At least a portion of the millions of dollars in FTX client funds mysteriously exited the stock market last week were relocated in the Bahamas at the direction of regulators. This claim was made in a new one submission by the embattled company and by the Bahamas Securities Commission itself late Thursday.
“[There is] credible evidence that the Bahamian government is responsible for directing unauthorized access to debtors’ systems in order to obtain debtors’ digital assets — which occurred after these cases began,” reads the statement signed by new FTX CEO John Ray Files, famous for handling Enron’s liquidation.
The company went on to say that its co-founders Sam Bankman-Fried and Gary Wang were on record that Bahamian regulators directed the couple to make “certain post-petition transfers” and that such assets “were held on FireBlocks under the control of [the] government of the Bahamas.”
It wasn’t the first time the allegation had been leveled against the island nation, which had previously denied it. But this time, Bahamian regulators reversed course.
“The Securities Commission of the Bahamas, in exercising its powers as a regulator acting under the authority of an order of the Supreme Court of the Bahamas, has taken action to restrict the transfer of all digital assets from FTX Digital Markets Ltd to a digital wallet controlled by the Commission.” , the agency said on Thursday.
The regulator said it took these measures to protect the interests of customers and creditors in its jurisdiction.
The back and forth is the latest twist in the battle to secure the remaining FTX holdings, the latest developments come as US regulators have urged Bankman-Fried to do so testify before a House Financial Services Committee in December to answer for FTX’s collapse.
In its most recent filing, FTX said it has “secured only a fraction of the FTX Group’s digital assets that they hope to recover,” and said it now holds $740 million in a new cold wallet. However, they were unable to close three key gaps in tracked assets:
“These balances exclude cryptocurrency not currently under the control of the debtors as a result of (a) at least $372 million in unauthorized transfers initiated at the filing date, (b) the dilutive “minting” of approx $300 million in FTT tokens by an unauthorized source after the petition date; and (c) the failure of the co-founders and possibly others to identify additional wallets believed to contain debtor assets.
That unauthorized transfers were spotted on November 11, the same day FTX filed for bankruptcy, and followed by blockchain investigators on Twitter in real-time, sparking a flurry of speculation. At the time, the transfers, which totaled $650 million, were believed to be part of a massive hack targeting the bankrupt company.
At 2 a.m. EST that night, FTX US general counsel Ryne Miller called the transfers “unauthorized” and said that FTX had begun moving the company’s remaining assets to cold storage to “mitigate the damage.” “.
The Securities Commission of the Bahamas previously issued a press release saying it was taking action freeze the assets of FTX Digital Markets. On the same day, FTX released its own statement saying it had begun allowing this to happen retreat of Bahamian funds to comply with the nation’s regulators.
1) In accordance with regulations and regulators at our Bahamas headquarters, we have begun facilitating withdrawals of funds in the Bahamas. As such, you may have seen some withdrawals processed by FTX recently as we have complied with regulators’ regulations.
But when rumors surfaced that the unauthorized transfers were the work of the Bahamian authorities, the Securities Commission of The Bahamas issued a statement dismissing FTX’s claim, saying that “they sold FTX Digital Markets Ltd. has not ordered, authorized or proposed prioritization of withdrawals for Bahamian customers.”
The statement acknowledged that such action could have constituted “voidable preferences” under the bankruptcy rules and required “the recovery of funds from Bahamian customers.”
“In any event, the Commission does not condone preferential treatment to any investor or customer of FTX Digital Markets Ltd. or otherwise,” the agency said.
So the individuals or groups responsible for the unauthorized transfers remain unknown, but blockchain observers have posted their theories on Twitter, attributing some of the withdrawals to “White Hat FTX staff” and others “perhaps controlled by.” [Bankman-Fried and Wang].”
🧵1) On November 12 around 02:22 UTC, “FTX Wallet Drainer” started stealing funds: 0x59ABf3837Fa962d6853b4Cc0a19513AA031fd32b
At 03:53 on Nov 12, someone (probably White Hat FTX employee) started salvaging funds to 0xd8019a114e86ad41d71a3eeb6620b19dd166a969 before sending them to Multisig
FTX’s Bahamian subsidiary, FTX Digital Markets Ltd. filed for Chapter 15 bankruptcy proceedings on November 15, calling for cooperation between US courts and foreign courts because the United States has been involved in bankruptcy proceedings abroad.
The Securities Commission of the Bahamas says it does not believe FTX Digital Markets, Ltd. is a party to the US Chapter 11 Bankruptcy Proceedings of FTX. The agency says it will work with other regulators and authorities “across multiple jurisdictions” to resolve matters affecting FTX Digital Markets’ creditors, customers and stakeholders.
Brian Simms, partner at the Nassau law firm Lennox Paton, was appointed as the provisional insolvency administrator. He said that FTX did not have the authority to file for bankruptcy in the US – and called for FTX’s US-located assets to be handed over to Bahamian liquidators.
The collapse of FTX and subsequent contagion spreading across crypto has prompted regulators worldwide to call for tighter regulation of the digital economy.
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