The Tribune

• Agreement to avoid ‘years of costly litigation’

• Local trio take charge of $256m property sale

• Bahamas, Delaware to create one claims pool

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FTX’s Bahamian liquidators yesterday hailed the settlement reached with their US counterpart as “a landmark breakthrough” that will avoid “years of protracted litigation” which would cost creditors dearly.

Brian Simms KC, the Lennox Paton senior partner, and PricewaterhouseCoopers (PWC) accountant duo, Kevin Cambridge and Peter Greaves, said their agreement with John Ray, head of the 134 FTX entities in Chapter 11 bankruptcy protection in Delaware, will create one unified claims process designed to speed up the return of assets belonging to tens of thousands of creditors.

The two sides, unveiling their long-awaited “global settlement agreement” via joint media releases issued simultaneously at 9am, said the deal is based on combining assets from both estates into a single pool with creditors able to select where they will submit their claim - The Bahamas or Delaware. Double dipping, or submitting claims in both jurisdictions, will not be permitted.

The agreement, which has to be approved by both the Supreme Court and Delaware Bankruptcy Court, will see the local trio “take the operational lead” in seeking to recover assets for creditors and investors via the sale of $256m worth of high-end Bahamian real estate acquired by FTX in developments such as Albany, GoldWynn and One Cable Beach.

And Mr Simms and his PwC colleagues will also be “pursuing specific litigation and avoidance actions” under their agreement with Mr Ray in a bid to further maximise recoveries for creditors. Included among these targets are likely to be the 1,500 “Bahamian” investors who collectively got $100m out at the time FTX collapsed, which violated both Supreme Court and Chapter 11 asset freezes.

All fiat cash and digital/crypto asset holdings belonging to former investors will be valued based on their worth at the time of FTX’s multi-billion dollar implosion on November 10-11, 2022. Both the Bahamian liquidators and Mr Ray are to file the necessary papers with their respective courts, seeking judicial approval for their agreement, by January 10, 2024.

Mr Simms, in a statement, said: “We are pleased, subject to court approval, to have resolved the adversarial litigation proceedings regarding the disputes between the two estates which raised novel and difficult legal issues in the largest digital asset cross-border insolvency to-date.

“In the absence of this resolution, the two estates and their customers would have faced years of protracted litigation and expense without a prospect of an early dividend. This positive outcome will allow the international customers of FTX to submit their claim and receive a dividend in The Bahamas if they so wish.”

His colleague, Mr Greaves, added: “This continues to be an exceptionally complex insolvency with a myriad of jurisdictional, technical and practical challenges to work through.

“For the millions of customers of the FTX group, based across 230 jurisdictions, this is a landmark breakthrough allowing for collaboration in the monetisation of assets and the adjudication of customer claims, with an approach that provides a roadmap to accelerate the return of funds to customers.”

A spokesperson for FTX’s Bahamian liquidators declined further comment. However, the failed crypto exchange’s creditors and investors will be hoping that the ‘second coming’ of their agreement with Mr Ray will hold - and prove far more beneficial to all concerned - than the first version that was signed by both sides on January 6, 2023.

That fell apart in little over two months, triggering a Delaware courtroom fight in which Mr Ray moved to deny the Bahamian liquidators access to any assets caught in the crypto exchange’s multi-billion dollar collapse.

He made clear his intent to seize control of liquidation proceedings by describing FTX Digital Markets, the Bahamian subsidiary, as an “economic and legal nullity” that served merely as an “offshore front” to enable Sam Bankman-Fried and his closest associates to channel proceeds from their purported fraud away from US regulatory oversight. This, though, was heavily contested and opposed by the Bahamas trio.

Yesterday’s agreement means that all these legal battles fall away and disappear, much to the relief of creditors and all concerned. Mr Ray and his Bahamian counterparts will now be free to focus on implementing their agreement, establishing claims processes and adjudicating sums demanded by creditors and, ultimately distributing and returning assets to their rightful beneficial owners.

“The global settlement agreement is another critical milestone for the FTX debtors,” said Mr Ray in his own statement. “The unique challenges raised by the conflicting filings of the FTX debtors and FTX Digital Markets have been some of the toughest the team has faced.

“But we recognised at the beginning that we have an overlapping constituency: FTX.com customers. I am thrilled to have achieved a settlement so clearly in customer interests, one that also respects the important role to be played by the joint official liquidators and The Bahamas in the global recovery effort.”

Some observers, though, will likely wonder why the two sides could not have reached this position with their initial January agreement rather than become tied-up for a further 11 months in costly legal battles that only heaped additional costs on both the Bahamian and Chapter 11 estates.

The two sides will now “pool assets and co-ordinate the establishment of reserves, and the timing and amount of distributions” so that FTX creditors “receive substantially identical relative distributions at substantially identical times” in both the Bahamian and Delaware claims proceedings. Creditors will have to decide the jurisdiction where their claims will be paid by the 2024 second quarter.

“All customers of FTX.com, other than insiders and certain excluded customers against whom the FTX debtors have pending or potential claims, will have the opportunity to elect whether to have their claims reconciled and paid in the liquidation proceeding for FTX Digital Markets in The Bahamas or in the Chapter 11 cases of the FTX Debtors,” FTX Digital Markets said yesterday.

“The parties intend that this election by customers will not have material economic consequences for holders of claims. FTX.com customers will be required to elect to file their claim either against FTX Digital Markets or the FTX debtors, and shall not be permitted to file the same claim in both proceedings, releasing their claims in the proceeding that is not elected.

“Eligible FTX.com customers that do not make any election will have their claims reconciled and paid in the Chapter 11 cases.” The agreement is similar to that outlined by the Bahamian liquidators in their third report to the Supreme Court last month, where they said the arrangement will result in equal treatment for FTX Digital Markets’ near-53,000 creditors.

Given that the majority of FTX’s client base was non-US based, it remains likely that the majority of claims could be made against the Bahamian estate. “The basis of the global settlement being discussed is that the parties agree to a plan that treats FTX Digital Markets customers no less favourably (when taken as a whole) than the class of FTX.com customers,” the Bahamian liquidator trio wrote.

“This requires a mechanism through which assets can be notionally pooled and allocated between estates and claims determined. Based on the liquidators’ assessment, the assets and liabilities of the debtors [Chapter 11 estate] and the FTX Digital Markets estate are so commingled that it is difficult or impossible to unravel.”

“The liquidators believe the pooling of customers and creditors of FTX Digital Markets to be in the best interests of the estate... The liquidators are of the view that, given the costs and risks of the extant litigation, considering a compromise with the debtors which would allow distributions through a process in which customers and creditors can either prove in the US or The Bahamas is in the best interest of the estate.”