The Securities Commission of The Bahamas took control of $3.5 billion in digital assets two days after suspending the licence of failed crypto exchange FTX and obtaining a court order putting the company in liquidation.
The regulator seized the assets under a court order on 12 Nov. because of a risk of “imminent dissipation” of the assets, the commission’s executive director Christina Rolle said in an affidavit filed with the Bahamas Supreme Court.
Rolle said FTX founder Sam Bankman-Fried informed the commission in a sworn examination on the same day that there “had been hacking attempts overnight and that he and [fellow FTX founder] Mr. Gary Wang spent much of the night trying to move assets out of harm’s way”.
The provisional liquidators of FTX Digital Markets (FTXDM) confirmed to the regulator that substantial amounts of digital assets had been removed by hackers.
Federal prosecutors in the US have launched a criminal probe into an alleged hack that stole more than $370 million from FTX just hours after the cryptocurrency exchange filed for bankruptcy in November, Bloomberg reported this week.
“Accordingly, the Commission determined, in the exercise of its regulatory powers, it was necessary to take steps to protect the interests of the clients and other creditors in the assets of FTXDM and the public interest by obtaining a court order to safeguard the digital assets by transferring them to secure digital wallets under the exclusive control the Commission,” the commission’s court filing said.
This was done after the Supreme Court granted an ex-parte application by the regulator to seize the assets, even though provisional liquidators had already been appointed.
By the end of the process, the commission had taken possession of most tokens within the control of FTXDM, Bankman-Fried and Wang, valued at more than US$3.5 billion at the time of transfer, Rolle stated.
The commission further sent instructions for the transfer of approximately US$46 million of Tether tokens to a secure wallet under the control of the Commission. Tether refused the transfer because of FTX’s Chapter 11 proceedings in the United States but agreed to maintain a freeze over the asset until ownership of the tokens is resolved.
The court filing included emails sent by the commission on 10 Nov. to Tether and Fidelity Bank (Bahamas) Limited instructing them to freeze the accounts of FTX Digital Markets and related parties.
The Bahamas regulator is maintaining the seized crypto assets in wallets hosted by the institutional digital asset custodian Fireblocks.
The securities commission estimates it will cost US$631,200 per year to maintain the wallets.
The regulator said the digital assets will remain under its exclusive control until the Supreme Court directs it to deliver them to FTX customers and creditors or to the liquidators under rules governing the insolvency estate.
Information sharing dispute
Rolle’s affidavit was filed on Thursday, 29 Dec., in attempt to overcome an information sharing dispute between the new management of FTX, undergoing Chapter 11 proceedings in the US, and court-appointed liquidators in The Bahamas.
The US debtors of FTX have blocked the Bahamas liquidators from accessing the crypto exchange’s computer systems and files on FTX’s cloud servers.
Lawyers for FTX US have claimed in US court that the Bahamas securities commission could not be trusted and that Bahamian authorities had colluded with Bankman-Fried and Wang in November to mint new digital coins worth hundreds of millions of dollars.
The securities commission categorically denied the allegations, stating, “While certain token protocols may require the burning of old tokens and the simultaneous minting of new replacement tokens to effect transfer, in no case, did the process involve the creation of any additional tokens.”
The commission asked the Bahamas court for direction if information about the digital assets it has seized may be provided to the US debtors’ representatives.
The court ordered that the commission can only lawfully assist domestic and overseas regulatory authorities but that the Bahamas liquidators may provide certain information about the digital assets to the US debtors “in a highly confidential manner”, the commission said in a press release.
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