Brown Rudnick partner Hailey Lennon discusses the possible regulatory loopholes brought to light by the collapse of FTX and lawmakers’ push for tighter crypto regulations.
The Securities Commission of the Bahamas said Thursday the agency has all digital assets under the control of FTX’s Bahamian subsidiary FTX Digital Markets Ltd. — valued at more than $3.5 billion — seized “for safekeeping” following cryptocurrency exchange collapse.
The regulator said in a press release that the funds were transferred to digital wallets under its exclusive control on Nov. 12, the day after FTX filed for Chapter 11 bankruptcy, after determining that there was “a significant risk of imminent dispersal.” of assets FTXDM’s control is based on information provided by disgraced founder Sam Bankman-Fried regarding cyber attacks on the system.
The Securities Commission of the Bahamas announced on Thursday that it has seized over $3.5 billion worth of digital assets held by FTX Digital Markets Ltd. were controlled after the crypto exchange collapsed. ((AP Photo/Marta Lavandier, file) / AP Newsroom)
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The funds will be held “on a temporary basis,” the SCB said, while awaiting orders from the Bahamas Supreme Court on whether to turn over the assets “to the customers and creditors to whom they belong” or to the court. Appointment of Joint Provisional Liquidators (JPLs) responsible for liquidating FTXDM.
The Bahamian regulator’s seizure of the funds was a point of contention between the agency and FTX’s new CEO, John Ray III, who replaced Bankman-Fried and filed for FTX’s Chapter 11 bankruptcy in the United States after assuming control of the company . Bahamas-based FTXDM has separately filed for Chapter 15 bankruptcy, which has been absorbed into Chapter 11 – and the two sides have butted heads during the process so far.
John Ray III, Chief Executive Officer of FTX Cryptocurrency Derivatives Exchange, speaks during a hearing of the House Financial Services Committee investigating the collapse of FTX in Washington, DC, Tuesday, December 13, 2022. (Al Drago/Bloomberg via Getty Images/Getty Pictures)
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The Bahamas Security Commission admitted last month that it had seized FTXDM’s assets, but did not put the number in dollars at the time.
During testimony before Congress in mid-December, Ray accused Bahamian officials of taking the funds with the support of former FTX leadership and claimed the authorities were not cooperative.
“We have repeatedly asked them for clarity as to what they were doing,” Ray said of Bahamas officials. “We were shut down by them.”
Sam Bankman-Fried exits federal courthouse in New York City on Thursday, December 22, 2022. The former FTX and Alameda CEO has been released on $250 million bail. (Charles Guerin/Abaca for Fox News Digital/Fox News)
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Ray also said that Bankman-Fried, who was arrested hours before the hearing on multiple charges related to the FTX collapse, appeared to have attempted to undermine the US bankruptcy process by transferring company assets to accounts under the control of Bahamian authorities relocated.
Bahamas officials said in court filings that they filed a criminal investigation into FTX on Nov. 9 after then-FTXDM co-CEO Ryan Salame told them in a phone call about alleged transfers of client funds from the exchange to sister company Alameda Research had informed.
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