FTX Bahamas charges US broke 'every single' pledge

• Supreme Court must 'sort it out' with Delaware

• Over 45,000 creditors submit Bahamas claims

• Ray accused of blocking $243m property sale


Tribune Business Editor


FTX's Bahamian liquidators have accused their US adversaries of "breaching every single" co-operation pledge in just four short months as they urged the Supreme Court to "sort it out" with Delaware.



Brian Simms KC, the Lennox Paton senior partner, and PricewaterhouseCoopers (PwC) accounting duo, Kevin Cambridge and Peter Greaves, in their May 12, 2023, court filings argued that Sir Ian Winder and Judge John Dorsey, his Delaware Bankruptcy Court counterpart, needed to take over relations between the two jurisdictions as the prospect of improved co-operation from FTX US chief, John Ray, and his team was "a dim one at best".


FTX CEO John Ray. Photo: AP

Responding to Mr Ray's objections that they gain relief from the worldwide asset freeze imposed after 134 FTX entities were placed under US Chapter 11 bankruptcy protection under his control, the Bahamian joint provisional liquidators warned there was "a very high risk of duplicative, never-ending litigation" unless the two courts - and their respective judges - work out a cross-border co-operation protocol.

Asserting that the territorial battle for control risks harming the more than 45,000 creditors who have filed compensation claims with FTX Digital Markets, the Bahamian subsidiary, the trio also blasted Mr Ray and his team for "a willful breach" of their co-operation agreement by helping the US Department of Justice seize $143m they allege belongs to their liquidation estate.

And, while Mr Ray and his team have asserted that just 6 percent of FTX's international, non-US customers were clients of FTX Digital Markets, Mr Simms and his PwC counterparts argue that there is significant evidence to contradict this. In particular, they argue that the Bahamian subsidiary is the "counterparty to 90 percent" of services provided by the imploded crypto exchange's international platform.

The trio have also filed 11 agreements between FTX Digital Markets clients and the crypto exchange, governed by Bahamian law, in which the latter offered them credit lines ranging in size from $1m to $19.445m. Most of these agreements were concluded in September and October 2022, just weeks before FTX collapsed, and were filed as proof that the Bahamian subsidiary had more customers than Mr Ray is letting on.

Suggesting that the FTX US chief, as well as the exchange's official committee of unsecured creditors, are taking "the extreme position that this court should act as if the Bahamian court does not exist", Mr Simms and the PwC duo said they "cannot abdicate their obligation" to wind-up the local subsidiary - and achieve the best recovery possible for creditors/investors - by playing a secondary role to the Chapter 11 process and Delaware Bankruptcy Court.

While the Bahamian provisional liquidators had sought to avoid protracted disputes with Mr Ray and his team through the January 6, 2023, co-operation agreement signed both parties, they argued that recent events have proven the deal is not working and the two judges will now have to take over and co-ordinate FTX's winding-up.

"Cross-border co-operation is the only sensible way forward in these cases," the Bahamian trio argued. "A cross-border protocol is also necessary to allow both insolvency cases to proceed expeditiously. The joint provisional liquidators were hopeful that the co-operation agreement could provide an adequate framework to allow both cases to proceed without getting bogged down in disputes.

"Unfortunately, the US debtors have made a practice of not honouring the co-operation agreement. In the four short months since executing the co-operation agreement, the US debtors have somehow managed to breach every single commitment they made."

Mr Simms and the PwC duo argued that their US counterparts have "actively obstructed" their efforts to recover the $143m in FTX Digital Markets assets seized by the US Justice Department, while also claiming that they - and not the Bahamian liquidators - "stand first in line" to recover these sums if they are ever released.

And, while the 'co-operation agreement' made the Bahamian liquidators "primarily responsible" for recovering $45m held in Tether stablecoins that were frozen in The Bahamas, Mr Ray and his team have blocked this by contesting ownership. The Bahamian trio are also asserting that their US adversaries forced them to "abandon proceedings" to start the process for recovering some $243m that was invested in high-end Bahamas real estate.

Accusing Mr Ray and his team of not "acting in good faith", Mr Simms and his colleagues alleged that their counterparts have been "actively interfering with the efforts to manage and monetise the real property in The Bahamas" and "excluding the joint provisional liquidators from discussions regarding options to restart the FTX international platform".

The Bahamian trio also assert that they are still being denied access to key FTX Digital Markets data, including documents and employee communications, while Mr Ray and his team have refused to engage in discussions on a protocol for how the Supreme Court and Delaware Bankruptcy Court will co-operate.

"In short, the prospect of awaiting open co-operation with the US debtors is a dim one at best, leaving it to this court and the Bahamas court to sort it out," the Bahamian provisional liquidators asserted. "In these circumstances, the two courts with jurisdiction should co-ordinate based on a cross-border protocol. This should not be controversial. This court has recognized FTX Digital Markets' provisional liquidation as its foreign main proceeding.

"Nor can the joint provisional liquidators simply accept the US debtors’ assumption that all customers of FTX were, at all times, customers of the US debtors, and that all assets held by the US debtors from customers belong to the US debtors as well. The debtors cannot assume those issues away; they are complicated legal questions that must be answered by a court.

"Nor can they properly refuse to engage, as the US debtors have done for months, on any form of consensual cross-border protocol. Thus the joint provisional liquidators ask that they be allowed to submit the application to the Bahamas court so that this court and the Bahamas court can work together in order to ensure an efficient and co-operative path to resolution of these questions."

The Bahamian trio have consistently argued that key questions yet to be answered are the identities of FTX Digital Markets' customers, and who was migrated to it from the crypto exchange's international platform prior to the November 2022 collapse, and whether - and which - assets belong to the company or investors/clients. They want these to be determined by Sir Ian in the Supreme Court as they involve issues of UK/Bahamian, rather than US, law.

"This court unilaterally 'centralising' issues key to the provisional liquidation of an entity that is not in a Chapter 11 case - without consultation with the Bahamas court in which its proceeding is actually pending - creates a very high risk of duplicative, never-ending litigation," the Bahamian provisional liquidators argued.

"FTX Digital Markets' provisional liquidation was filed by the Bahamian regulator, the Securities Commission of The Bahamas, and involves a host of third parties (including 45,281 creditors that have submitted claims in that proceeding). If this court bars the joint provisional liquidators from putting the Non-foreign law customer issues before the Bahamas court, and unilaterally proceeds to address them in the adversary, other parties will invariably raise those same or similar issues.

"If the two courts proceed without co-ordination, then both estates will be forced to litigate the same issues at the same time in two venues, with the risk of disparate rulings. That is not the best outcome. All of this could be avoided by the kind of cross-border co-operation that is routine in similar cases."

The Bahamian provisional liquidators added that FTX Digital Markets' 83-strong workforce "accounted for nearly half" the crypto exchange's international staff, which they argued contradicted assertions that it never moved the centre of its operations to this nation.

"FTX Digital Markets was clearly a service provider for spot market services; spot margin trading services; OTC/off-exchange portal services; futures market services; and volatility market services," they added. "These services make up approximately 90 percent of the trading on the FTX.com platform.

"Therefore, FTX Digital Markets was the counterparty to 90 percent of the international platform, including those services in sections seven (order book and convert) and eight (account funding) of the 2022 Terms of Use."


John 4 months, 2 weeks ago

It is not a small pot of gold needed no fought over so none will give it up without putting up a strong fight.


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