The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

THE new ownership of FTX has accused the joint provisional liquidators (JPL) in The Bahamas of conspiring with the Securities Commission of The Bahamas (SCB) in hiding $300m in assets during the liquidation process.

FTX, along with the committee of unsecured creditors to FTX, filed an objection to the JPL’s bid for emergency relief from an automatic stay for the sale of FTX’s assets - along with objecting to the request for the company to turn over its electronic records. FTX claims that $300m was taken by the SCB, which JPLs now have control over and seem to be “cooperating closely to do an end run around” the Chapter 11 proceedings in the Delaware Court.

In court documents filed before the New Year, FTX’s “debtors in possession” - essentially the company’s new ownership and leadership headed by John Ray, along with the committee of unsecured creditors to FTX - filed a formal objection to JPLs Brian Simms, Peter Greaves and Kevin Cambridge’s bid for relief from a stay of the sale of assets owned by the company, currently undergoing a Chapter 11 bankruptcy proceeding in the US.

FTX’s ownership also objects to the transfer of electronic documents that would assist the JPLs in their separate liquidation proceedings simultaneously underway in the Bahamas Supreme Court over the collapsed cryptocurrency exchange.

The court documents state: “First, the Motion to Compel is premature. This Court has neither recognised the provisional liquidation of FTX Digital Markets Ltd. (“FTX DM”) as a foreign proceeding, nor recognised Messrs Simms, Cambridge, and Greaves (the “JPLs”) as foreign representatives. Chapter 15 of the Bankruptcy Code (“Chapter 15”) requires both. Only ‘upon recognition of a foreign proceeding’ are the foreign representatives ‘entitled to participate as a party in interest in a case regarding the debtor under this title.’ 11 USC § 1512. The Motion to Compel puts the cart before the horse. Recognition must be addressed first. Until recognition, the JPLs are not parties in interest.

“Second, the Motion to Compel is premised on inaccurate factual assumptions regarding the ownership of the materials sought by the JPLs. The JPLs make no showing, prima facie or otherwise, that any of the materials sought through the Motion to Compel are assets of FTX DM. They are not. The materials are resident within computer architecture that is property of the Debtors. FTX DM has no contractual right to any of these materials or access to the architecture. Thus, the Motion to Compel is not a motion to compel the Debtors to turnover FTX DM property to the JPLs. Instead, it is a motion to compel the production of information owned by the Debtors only available through discovery. As to such discovery, the Debtors have objections to the breadth of the requests, the relevance of the requests, and the unreasonable burden the requests would impose on the Debtors. Notwithstanding the JPLs’ lack of any right to the materials demanded, the Debtors have made a good faith proposal that should resolve the pending dispute, as described below, to provide documents and information to the JPLs relating to FTX DM and the services it provided.”

They further argued that the motion to compel is based on “inaccurate factual assumptions” about FTX DM in that it was never the centre of the FTX Group and was “virtually a nullity” in the FTX Group and essentially served as a match-maker for the group.

The court documents also said: “The objections are premised on, among other things, clear evidence that (a) nearly $100m of the Debtors’ cryptocurrency assets were released to account holders identified as Bahamian residents during a 25.5-hour period that began on November 10, 2022, the day that the PL was commenced, and continued to midday on November 11, 2022, the day that these Chapter 11 Cases were commenced, during which time Mr Simms was in control of FTX DM, and (b) on November 11 and November 12, 2022, digital assets located in digital wallets of the Debtors, worth at the time approximately $300m, were taken by some combination of the SCB, Mr Simms, Mr Bankman-Fried, and Mr Wang. Allowing the withdrawals and taking the digital assets both violated the automatic stay. Those purporting to be foreign representatives who have, without explanation, either violated the automatic stay or aided and abetted violations of the automatic stay by others, are not entitled to recognition. Discovery, both documentary and depositions, as well as an evidentiary hearing will be required. A schedule for discovery and trial will need to be approved by the Court.”

It continued that “the stunning press release issued late yesterday, on December 29, 2022, by the SCB, along with certain related materials, is a game changer. The press release (and the supporting affidavit of the Executive Director of the Commission) boldly admits that the Commission violated the automatic stay in taking certain of the Debtors’ digital assets and then recklessly values the assets taken at $3.5bn, the disclosures demonstrate conclusively that the JPLs and the Commission are cooperating closely to do an end run around this Court and Chapter 11”.