The Tribune

• Securities Commission chief hits back at John Ray

• Says guilty of same conduct accusing Bahamas of

• Chapter 11 team ‘casting pall of mistrust over nation’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Securities Commission’s top executive has accused FTX’s US chief of being “in contempt” of the Supreme Court by blocking access to the collapsed crypto exchange’s cloud-stored system and digital assets.

Christina Rolle, its executive director, sought to turn the tables on accusations by John Ray and his team that the regulator and joint provisional liquidators violated the “automatic stay” imposed by the Delaware Chapter 11 proceedings through alleging they were guilty of the same conduct.

She asserted that locking the Securities Commission out of FTX’s systems on November 12-13, 2022, was tantamount to “contempt of court” as it prevented the Bahamian regulator from fulfilling Supreme Court justice, Loren Klein’s, order to secure and protect millions of dollars in assets then under the control of the failed crypto exchange’s Bahamian subsidiary.

Ms Rolle’s accusation, contained in her December 29, 2022, affidavit filed with the Supreme Court, represents the latest salvo in an increasingly acrimonious battle for control of FTX’s global restructuring, sell-off and winding-up between The Bahamas and Delaware.

With both sides seemingly becoming more entrenched in court battles set to play out in this nation and the US, and co-operation between the two sides presently at a minimum, the main losers are likely to be FTX’s one-million plus army of former clients, investors and creditors who are all anxiously waiting to see how much of their assets they will recover.

Ms Rolle’s latest evidence, which sought the Supreme Court’s direction on the extent to which the Securities Commission should co-operate with Mr Ray and his team, as well as to the type of information to be provided, appeared to be an attempt to justify the Bahamian regulator’s actions and push back against allegations that had cast “a pall of mistrust” over this nation and sought to “sully the reputation of this jurisdiction”.

Among the new disclosures in her affidavit were:

• The Securities Commission conducted two examinations under oath of Sam Bankman-Fried, lasting for two-and-a-half and three hours respectively, before the embattled FTX chief was arrested and left The Bahamas to face fraud-related criminal charges in New York over the crypto currency exchange’s collapse. He was arraigned yesterday, where he pleaded not guilty.

• Ms Rolle, fighting back against Mr Ray’s claims that the Government, Securities Commission and Bahamian joint provisional liquidators had all conspired with Mr Bankman-Fried and fellow FTX co-founder, Gary Wang, to transfer digital assets from the crypto exchange as it collapsed, said the regulator had no choice but to work with the duo to protect investors from hacking attempts as they were the only ones who held the “keys” to access them.

The Securities Commission chief also alleged that, when contacted by herself on November 9, 2022, FTX’s Bahamian attorney, Allyson Maynard-Gibson KC, said she was unaware of the turmoil engulfing the crypto currency exchange despite extensive global media coverage of the liquidity crisis that would lead to its collapse within days.

“During the course of the day, the Commission monitored news of the events and considered taking regulatory action with respect to FTX Digital Markets,” Ms Rolle alleged. “I also contacted FTX Digital Markets local external commercial lawyer to ascertain whether she had any knowledge of the events and I requested that she organise a meeting between me and the individuals registered with the Commission.”

This resulted in the meeting where Ryan Salame, head of FTX Digital Markets, the crypto exchange’s Bahamian subsidiary, admitted that assets belonging to clients were being misused through being transferred without their knowledge to Alameda Research, Mr Bankman-Fried’s hedge fund/trading firm, and used to cover its multi-billion dollar debts and losses.

Ms Rolle alleged that the Securities Commission was first warned about the hacking threat to FTX Digital Markets client assets three days later, when it conducted a “sworn examination” of Mr Bankman-Fried that lasted from 12.40pm to 3.08pm. The FTX founder told the regulator that himself and Mr Wang, who subsequently made a plea bargain deal with US prosecutors in which he admitted to several offences, had “spent much of the night trying to move assets out of harm’s way”.

This was corroborated by Brian Simms KC, the Lennox Paton senior partner, who in his capacity as FTX Digital Markets’ provisional liquidator said he had received reports - including information from Mr Bankman-Fried and Mr Wang - informing him of the hacking threat.

This prompted the Securities Commission to seek, and obtain, Justice Klein’s November 12, 2022, court order authorising it to take control of - and transfer - FTX Digital Markets’ client assets to a digital wallet under the regulator’s control for safe-keeping.

“Bankman-Fried and Gary Wang were directed by the Commission to effect the transfer of the digital assets remaining under their control because they possessed the access codes required to effect the transfer of such assets to digital wallets established by the Commission,” Ms Rolle alleged.

“There was no other timely option available to the Commission to achieve compliance with the terms of the order made by Justice Klein. The digital assets transferred under the Commission’s court-authorised regulatory directive to Messrs Wang and Bankman-Fried was effected by transferring such assets to the digital wallets under the exclusive control of the Commission.”

Denying that this process led to the creation of any new digital assets tokens, the Securities Commission chief said the regulator had also requested that $46m in Tether tokens be transferred to its care. This was not done, though, with the Bahamian regulator agreeing that Tether could instead “maintain a freeze over” the tokens until their ownership was resolved given the existence of the Chapter 11 proceedings.

Noting that a further Supreme Court Order will enable the Securities Commission to recover the estimated $631,200 annual maintenance costs associated with the digital wallets containing FTX Digital Markets’ assets, Ms Rolle asserted: “For the avoidance of doubt, at no time has the Commission colluded with any principal, officer or director of FTX Digital Markets, the provisional liquidator or any third party to transfer digital assets owned by or under the custody or control of FTX Digital Markets.

“Upon completion of the transfers, Bankman-Fried and Gary Wang no longer had access to the tokens that were transferred or frozen.” However, Mr Bankman-Fried’s November 13, 2022, e-mail, to Ms Rolle and the Bahamian provisional liquidators was the first indication that Mr Ray and his team had locked them out of the crypto exchange’s cloud-based system.

“If, as reported by Bankman-Fried in his e-mail dated November 13, 2022, that Gary Wang had been locked out of the AWS system, and if such action was accurately attributed by him to representatives of the US debtors, I am advised by counsel for the Commission and verily believe, without waiving privilege, that such conduct could constitute contempt of court in respect of the order made by Supreme Court justice Klein on November 12,” Ms Rolle added.