The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FTX’s US chief has revealed that the collapsed crypto exchange’s Bahamian property empire has amassed $450,000 in unpaid fees to local services providers over the ongoing impasse over how to sell the portfolio.

John Ray, who heads 134 FTX entities in Chapter 11 bankruptcy protection, alleged in papers filed with the Delaware Bankruptcy Court just before midnight on Wednesday that the crypto exchange’s Bahamian provisional liquidators have “allowed the secret use, and even potential rental” of some of the high-end properties without his team’s permission.

While he provided no evidence to back this assertion, the FTX US chief also accused Brian Simms KC, the Lennox Paton senior partner, and the PricewaterhouseCoopers (PwC) accounting duo of Kevin Cambridge and Peter Greaves, of failing to “adequately manage” a portfolio that includes residential properties in developments such as Albany and Goldwynn.

To back up this claim, Mr Ray asserted that FTX Property Holdings, the entity that holds the Bahamian real estate, received a bill for $79,000 in unpaid homeowners association fees due on a $5.2m property at One Cable Beach. He also alleged that the Bahamian liquidator trio possess 102 computers and electronic devices used by senior and key FTX personnel that should have been turned over to his team as part of the two sides’ January 6 co-operation agreement.

The latter assertion ignores the fact that the Bahamian liquidators have consistently complained that Mr Ray and his team have failed to turn over far more data on FTX Digital Markets, the entity they are responsible for, and which has impeded the progress of its liquidation before the Supreme Court. And the Bahamian trio have also previously blamed the FTX US chief’s non co-operation for the failure to start liquidating the Bahamian property portfolio.

Still, Mr Ray, in his latest legal filing, while describing the high-end real estate as “the most valuable assets” of FTX located in The Bahamas, argued that Mr Simms and his colleagues had met “none of the conditions” for managing the properties as stipulated in their co-operation agreement. And he added that any sales strategy to monetise them, and extract value for FTX clients and creditors, has to be approved by him and the Delaware court.

Pointing out that the agreement “does not permit unilateral action” by the Bahamian liquidators, Mr Ray alleged: “Despite their lack of authority, the defendants [Bahamian liquidators] served a statutory demand letter on FTX Property Holdings on February 14, 2023.

“Without consulting the debtors as required by the co-operation agreement, and in a clear violation of the automatic stay, the defendants demanded prompt payment of $238.549m. The defendants rescinded the statutory demand after they were informed that it was a violation of the automatic stay.”

However, Mr Ray further alleged: “Upon information and belief, the joint provisional liquidator defendants have allowed the secret use, and even potential rental, of FTX Property Holdings properties without the consent of FTX Property Holdings or representatives of the Chapter 11 debtors.

“On May 1, 2023, the Chapter 11 debtors received correspondence from Ms. Rolle-Kapousouzoglou, counsel to the joint provisional liquidator defendants. The letter asserted control by the joint provisional liquidator defendants over the FTX Property Holdings properties and went so far as to exclude representatives of FTX Property Holdings from accessing the properties to investigate and ensure the properties were being properly maintained.”

The FTX US chief continued: “Representatives of FTX Property Holdings have generally been denied access to properties owned by FTX Property Holdings by property managers acting at the direction of the joint provisional liquidators. Yet while the joint provisional liquidators claim the sole right pursuant to the co-operation agreement to manage the properties, they are not adequately doing so.

“On July 25, 2023, FTX Property Holdings received a demand letter for payment of approximately $79,000 of unpaid homeowners association fees (and associated legal costs) for a property located at One Cable Beach valued at $5.2m. Failure to pay these fees further calls into question whether the joint provisional liquidators are even managing the FTX Property Holdings properties.

“To date, unpaid fees across service providers to the properties have accumulated to approximately $450,000. The joint provisional liquidators have informed the debtors that good faith discussions have been held with the service providers, who have verbally agreed that payment can be made at a later date, although it remains unclear to the Chapter 11 debtors why the joint provisional liquidators would not obtain this deferral agreement in writing, particularly in light of the recent demand letter received.”

However, the Bahamian liquidators previously accused Mr Ray and his team, aided by their local law firm, of going behind their backs in attempting to sell the $256m worth of real estate domiciled in this jurisdiction. They alleged that Mr Ray and his team confessed to instructing their US-based financial advisers to sell the high-end Bahamian real estate acquired by the imploded crypto exchange “for cash” without first informing them.

And the Supreme Court-appointed trio also asserted that Mr Ray’s advisers were aided in this effort by the FTX US chief’s Bahamian attorneys, Peter Maynard & Company, with such activities only “causing confusion” as to who has ultimate control of valuable real estate assets - the FTX Digital Markets liquidators or the US chapter 11 proceedings before the Delaware Bankruptcy Court.

The Bahamian liquidators alleged, in legal papers filed with the Delaware court, that the actions of Mr Ray’s agents represented a violation of the same January 6, 2023, co-operation agreement that had been hammered out during last year’s Christmas holiday. This stipulated that the local trio would take the lead in selling-off Bahamian real estate to recover valuable assets on behalf of FTX creditors, with both sides agreeing on the process to be used.

And, explaining the statutory demand situation, the Bahamian liquidators added:“Service was objected to by the Chapter 11 debtors as being a violation of the automatic stay, even though the co-operation agreement expressly contemplated a winding-up by the Supreme Court of The Bahamas, and the service of a statutory demand was a condition precedent to such a winding-up.

“While the joint provisional liquidators disagreed entirely with the Chapter 11 debtors’ position on this matter, in the spirit of co-operation the joint provisional liquidators agreed to rescind the statutory demand with the understanding that the debtors would engage in discussions to commence the agreed-upon liquidation proceeding in The Bahamas.

“However, since this time, the Chapter 11 debtors have not engaged in discussions regarding the commencement of a liquidation proceeding and limited progress has been made to obtain control over the real estate. The joint provisional liquidators’ intention is to market and sell the properties as contemplated by the co-operation agreement and they will, if necessary, seek the assistance of the Supreme Court to do so,” the Bahamian trio added.

“Some of the property purchases were not completed at the time of the joint provisional liquidators’ appointment, and the joint provisional liquidators are considering the strategy in relation to these with a view towards maximising recoveries for customers and creditors. The joint provisional liquidators hope to present the strategy for the sale of all the properties and seek the debtors’ agreement for the process to proceed.”