The Tribune

By LEANDRA ROLLE

Tribune Staff Reporter

lrolle@tribunemedia.net

MORE than $3.5bn worth of digital assets from FTX Digital Markets have been transferred to digital wallets that are now under the control of the Securities Commission of The Bahamas “for safekeeping”, it was revealed last night.

Although the transfer was previously disclosed, the local regulatory body revealed the value of assets under its watch in a statement issued to the press late yesterday following weeks-long speculation and after facing heavy criticism from US debtors over the issue.

In yesterday’s press release, SCB also revealed that it had applied to the Supreme Court seeking directions regarding access to FTX’s records.

Bahamian joint provisional liquidators of the failed crypto currency exchange have been locked in a near two-month long battle with US debtors concerning the former’s inability to gain access to the company’s data.

This latest action comes after liquidators, on December 9, filed an emergency motion with the Delaware bankruptcy court requesting that it order FTX’s new CEO John Ray to grant the necessary access that has been denied since November 12, 2022.

The joint provisional liquidators have argued that without access to FTX Digital Markets’ books and records, they will be unable to fulfill their Supreme Court-ordered mandate to protect assets for the benefit of Bahamian creditors and maintain their compliance with its regulatory obligations.

 “On 29 December 2022, the Securities Commission of The Bahamas announced that it applied for directions from the Bahamian Supreme Court in light of the dispute between the court-appointed joint provisional liquidators (JPLs) of FTX Digital Markets Ltd (FTXDM) and the US Debtors over the JPLs’ rights of access to the records of FTXDM,” SCB said yesterday.

“The Commission requested the court’s direction as to whether information respecting the digital assets in the secure digital wallets established by the Commission may be provided to the US debtors representatives.

 “On the same day, the court entered an order affirming that the Commission may only lawfully provide assistance to a domestic regulatory authority, or overseas regulatory authority.

 “The order further indicated that the JPLs may cooperate with and provide information to the US debtors by sharing with their representatives, in a highly confidential manner, certain information respecting the digital assets being held in the secure digital wallets established by, and under the country of the commission,” the body also said.

 SCB then pointed to an affidavit filed yesterday by its executive director, Christina Rolle, that discloses the full actions taken by the commission in response to FTX’s collapse.

 These actions include the suspension of the company’s registration, freezing its assets, placing FTX Digital Markets into immediate provisional liquidation, among other things.

 SCB also again explained the rationale behind its decision to obtain a Supreme Court order that authorised it to transfer FTX Digital Markets digital assets, worth billions of dollars, to a secure digital wallet.

 It said: “Based on information provided by Sam Bankman-Fried to the Commission concerning the cyberattacks that took place on the systems of FTXDM, the restricted access by the employees of FTXDM to its AWS system, and other available information, the Commission determined that there was a significant risk of imminent dissipation as to the digital assets under the custody or control of FTXDM to the prejudice of its customers and creditors.

 “As a result, in the exercise of its regulatory powers, the Commission requested and obtained a court order to safeguard the digital assets owned by or under the custody or control of FTXDM or its principals by transferring them to secure digital wallets under the exclusive control of the Commission.

 “Accordingly, on 12 November 2022, the Commission, in the exercise of its powers as regulator acting under the authority of an order made by the Supreme Court of The Bahamas, took the action of directing the transfer of all digital assets of under the custody or control of FTXDM or its principals, valued at more than US$3.5 billion, based on market pricing at the time of transfer, to digital wallets controlled by the Commission, for safekeeping.

 “While certain token protocols may require the burning of old tokens and the simultaneous minting of new replacement tokens to effect transfer, in no case, did the process involve the creation of any additional tokens.”

 US debtors’ representatives have accused local regulators of “improperly failing” to publicly disclose information obtained by the commission and other details concerning the digital assets held under its control.

 But Ms Rolle denied this in her latest affidavit, arguing that no impropriety was committed and that an invitation to meet with local officials was sent to their representatives.

 However, she said no response was received.

 “The commission has been advised that it has acted entirely properly and in full accordance within the limitations of its statutory authority by not making material disclosures to the US debtors, their representatives or other private civil litigants who do not fall within the statutory definitions of an ‘overseas regulatory authority’ or ‘designated third party,’ the affidavit reads.

 “The advice received by the commission, however, conflicts with the statements and position expressed by representatives of the US debtors. In the circumstances, the commission is seeking the court’s direction in this regard.

“Moreover, the commission’s respectful adherence to its governing laws by declining unpermitted disclosure to private litigants to date has been entirely proper given the court’s sealing of my previous affidavit(s) and the need for the commission to secure the relevant digital assets from being misappropriated in accordance with its statutory and fiduciary duties.”

 FTX filed for bankruptcy in the United States last month, setting off a whirlwind chain of events which saw The Bahamas headquartered company placed into liquidity.

 Earlier this month, FTX founder Sam Bankman-Fried was arrested after he was indicted in the US.

 He was extradited to New York last week and has since been released on a $250m bond and placed under house arrest at his parents’ home in California.

 According to international reports, Bankman-Fried is expected to be formally arraigned on fraud charges in the US next week.