The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FTX’s implosion was yesterday branded a “dumpster fire” as it was revealed that 25 percent of recovered international digital assets are in the Bahamian Securities Commission’s safekeeping.

John Ray, the crypto exchange’s US chief, outlined what he described as “a Herculean investigative effort” to trace and recover assets during a presentation given to FTX’s unsecured creditors committee on his team’s progress.

Providing an insight into the task also facing the Bahamian joint provisional liquidators, who have control of its local subsidiary, FTX Digital Markets, Mr Ray and his team disclosed that the Securities Commission presently has custody of $426m out of $1.612bn in total digital/crypto assets secured to-date for creditors of its international arm.

The sum held by the Bahamian regulator represents the assets it transferred to its control, in a secure digital wallet, in early November just days after FTX Digital Markets was placed into provisional liquidation by the Supreme Court. The Securities Commission obtained an emergency court Order approving the transfer amid fears that the collapsed crypto exchange was being hacked, and the assets lost or stolen.

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

And his presentation yesterday confirmed that the Securities Commission’s concerns were justified as it suggested that up to $415m worth of digital assets represented “hacked crypto”. Mr Ray said some $323m of his sum was removed from FTX’s international platform, which was purportedly managed and controlled by the Bahamian subsidiary, FTX Digital Markets.

Confirming a “substantial shortfall” in digital assets at both FTX’s international and US exchanges, Mr Ray provided no estimates for how much needs to be recovered to make all creditors whole, although this is likely to run into the billions of dollars.

Referring to the international platform, his team’s release said: “With respect to FTX.com, the FTX debtors have identified approximately $1.6bn of digital assets associated with FTX.com as of the petition date, $323m of which was subject to unauthorised third-party transfers post-petition.” This likely includes the $100m said to have been paid-out to 1,500 purportedly “Bahamian” clients in violation of the Supreme Court and Chapter 11 freezes.

As for the balance, the statement said this includes “$426m which was transferred to cold storage under the control of The Securities Commission of The Bahamas, $742m of which is in cold storage under the control of the FTX debtors, and $121m of which is pending transfer to cold storage under the control of the FTX debtors.”

Mr Ray and his team also warned that creditors are likely to recover a fraction of what is owed to them, adding: “The assets identified as of the petition date are substantially less than the aggregate third-party customer balances suggested by the electronic ledger for FTX.com.”

Of the $1.729bn in total cash recovered to-date, the FTX chief said some $153.2m of this sum was “primarily custodial or other restricted cash” belonging to FTX Digital Markets. The Bahamian subsidiary is under the control of Brian Simms KC, the Lennox Paton senior partner, and PricewaterhouseCoopers (PwC) accounting duo Kevin Cambridge and Peter Greaves, following their appointment as joint provisional liquidators.

Mr Ray, in subsequent legal filings with the Delaware Bankruptcy Court yesterday, described the task he and his advisers face as “monumental” given FTX’s lack of accounting and corporate records, systems and near-total absence of corporate governance. Nevertheless, he argued that “substantial progress” in getting to grips with the collapsed crypto exchange has been - and will continue to be - made.

Voicing sentiments that will likely be shared by the Bahamian provisional liquidators, Mr Ray added: “The advisors working at my direction have worked tirelessly and non-stop for the last 70 days to take control over what can only be described as a ‘dumpster fire’ in order to stop assets from being depleted and to take action to realise value related to the debtors’ assets.....

“The negative impact of the irresponsible actions of the FTX founders [Mr Bankman-Fried and Gary Wang] is difficult to measure. Their actions have complicated the basic tasks that a typical Chapter 11 debtor accomplishes either just before or immediately following the filing of Chapter 11 petitions.

“Among other things, the founder’s actions have put customers and assets at untold risk, they have required round-the-clock policing of blockchain and exchanges to identify, locate, recover and pursue assets, they have required the creation of security protocols to protect located assets, they have required the construction - in many cases from scratch - of reliable financial and accounting books and records, they have required near constant interaction with state and federal regulatory and criminal authorities, and they have required the creation - again from scratch - of best in class corporate governance.”

Mr Ray’s presentation to FTX’s unsecured creditors committee indicated he will abide by the co-operation agreement thrashed out with the Bahamian provisional liquidators following weeks of public acrimony between the two sides. He explained that both parties, together with the unsecured creditors committee, will form a “joint task force” to explore “reorganisation opportunities” for the US and international exchanges.

The sale of FTX’s technology and trading platforms is thought to likely be one of the best recovery sources for the crypto exchange’s investors. Another are its Bahamian real estate holdings, which Mr Ray yesterday valued at a combined $253.1m on “a cost basis”, and said will “be marketed in a joint process with the joint provisional liquidators.

Breaking these purchases down, his presentation said FTX’s 15 properties in Albany have a combined value of $166.1m. Besides the Orchid Penthouse where Mr Bankman-Fried once resided, the crypto exchange also acquired units in multiple Albany Marina Residences complexes including the Honeycomb, Tetris, Charles, Cube, Gemini and Coral.

Split out from the Albany Marina Residences, and given a $12.9m valuation, was The Conch Shack. This was the residence used by Constance Wong, FTX Digital Markets chief operating officer, and other exchange staff, and which features four bedrooms, a theatre room, and swimming pools spread across over 9,000 square feet. It is located some 100 metres from Mr Bankman-Fried’s former penthouse.

Mr Ray’s presentation also valued FTX’s three units in the Venetian Corporate Centre, located on West Bay Street, at a collective $28.8m with the exchange’s five properties at One Cable Beach said to be worth a total $5.9m. Some 12 additional properties, not identified, were valued cumulatively at $39.4m.

However, the Bahamian provisional liquidators previously revealed that FTX had acquired seven units in the GoldWynn project at Goodman’s Bay valued between $563,520 and $1.449m. Further outlays of $17.435m, $9m and $1.8m were made on property at Ocean Terrace, Old Fort Bay and Pineapple House respectively.

“We are making important progress in our efforts to maximise recoveries, and it has taken a Herculean investigative effort from our team to uncover this preliminary information,” Mr Ray added.