The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FTX’s Bahamian subsidiary, and its customers/investors, were yesterday said to have unwittingly helped finance a $546m investment by Sam Bankman-Fried that has now been seized by US federal authorities.

The Bahamian joint provisional liquidators, in a filing with the US Chapter 11 bankruptcy court in Delaware, said the results of their probe to-date suggested that assets belonging to FTX Digital Markets and/or its clients may have been used by the crypto exchange’s indicted founder and his fellow principal, Gary Wang, to last year acquire 56m shares in an online brokerage firm.

That investment in Robinhood Markets, allegedly valued at a total $650m, likely represents one of the best recovery sources for compensating FTX’s one million-plus creditors including former crypto investor clients. Seemingly taking no chances that this will be lost, it was revealed at a Wednesday court hearing in Delaware that the US Justice Department has already seized control of the 56m shares from their previous custodian.

Yesterday’s filing, on behalf of Brian Simms KC, the Lennox Paton senior partner, and PricewaterhouseCoopers (PwC) accounting duo, Kevin Cambridge and Peter Greaves, asserted: “Based on their investigation of the assets and obligations of the Chapter 15 debtor (FTX Digital Markets) to-date, which are ongoing, it appears that assets titled in the name of the Chapter 15 debtor or in which the Chapter 15 debtor has an interest, and/or assets belonging to certain customers of the Chapter 15 debtor, may have been used by Emergent, Sam Bankman-Fried and/or others to purchase and/or acquire the Robinhood shares.”

Multiple competing claims to the Robinhood shares have already been filed with the courts in the US and Antigua & Barbuda. However, Mr Bankman-Fried, who is facing multiple fraud and money laundering-related charges in the southern New York federal courts, confirmed in a December 12, 2022, affidavit that much of the decision-making related to that investment took place in The Bahamas.

“I confirm that no steps were taken in Antigua in connection with the acquisition of the Robinhood shares save the incorporation of Emergent,” the FTX co-founder asserted. “No funds flowed through Antigua, and neither Gary nor I ever visited Antigua. No documents were prepared, executed or stored in Antigua. No individual in Antigua was involved in the acquisition. All relevant steps were taken in The Bahamas and/or the US.”

Court documents show that Emergent Technologies was incorporated during the 2022 first half as an Antiguan special purpose vehicle (SPV) to hold the Robinhood shares on behalf of Mr Bankman-Fried and Mr Wang, with the former holding a majority 90 percent ownership interest and the latter the balance. Their respective addresses were given as Albany and Unit 112, Lots 5 and 6, on West Bay Street.

The purchase of the shares, Mr Bankman-Fried admitted, was financed by a series of loans to himself and Mr Wang from Alameda Research, his trading entity, worth a collective $546m. Alameda Research is at the centre of the criminal charges levied against Mr Bankman-Fried, with Mr Wang having already admitted his guilt via a plea bargain with US prosecutors, for it is alleged to have taken FTX client assets without their permission to fund its risky investments.

Emergent Technologies, and the Robinhood shares it owns, have been the target of multiple lawsuits launched by embittered FTX creditors since the exchange’s implosion. One creditor has successfully petitioned the Antiguan courts for the appointment of joint provisional liquidators, who have seized control of the SPV from Messrs Bankman-Fried and Wang.

And BlockFi, another crypto currency firm that went bankrupt in November 2022, is also demanding that the Robinhood shares be handed over to itself since they were pledged as collateral to secure loans it made to Alameda Research just two days before FTX was placed into Chapter 11 bankruptcy protection in the US and provisional liquidation before the Bahamian Supreme Court.

However, the Bahamian provisional liquidators acknowledged in yesterday’s filing that the US Justice Department’s seizure of the Robinhood shares “potentially moots” BlockFi’s bid to gain control of these securities for its own benefit.

The latest developments in the FTX saga come as the Bahamian trio make a final, last-ditch push to reach a compromise agreement with the crypto exchange’s Chapter 11-appointed US chief, John Ray, and his team over access to FTX Digital Markets’ cloud-stored books and records and information sharing.

The Delaware Chapter 11 court had been due to hear evidence and witnesses from both sides on the cloud access issue today, but the hearing was put off until next Friday, January 13, to give the parties space for further negotiations amid hopes a deal can be worked out.

The Bahamian provisional liquidators had been due to file legal documents with the court on Wednesday in response to previous submissions by Mr Ray and his attorneys, but they and their legal advisers elected to hold off and give talks a final chance amid concerns that the contents could scupper any prospect of an agreement.

The two sides have been engaged in an increasingly acrimonious battle for control of FTX’s winding-up, restructuring and sale, with Mr Ray’s side sullying The Bahamas’ reputation in multiple public utterances, and unless the conflict is resolved amicably it threatens to drive a series of expensive, time-consuming court battles that work against the crypto exchange’s former clients and creditors.