A senior executive at FTX tipped off the Securities Commission of The Bahamas a few days before the crypto exchange collapsed that client assets had been transferred to cover losses at FTX founder Sam Bankman-Fried’s investment firm Alameda Research.
According to Bahamas court filings, Ryan Salame, the chairman of FTX Digital, told the financial regulator in a 9 Nov. phone call that client assets, which may have been held with the exchange in the Bahamas, were transferred to Alameda.
Christina Rolle, executive director of the securities commission, stated in a 11 Nov. affidavit to the Bahamas Supreme Court, Salame had advised the regulator that such a transfer of client assets was contrary to normal corporate governance and operations of FTX Digital, and not allowed or consented to by clients.
According to Salame, the only people with the credentials for making the transfer were Bankman-Fried and FTX co-founders Nishad Singh and Gary Wang, Rolle said.
The regulator referred the case to the Bahamas police the same day and made a court application to have liquidators appointed two days later.
Bankman-Fried was arrested in the Bahamas on Monday as prosecutors in the US filed criminal charges. He is considered a flight risk and has been refused bail, pending an extradition hearing set for February 2023.
The US indictment alleges eight criminal charges against the FTX founder.
The US Securities and Exchange Commission and the Commodities Futures Trading Commission both filed complaints, which allege two counts of securities fraud and two counts of fraud, respectively.
FTX’s new CEO, John Ray III, testified before the US Congress on Wednesday that funds of customers of FTX.com, FTX.US and Alameda were all commingled and it was unclear how much of the missing billions of dollars-worth of customer assets could be recovered.
So far, about $1 billion of funds had been secured.
Clash of liquidations
The US and Bahamas proceedings are increasingly at odds over which liquidation has jurisdiction over which assets.
Ray previously claimed most FTX customers were subject to the US exchange even though the international exchange in the Bahamas should have had more clients. He said many of those clients had never been transferred to the Bahamas-based entity.
Bahamian liquidators, in turn, demanded on Monday that a holding company owning real estate in the Bahamas, including the company’s headquarters and several residences, be removed from the US bankruptcy.
On Wednesday Ray again accused the co-founders of FTX, Bankman-Fried and Wang, of having transferred hundreds of millions in funds to the Bahamian authorities.
The Securities Commission of the Bahamas responded with a statement saying its actions were in strict accordance with Bahamian law and court orders.
“These actions included securing the transfer of potentially commingled digital assets of FTX Digital Markets Ltd. and affiliates to a secure location under the authority of an Order issued by the Supreme Court of The Bahamas,” the commission said.
“The Commission holds those assets as trustee only (under Bahamian Law), and they will be ultimately distributed, to creditors and clients of FTX, wherever they may be located, in accordance with the court’s direction.”
In a court hearing on Wednesday, lawyers acting for FTX in the US bankruptcy proceedings refused to give Bahamian liquidators access to FTX’s computer systems.
They claimed the securities commission could not be trusted and that Bahamian authorities had colluded with Bankman-Fried and Wong in November to mint new digital coins worth hundreds of millions of dollars.
A lawyer acting for the Bahamas liquidators denied that the securities commission had worked with Bankman-Fried.
Alleged preferential treatment for Bahamians
The new management in charge of FTX further alleged in court filings that the Bahamas government had intervened and requested that Bahamian customers should be allowed to withdraw their money first.
The securities commission said the filings had been deliberately redacted in such a way “to create a false impression of communications between Mr. Bankman-Fried and the Commission”.
It referred to an email sent on 9 Nov., in which Bankman-Fried replied to questions by the attorney general of the Bahamas Ryan Pinder about the situation at the FTX.
In the email, Pinder asked specifically if client funds had been exposed or leveraged in any way by any of the entities in FTX’s corporate structure, including Alameda.
Bankman-Fried’s response was evasive saying the company was still investigating, but he added, “we did not intend to, but are concerned that poor risk management lead to a liquidity issue.”
He also confirmed that he had not briefed the securities commission, promising a phone call with the government and the regulator “in the next few days”.
The email appears to show that it was Bankman-Fried who suggested paying out Bahamians first, in response to Pinder’s question if the company has an ongoing commitment to the Bahamas.
“We are deeply grateful for what The Bahamas has done for us, and deeply committed to it. We are also deeply sorry about this mess,” Bankman-Fried wrote.
“As part of this: we have segregated funds for all Bahamian customers on FTX. And we would be more than happy to open up withdrawals for all Bahamian customers on FTX, so that they can, tomorrow, fully withdraw all of their assets, making them fully whole,” he proposed.
“It’s your call whether you want us to do this – but we are more than happy to and would consider it the very least of our duty to the country, and could open it up immediately if you reply saying you want us to. If we don’t hear back from you, we are going to go ahead and do it tomorrow.”
The securities commission in its court filing two days later stated that the proposal raised further concerns and any such withdrawals could be voided and under the country’s insolvency regime.
“In any event, the Commission cannot condone the preferential treatment of any investor or client of FTX Digital,” Rolle wrote in her affidavit.
In its statement on Tuesday, the commission said, “to the extent improper distributions were made to Bahamian citizens, such distributions will be subject to the appropriate claw back actions under the law”.
Related Videos
