The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

FTX’s Chapter 11 lawyers applied for a motion for the enforcement of an automatic stay from creditors in FTX proceedings due to shuffling of funds days prior to the chapter 11 filing, new court filings state.

Adam G Landis, partner at Landis Rath & Cobb LLP and team in Delaware, along with lawyers from Sullivan & Cromwell LLP, filed documents in the Delaware District Court last week asking for the enforcement of an automatic stay from creditors trying to get their money back from the failed cryptocurrency exchange as a result of its collapse.

While The Bahamas was not mentioned in the motion, the motion asks to block a non-debtor defendant company registered in Antigua and Barbuda, Emergent Fidelity Technologies Ltd, which is 90 percent owned by Sam Bankman-Fried, FTX’s former chief executive officer, from receiving 56 million nominal shares held in a separate company, Robinhood Markets.

Due to the fact that Emergent Fidelity is essentially owned by Bankman-Fried, the now disgraced former CEO, the motion is asking that this special purpose holding company not be treated like other creditors to FTX but that the company - FTX - substantially owns Emergent now.

Robinhood’s shares are frozen in an account at ED&F Man Capital Markets Inc (EDFM) in New York City.

The court filing also said: “Since the commencement of these chapter 11 cases, three different competing stakeholders of the debtors have filed court actions in different jurisdictions to gain control of the Robinhood Shares to collect on claims against the debtors, including BlockFi Inc, BlockFi Lending LLC, and BlockFi International LLC (together, “BlockFi”) (a prepetition creditor of Alameda seeking to sell the Robinhood Shares to pay BlockFi’s claim), Yonathan Ben Shimon (a prepetition creditor of FTX Trading who has successfully appointed a receiver in Antigua to obtain control of and sell the Robinhood Shares under the supervision of a court in Antigua), and Mr Bankman-Fried himself (who has repeatedly sought a source of payment for legal expenses). For their part, the debtors instructed EDFM to freeze the shares promptly after commencement of these chapter 11 cases, which EDFM confirmed has been done.”

It added that due to the new management at FTX conducting investigations into the crypto-exchange’s collapse, the investigation has led them to conclude that the Robinhood shares are property of the debtor’s estates and only nominally held by Emergent Fidelity.

“The debtors’ ongoing investigation establishes that the debtors have at least a 'colourable' claim to ownership of the Robinhood shares, such that the automatic stay under section 362(a) of the Bankruptcy Code should be enforced and the shares should remain frozen at EDFM by order of this court pending resolution of competing claims by the diverse stakeholders of the debtors.”

The court documents also state: “BlockFi has been a lender to Alameda for at least three years. With news of FTX’s imminent collapse making headlines worldwide, just two days before the debtors (including FTX Trading and Alameda) filed for bankruptcy, BlockFi scrambled to protect itself from impending losses on antecedent loans by threatening to seek remedies against Alameda if Alameda did not pledge additional collateral for those loans. In response to those threats, and despite the perilous financial position of Alameda and the other debtors, Alameda’s then-CEO Caroline Ellison, with knowledge and encouragement from Mr Bankman-Fried, purportedly agreed to pledge over $1 billion worth of additional Alameda assets to secure Alameda’s outstanding loan obligations to BlockFi. The Robinhood shares were included in these pledged assets by Alameda’s then-CEO, despite the fact that the Robinhood shares were nominally held by Emergent, because Alameda had then, and continues to have, a property interest in the Robinhood shares.”

All of these transfers post chapter 11 filing coincide with the transfer of Bahamian-owned assets of FTX to a cloud system, but prior to which a withdrawal was made from them for $100m to Bahamian creditors, it has been reported.

While this latest motion of extending the automatic stay mentions The Bahamas, it will put a wrinkle to the liquidation proceedings here as the joint liquidators try to gain access to the books of FTX to secure repayment for their own creditors to FTX.