The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Delaware bankruptcy judge was yesterday told that the Securities Commission’s vehement rejection of Sam Bankman-Fried’s Bahamian creditor preferential payout plan proves there was no “collusion” with the FTX founder.

Christina Rolle, the regulator’s executive director, asserted in a November 10, 2022, affidavit that the digital assets regulator “cannot condone” the now-jailed FTX chief’s plan to prioritise Bahamian withdrawals over all other clients as set out in his November 9, 2022, e-mail to attorney general Ryan Pinder KC.

This stance, and Ms Rolle’s assessment that such payments would be fraudulent preferences subject to “claw back” in any court-supervised liquidation, were held up before Judge John Dorsey as evidence to refute claims that the Securities Commission, Bahamian government and joint provisional liquidators were all working together “in cahoots” with Mr Bankman-Fried to frustrate the US Chapter 11 bankruptcy protection process.

However, John Bromley, the attorney representing the 134 FTX entities in bankruptcy protection and John Ray, their outspoken chief executive, again repeated the conspiracy theories promoted by his client during a hearing on the Bahamian joint provisional liquidators’ bid to obtain an order giving them access to all data on FTX Digital Markets.

That access has now been cut for more than a month, with Mr Ray disconnecting their ability to access the cloud-stored data on FTX’s Bahamian subsidiary from November 12, 2022, and seemingly refusing to restore it without a further legal battle. Mr Bromley, describing this data as “dangerous information”, said: “We don’t trust the Bahamas government because of evidence we have obtained to-date...

“We don’t trust the joint provisional liquidators to hold this information and not provide it to the Bahamian government.” Mr Bromley again portrayed the Bahamian government, Securities Commission and Brian Simms KC, the Lennox Paton senior partner, and PricewaterhouseCoopers (Pwc) duo of Kevin Cambridge and Peter Greaves, in their capacity of joint provisional liquidators, as acting in concert even though they have separate and distinct roles.

And Mr Bromley, of the Sullivan & Cromwell law firm, pledged that he and Mr Ray “we will fight with all our strength” to prevent The Bahamas from becoming the main legal venue for resolving FTX’s insolvency woes over the Delaware Chapter 11 bankruptcy proceedings.

Judge Dorsey, who indicated he favoured granting the Bahamian joint provisional liquidators access to the FTX Digital Markets date they need, ultimately backed away amid opposition from Mr Bromley. Hoping the Bahamian trio and Mr Ray can resolve the dispute themselves, using mediation if they have to, he scheduled a “status” conference for Friday to see if the two sides can make progress without requiring a full court hearing with witnesses.

Access to the cloud-stored data, and FTX Digital Markets’ books and records, is vital to making progress on tracking and protecting assets for the benefit of Bahamian creditors. However, with Mr Ray presently blocking access, it is slowing the joint provisional liquidators’ progress considerably, obstructing their investigation and bringing the process to a near standstill.

Chris Shore, of the White & Case law firm, who was acting for the joint provisional liquidators, said Ms Rolle’s affidavit “belies the notion that what the Commission was doing was in collusion with Bankman-Fried” as she categorically rejected his offer to “open up withdrawals” and payout all Bahamian FTX creditors at the expense of other investors.

“Sam Bankman-Fried’s e-mail gives rise to further concerns on the part of the Commission,” Ms Rolle said of his communication to Mr Pinder. “Particularly, Sam Bankman-Fried has advised that FTX has ‘segregated funds for Bahamian customers’ and is willing to allow those customers to withdraw those funds.

“The question that ultimately arises is whether such transactions would be characterised as voidable preferences under the insolvency regime and subsequently result in attempts to claw back funds from Bahamian customers. In any event, the Commission cannot condone the preferential treatment of any investor or client of FTX Digital or otherwise.”

Both Ms Rolle and Allyson Maynard-Gibson KC, the former attorney general who was acting as FTXs Bahamian attorney, were copied on Mr Bankman-Fried’s e-mail to Mr Pinder. As a result, all three, as well as the wider government and Securities Commission, had advance notice of what the FTX chief planned to do.

