The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FTX Bahamas’ liquidators have agreed to use “commercially reasonable efforts” to ensure some $426m worth of digital assets held by the Securities Commission are transferred to their US counterparts.

This is among multiple measures in the “global settlement agreement” that Brian Simms KC, the Lennox Paton senior partner, and PricewaterhouseCoopers (PwC) accounting duo Kevin Cambridge and Peter Greaves, have struck with John Ray, head of the 134 FTX entities in Chapter 11 bankruptcy protection in Delaware, to end an acrimonious year-long legal battle that delayed investor recoveries.

Other terms in the deal, filed by Mr Ray and his team yesterday with the federal Delaware Bankruptcy Court, require the FTX US chief “to assist” the Bahamian trio in recovering $143.2m in cash that was seized by the US Justice Department from accounts belonging to the local subsidiary that they have oversight responsibility for.

That sum, which was in FTX Digital Markets’ name, would provide both a significant source of recovery for creditors as well as finance the liquidation’s expenses. Mr Simms and his PwC colleagues, in their third report to the Supreme Court last month, revealed that the $86.2m in cash balances inherited by the Bahamian liquidators on November 14, 2022, have since reduced by 45.5 percent to $47m at end-October 2023.

Most of the reduction is attributed to the combined $34.5m paid to the liquidators ($22.2m) and their advisers ($12.3m), as approved by the Supreme Court to cover their costs. However, Mr Ray and his team have agreed “no later than January 29, 2024” to provide the Bahamian liquidators with an unspecified loan to enable FTX Digital Markets to pay its administrative expenses.

Their deal also establishes a process “for the prompt cash sale” of $256m in high-end Bahamian properties that the failed crypto exchange acquired in developments such as Albany, GoldWynn and One Cable Beach prior to its implosion. The disposal will be governed by a “properties exclusive sales agency agreement”, with FTX Digital Markets allowed to submit a claim for $256.291m.

And, as part of efforts to monetise assets for the benefit of tens of thousands of former FTX customers and creditors, the agreement between Mr Ray and the Bahamian liquidators stipulates that there is to be a “prompt transfer of digital assets held by the Securities Commission of The Bahamas”.

“FTX Digital Markets shall use commercially reasonable efforts to obtain the return of the digital assets held by the Securities Commission of The Bahamas. Upon such return, FTX Digital Markets shall transfer all such digital assets to the debtors (Mr Ray),” the agreement states.

The Bahamian capital markets regulator transferred digital assets to a secure digital wallet under its control in early November 2022, just days after FTX Digital Markets was placed into provisional liquidation by the Supreme Court. It obtained an emergency court Order approving the transfer amid fears that the collapsed crypto exchange was being hacked, and the assets were about to be lost or stolen.

The regulator’s action came under fire from Mr Ray, who initially alleged it was evidence of “collusion” between the Bahamian authorities and FTX’s disgraced co-founder, Sam Bankman-Fried. However, he was later quoted in a statement confirming that the Securities Commission had acted properly in safeguarding assets for the benefit of creditors.

Meanwhile, yesterday’s agreement also requires Mr Ray to co-operate with the Bahamian liquidators’ efforts to recover the multi-million dollar sum seized by the US Department of Justice from FTX Digital Markets’ bank accounts in late 2022.

“Each party shall co-operate and use commercially reasonable efforts to assist... the other party in the prompt realisation of assets allocated to the other party, including with respect to the transfer of the disputed digital assets, the release of the Department of Justice seized funds to FTX Digital Markets’ estate and in monetising the Bahamas properties,” the agreement states.

The Bahamian liquidation trio have previously confirmed they were negotiating with the Department of Justice for the $143.2m’s return, and were even contemplating legal action against the US federal government institution if talks did not result in a fruitful outcome.

The only mention in the latest report, dated November 10, was that the Supreme Court authorised the liquidators to continue talking to the US Justice Department “in relation to the funds in bank accounts in the US in the company’s name that have been seized.. and, if so advised, issuing proceedings in the US against the Department of Justice for the release of said funds”.

Seemingly recognising the issues this has created, Mr Ray and his team have agreed to provide their Bahamian counterparts with loan financing. “The debtors agree to provide FTX Digital Markets with the advance Digital Markets loan as soon as reasonably practicable following the initial settlement effective date, but no later than January 29, 2024,” the agreement stipulates.

“FTX Digital Markets shall apply the proceeds of the allowed Digital Markets loan solely to pay administrative expenses.” The initial settlement date is defined as the day when both the Supreme Court and the Delaware Bankruptcy Court have approved the two sides’ settlement agreement.

While no figure is mentioned for the loan, an annex to the settlement agreement mentions $78m “to be transferred to FTX Digital Markets”, and sets out a formula for how it is to be repaid. Also listed among the assets to be allocated to the Bahamian subsidiary and its liquidators is the ‘Blue Water’ property at Old Fort Bay that was allegedly acquired using FTX monies as a home for Mr Bankman-Fried’s parents.

Elsewhere, both sides are to work together to facilitate “joint claims hearings” by the Supreme Court and Delaware Bankruptcy Court. “The Debtors shall, at the request of FTX Digital Markets, take all commercially reasonable actions as may be reasonably appropriate or necessary to request that the Bankruptcy Court conduct one or more joint claims hearings with the Bahamas court,” the agreement says.

The Bahamian liquidators and Mr Ray are also required to submit all necessary legal filings seeking approvals for their agreement from the Supreme Court and Delaware Bankruptcy Court by January 10, 2024. As for the Bahamian real estate, the FTX US chief has committed to “object to and contest any and all claims” made against them in the Chapter 11 proceedings.

The only claims that will be superior to FTX Digital Markets’ in relation to the Bahamian real estate will be those dating from before early November 2022 when the crypto exchange was placed into then-provisional liquidation in this nation and Chapter 11 protection in the US.