FTX Sues Its Bahamian Affiliate For Appropriating Assets To Scam Customers

Key Points:

• FTX has filed a lawsuit against the liquidators in charge of winding down its Bahamas branch, accusing them of wrongfully claiming ownership of the exchange’s assets.
• Since the crypto giant filed for bankruptcy protection in November, the company’s debtors have often clashed with the team of attorneys entrusted with shutting down its Bahamas corporation.
• According to the debtors conducting the company’s bankruptcy in the United States, the liquidators inherited a corporate shell that they are exploiting to fight a jurisdictional bankruptcy dispute.

Management of the insolvent cryptocurrency exchange FTX has filed a lawsuit against the liquidators of its Bahamas branch, accusing them of wrongfully claiming control of the company’s assets.

On Sunday, FTX, headed by new CEO John Ray, petitioned a Delaware bankruptcy court to determine that FTX Digital Markets had no ownership interest in FTX.com’s cryptocurrency, intellectual property, and client connections.

The company filed for chapter 11 bankruptcy protection in November, citing disagreements with the Bahamas liquidators over control of the company’s operations and an undisclosed quantity of digital currency.

Since the crypto juggernaut filed for bankruptcy protection in November, the FTX debtors have often clashed with the team of attorneys, known as joint provisional liquidators under Bahamian law, entrusted with winding down its Bahamian affiliate. The Bahamas entity still owns assets worth hundreds of millions of dollars.

In January, the liquidators and the corporation agreed to exchange information and protect and distribute assets belonging to corporate entities in the Bahamas and elsewhere. FTX’s US management, however, said in a complaint filed Sunday in US Bankruptcy Court in Wilmington, Del., that the liquidators continue to throw doubt over the company’s property.

According to the company’s new management, FTX Digital Markets falsely claimed ownership of the exchange and was an essential front to support a scheme to swindle clients.

“The peculiar history of FTX DM is a classic example of abuse of the corporate form. It was created as a front to facilitate a conspiracy to defraud the Debtors’ customers—a conspiracy to which three individuals have already pled guilty and for which a fourth, Mr. Bankman-Fried, is under indictment—rendering any and all transactions related to FTX DM avoidable. FTX DM was part of the mature phase of that conspiracy,” the filing read.

The Bahamian branch was a corporate shell and the centerpiece of founder Sam Bankman-Fried’s endeavor to transport FTX Trading client deposits and other valuable property and rights to the Bahamas, out of the reach of US authorities and courts, according to the complaint.

Bankman-Fried has pled not guilty to criminal charges in the United States, and federal banking authorities’ civil actions have been postponed until after SBF’s October trial. The former CEO is now free on a $250 million bond, but he has regularly been in court to have the bail issue reconsidered when it was found that he utilized encrypted chat apps and a virtual private network.

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Harold

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