Questions were raised yesterday was to what “overt and concrete” action, if any, was taken by the Government, Securities Commission and Mrs Maynard-Gibson to prevent or dissuade Mr Bankman-Fried from this plan given that they had ample warning and knew any payouts would constitute fraudulent preferences.

Over a 25.5 hour period, much of which was covered by Supreme Court and Chapter 11 asset freezes, some $100m is alleged to have been withdrawn for the benefit of 1,500 purportedly Bahamian clients, and one source said: “What steps, if any, did they take to stop him. All would have known that under such circumstances those payments would have been fraudulent preferences.”

Meanwhile, Judge Dorsey yesterday said he requested the hearing on the Bahamian provisional liquidators’ bid to have their data access restored by bankruptcy court order if necessary. “I wanted to take the opportunity to talk to the parties in this case about where we are and what’s going on,” he said.

“I understand there’s a lot of heated debate between the parties as to what’s happening, but I believe there must be some path forward to resolve the concerns of everyone involved. I think the joint provisional liquidators are entitled to the data and information related to their entity in liquidation in The Bahamas. Is there any dispute, Mr Bromley.”

Mr Bromley, on Mr Ray’s behalf, had no hesitation in saying there was such a dispute. While indicating that the FTX US chief executive was willing to talk about “static” information being provided to the Bahamian trio, he argued that they were instead seeking “dynamic access” to a live system.

The American attorney then regurgitated Mr Ray’s conspiracy theory to justify their position, asserting that any access given to the joint provisional liquidators would be misused to provide information to the Bahamian government and Securities Commission - all of whom were in collusion with Mr Bankman-Fried. This, though, ignores the latter’s request and his current status as an inmate in Fox Hill prison.

“The concern we have with any access to a live system; we believe is that dynamic access would be provided to the Government of The Bahamas and provided to the Securities Commission. To-date, any access the Securities Commission has had to our system has led to the removal of assets from our system,” Mr Bromley alleged.

This again refers to the action taken by the Securities Commission to protect assets for FTX Digital Markets creditors by transferring some $300m to a secure digital wallet under its control for fear they were about to be lost to a hack. Mr Ray has himself confirmed that a hacking attempt was made, but he has seemingly ignored the fact that the Bahamian regulator obtained Supreme Court approval for this even though the facts have been provided to him.

Mr Shore sought to explain that the Securities Commission and joint provisional liquidators are independent of each other, with the former akin to the US SEC while the latter are officers of the Supreme Court running FTX on its behalf. 

After Judge Dorsey questioned whether a full hearing on the data access issue with witnesses would be necessary, Mr Shore urged the court not to “set the bar that the joint provisional liquidators must prove there was no collusion between the Commission and Sam Bankman-Fried, and have everyone disappear for the holiday and be timed out”.

Adding that his clients had indicated they would accept access to “cloned” data, not the version upsetting Mr Bromley and Mr Ray, he said of the impasse: “It’s got to be resolved in the next couple of days, certainly not weeks and not months.” However, Judge Dorsey warned that the earliest hearing date in his calendar was January 6, 2023, meaning the joint provisional liquidators could remain frozen out until the New Year if negotiations are not successful.

Mr Shore, who asked that Friday’s status conference be used “as a control date”, warned that FTX’s liquidation in the US and The Bahamas was in danger of “going off the rails” if the disputes persisted to the detriment of both the court’s time and creditors.

“We’re at least tilting on the rails,” he added. “It may come to that. It’s way too early in this case to devolve. There’s got to be a way for professionals to work this out without getting into the kind of accusations that are flying.” That was a reference to Mr Ray’s allegations that the Bahamian authorities were colluding with Mr Bankman-Fried.

Attorneys representing the Securities Commission said the Bahamian regulator was “not consenting to the personal jurisdiction of this court” after Mr Bromley urged that it participate in the negotiations to achieve greater co-operation - something that Judge Dorsey encouraged.

Yet Mr Bromley added: “If there’s an attempt to seize control and move the case to The Bahamas we will fight them with all our strength.”