBI and the IRS would put pressure on Bahamian government to prosecute the CEO of FTX or probably have them extradite him to the US to face justice.


LastManStanding 1 year ago

100% going to be extradited. The scandal is growing too big to cover up at this point. Possible that he might get the Seth Rich treatment when the story falls out of public consciousness, he knows too many names.


ThisIsOurs 1 year ago

Could he have been promised "safety" if he restored select customers.? of course they have to power to promise him that. I expect to see Sam working for the FBI soon


Sickened 1 year ago

I suggest Brian set up a special office building for this as he will need an army of people (lawyers, programs, crypto experts and accountants) to keep a handle on this. And this is going to last for YEARS! This liquidation is a goldmine for all involved. Madoff trustees have charged over $1.25 BILLION as at April last year.


TalRussell 1 year ago

FTX’s Bahamian provisional liquidators, might be wise to use this opportunity 'get to know' with clear-eyed a brief history into the workings of The Colony's more than 80 years history, success, failures and its financial services evolution.     And how. 'twas came aligned with the same old coordinates to that of the colony's 'Dog Flea Alley"** ---- Yes?


ThisIsOurs 1 year ago

Im beginning to wonder about our lawyers, the Bahamar case looks like its about to reveal some real doozies about political interference with lawyers mix right up in it and now this. Then there's the police who made a show of "saying" they opened an investigation but een do nothing... well Im sure they did "something" but een question nobody?. Then Brave Davis saying ~well, we looked at it and nothing looks amiss lets move forward. It all "looks" like orchestration

Id love to be in the room with the intelligence agents from the US Embassy. the ones who wear the rumple up floral shirts... or maybe too much netflix


Porcupine 1 year ago

All of this is salacious, headline grabbing, as it should be, However, the bottom line is this, "What will this end up costing our country? Not just in today's dollars, but in reputation, goodwill, confidence, and future investments" There could not be a more robust and total reason for the current government to step down. Perhaps prior to their indictment. All suggestions by the experts point to a massive failure by The Bahamas officialdom. Worse, it may even tip the scales toward criminality at the highest levels. Am I wrong?


Maximilianotto 1 year ago

They should resign. But they won’t so the US will manage. Too many „persons of interest“ and now FTX. 2023 will be the New Day.


Maximilianotto 1 year ago

90(!) diplomatic passports won’t help. FBI will act. SBF is only the tip of the iceberg. Government travel budget will be cut to domestic travel only.


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