Dec 14, 2022
FTX bankruptcy standoff heats up as Bahamas challenges U.S. case
SBF's 'I didn't mean to' isn’t a defense: Former federal prosecutor
Bahamian court officials scuffled with U.S.-based bankruptcy lawyers over the remains of Sam Bankman-Fried’s crypto empire Wednesday, exacerbating a key tension hanging over the downfall of FTX.
The American legal team has refused to give liquidators appointed by a Bahamian court access to FTX computer systems, claiming securities regulators in the Bahamas cannot be trusted. The lawyers say the Bahamas colluded with Bankman-Fried and his co-founder, Gary Wang, to wrongly access FTX’s system last month and mint new digital coins worth hundreds of millions of dollars.
“This is dangerous information,” FTX attorney James Bromley said in a court hearing Wednesday. “We do not trust the Bahamian government.”
A lawyer for the liquidator denied that the Bahamas securities regulator worked with Bankman-Fried, who was arrested in Nassau on Monday. The liquidator has information “which belies this notion,” Christopher Shore, a lawyer for the liquidator, said during the hearing.
The two sides are so far apart that U.S. Bankruptcy Judge John Dorsey said he will probably need to hold a mini-trial next month. The FTX team will put forth evidence proving liquidators violated a U.S. bankruptcy court order when accessing the system last month, Bromley said.
The sides have traded jabs in recent days through a series of unusually colorful court filings about who can access sensitive FTX data. Bahamian liquidators argued they’re entitled to access to the computer network so they can clean up a locally based subsidiary.
The conflict intensified Monday as Bahamas court officials demanded that millions of dollars of company-owned real estate on the island nation be removed from oversight by a U.S. judge. That effort, if successful, could give the liquidators control of millions of dollars more in assets.
“The Bahamian courts that have jurisdiction over the real estate cannot recognize this court’s orders,” the liquidators argued, citing local law. They want the holding company that owns the real estate — which includes the company’s headquarters and a smattering of residences — to be removed from the U.S. bankruptcy, according to court papers.
Each side has previously argued that it should be leading the hunt for FTX assets to repay creditors. The Americans, on Monday, accused the Bahamas of meddling in their efforts by asking Bankman-Fried and Wong to mint new digital coins and turn them over to Bahamian regulators — all while FTX was imploding.
Dorsey held an emergency hearing on the dispute over access to FTX data on Wednesday. A fight over whether to remove the property holding company from the U.S. bankruptcy case is likely to come before the judge early next year. Dorsey is overseeing all of the U.S.-based FTX insolvency cases, about 100 units in total.
The liquidators want immediate access to FTX data controlled by their American counterparts. The U.S. FTX team says that would allow Wang to regain access just weeks after his alleged breach that resulted in a new batch of crypto coins going out the door. Bankman-Fried is in jail in the Bahamas awaiting extradition to the US on fraud charges.
The liquidators control a single FTX entity, called FTX Digital, which is being supervised by a court in the Bahamas. The American team controls nearly all the rest of Bankman-Fried’s former empire, which filed for Chapter 11 protection in Wilmington, Delaware, on Nov. 11. That means most of the assets, wherever they are located, are likely under the authority of Dorsey, the bankruptcy judge in Delaware.
But in their court filing Monday, the liquidators demanded the property-owning unit be dismissed from bankruptcy and sold for parts in the Bahamas.
Among other things, they say the real estate should be liquidated in the Bahamas because the unit that owns it has no connection to the US — not even a bank account. They also claim that two signatures were required to put property-holding unit into bankruptcy in the US., but that only Bankman-Fried authorized the filing, so it is illegal.
The case is FTX Trading Ltd., 22-11068, US. Bankruptcy Court for the District of Delaware.