The transfer of FTX's digital assets was mandated by the Bahamas' securities regulator

    Tanya Sharma
    Tanya Sharma
    Published on November 18, 2022 12:21 PM

    Updated on January 10, 2023 2:20 PM

    The Bahamian Securities Regulator has explained that on November 12 it instructed FTX to transfer its digital assets to a wallet that belonged to the commission.
    The transfer of FTX's digital assets was mandated by the Bahamas' securities regulator
    Source: Encylopedia

    The Bahamas seizes FTX's digital assets for "safekeeping"

    Financial authorities in the Caribbean nation have taken control of the digital assets of the troubled cryptocurrency exchange FTX's Bahamas branch.

    The embattled cryptocurrency exchange FTX's Bahamas branch has asked for protection from American creditors.

    Bahamas branch of troubled FTX seeks bankruptcy protection

    Foreign debtors may file for bankruptcy under Chapter 15 in American courts, allowing them to protect their assets there.

    Companies outside the U.S. use this clause to shield themselves from creditors who want to sue them or seize their assets in the U.S.

    The FTX Digital Markets (FDM) digital assets have been transferred to a digital wallet under the Securities Commission of The Bahamas' supervision for "safekeeping," the agency announced on Thursday.

    The transfer of FTX's crypto holdings to government-controlled wallets

    The Bahamas Securities Commission revealed on Thursday that it had mandated the transfer of FTX's cryptocurrency holdings to government-controlled wallets on the preceding Saturday.

    The CommissionCommission stated in a press release that it issued the order following the law, which enables it to act if necessary to protect clients or their funds.

    "The Securities Commission of The Bahamas (the "Commission") took the action of directing the transfer of all digital assets of FTX Digital Markets Ltd. (the "FDM") to a digital wallet controlled by the CommissionCommission in the exercise of its regulatory authority acting pursuant to an Order made by the Supreme Court of The Bahamas."

    The regulator claimed that the action it had taken on Saturday was to safeguard the interests of investors and clients.

    The CommissionCommission stated in a statement that "urgent interim regulatory action was necessary to protect the interests of clients and creditors of FDM."

    It needs to be clarified why, five days after placing the order, the CommissionCommission announced it. The possibility of these transfers, as well as their timing, is unknown. Christina Rolle, the executive director of SCB, did not answer the phone.

    The filing of bankruptcy after FTX's collapse

    In a disorganized bankruptcy filing on Friday, November 11, FTX inadvertently listed several businesses, not part of the FTX umbrella as also filing for bankruptcy.

    The company looked to have been hacked on the evening of November 11 and into the early hours of November 12, when hundreds of millions of dollars worth of cryptocurrency began to flow out of FTX's wallets.

    A few of these transactions were related to the previous CEO of FTX, Sam Bankman-Fried.

    Ryne Miller, the general counsel for FTX US, tweeted at the time that he was looking into the matter before revealing later that FTX was attempting to move some money to cold storage wallets.

    The announcement might allude to a dispute about jurisdiction between the United States and the Bahamas, where FTX has its headquarters. 

    "It is not the Commission's understanding that FDM is a party to the U.S. Chapter 11 Bankruptcy proceedings," according to SCB's statement.

    On November 15, FTX Digital Markets filed for chapter 15 bankruptcy in the United States, a few days after the majority of the remaining members of the FTX group filed for chapter 11 bankruptcy.

    Even stranger, FTX Digital Markets chose the Southern District of New York for its bankruptcy filing rather than Delaware, where the other companies did.

    In a file on Thursday, lawyers for FTX said that joint provisional liquidators appointed by a Bahamas court submitted the petition, which acknowledges overseen bankruptcies, to discredit the larger group's U.S. filings.

    "Unannounced and in the SDNY, the Chapter 15 Case was filed in an obvious attempt to evade this Court's oversight and keep FTX DM apart from the administration of the other Debtors, who make up the vast majority of the remaining FTX group. That would be improper and cause for transfer to this Court in normal circumstances. However, these are not typical conditions," the lawyers stated.

    They continued by claiming that Bankman-Fried was collaborating with the Bahamas government.

    The filing stated: "Mr Bankman-Fried appears to be supporting efforts by the JPLs to expand the scope of the FTX DM proceeding in the Bahamas, to undermine these Chapter 11 Cases, and to move assets from the Debtors to accounts in the Bahamas under the control of the Bahamian government "Mr Bankman-Fried is the co-founder and controlling owner of all of the Debtors and FTX DM.

    In the upcoming days, the SCB will "consult with other regulators and authorities" in other countries, according to its press statement.

    The regulator did issue a statement on Saturday refuting FTX's earlier assertion that it permitted withdrawals for citizens of The Bahamas, stating that it had not instructed FTX to do so.