The Tribune

• Crypto exchange told: Main winding-up venue should be this nation

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former FTX senior attorney yesterday alleged that “false statements” were made in legal filings to “diminish” The Bahamas after the crypto exchange was advised this nation should be the main venue for its liquidation.

Daniel Friedberg, ex-chief regulatory officer for FTX Trading, backed assertions by Ryan Pinder KC, the attorney general, and the crypto exchange’s Bahamian provisional liquidators that attacks on this nation by its Chapter 11-appointed US chief were motivated by a desire to establish Delaware as the main jurisdiction and then earn the lucrative fees associated with the winding-up

In an explosive affidavit, filed yesterday in the Delaware Bankruptcy Court, he alleged that Ryne Miller, FTX US’ attorney, informed him that all the crypto exchange’s units - including FTX Digital Markets, the Bahamian subsidiary that managed the international business - “had to” file for Chapter 11 protection to ensure his former law firm, Sullivan & Cromwell, handled the bankruptcy proceedings.

The US law firm, which has acted for FTX US chief, John Ray, since the bankruptcy filings in early November, is facing increasing opposition over its bid to be approved by the Delaware court to continue acting in this capacity. In particular, Sullivan & Cromwell is facing multiple ‘conflict of interest’ allegations given that it previously acted for FTX on multiple occasions prior to its collapse, earning millions in fees, while also representing Sam Bankman-Fried personally.

The US law firm has also been forced to deny Mr Bankman-Fried’s claims that it placed him under “extreme pressure” to file for Chapter 11. Mr Friedberg’s claims will now add further weight to these concerns ahead of today’s scheduled court hearing on Sullivan & Cromwell’s ratification bid. The US law firm’s opponents last night filed an emergency motion seeking to have the hearing adjourned, so it remains to be seen whether it will proceed.

And the affidavit also supports arguments by FTX Digital Markets’ Bahamian provisional liquidators, Brian Simms KC, the Lennox Paton senior partner, and PricewaterhouseCoopers (PwC) accounting duo, Kevin Cambridge and Peter Greaves, that this nation should be the main jurisdiction governing the crypto exchange’s restructuring, winding-up and any asset sales.

Mr Friedberg, in his affidavit, alleged that he resigned within 24 hours of learning that FTX’s international platform, which was being managed from The Bahamas, had a multi-billion dollar hole that meant it was unable to repay all client funds. “On November 7, 2023, certain FTX personnel, including Sam, informed certain executives in The Bahamas of the existence of an $8bn customer deficit with respect to FTX International,” he affirmed.

Subsequent to his resignation, he spoke to Mr Miller to inform him that legal advisers had urged FTX’s reorganisation or winding-up take place outside the US. “On that call, I first informed Mr Miller that we had been counselled by all our other law firms that the bankruptcy filings of FTX International group and the Alameda group should occur outside the US, and likely in The Bahamas or Europe,” he alleged.

“This was in part because of the unnecessary expense of the US bankruptcy system, the situs of the primary regulator (the Securities Commission of The Bahamas), as well as the fact that creditors of the FTX International group were outside the US, amongst other legal issues.

“Mr Miller told me that the bankruptcy filings of FTX International group, the Alameda group, and the FTX.US group had to be in the US because otherwise Sullivan & Cromwell couldn’t do the job.” He also alleged that Mr Miller told him Sullivan & Cromwell was installing its “guy” to run the FTX companies - a seeming reference to Mr Ray, with whom it had worked on the Enron implosion decades before.

“In addition, from Bahamian regulators, I was told that Sullivan & Cromwell refuses to communicate with The Bahamas on this important matter,” Mr Friedberg continued. “This is attributed to the fact that the bankruptcies of the FTX International group and the Alameda group should have been made in The Bahamas, and The Bahamas was the appropriate place of jurisdiction, notwithstanding that Sullivan & Cromwell couldn’t represent those groups in such a proceeding.

“In court filings, it was stated that FTX Digital Markets, the Bahamian subsidiary of FTX International, had no revenue. This is false. Substantially all customers of FTX International were migrated to FTX Digital Markets in May or June of 2022, and all associated revenue moved to FTX Digital Markets at that time. This statement was likely made to diminish the importance of the Bahamian entity and again attempt to establish jurisdiction in the US bankruptcy court.”

While peace has broken out between Mr Ray and the Bahamian provisional liquidators, Mr Friedberg’s affidavit directly refutes prior allegations by the former. “FTX Digital Markets was never the centre of the FTX group,” Mr Ray and Sullivan & Cromwell alleged in prior court filings. “It was nothing more than a short-lived provider of limited ‘match-making’ services for customer-to-customer transactions on the cryptocurrency exchange built, owned and operated by FTX Trading, its immediate corporate parent.

“FTX Digital Markets operated for just under six months, from May 13, 2022, to November 10, 2022. Over 90 percent of customers who used the FTX.com exchange were customers before FTX Digital Markets even became operational. Once operational, FTX Digital Markets never earned a dollar of third-party revenue. FTX Digital Markets was a virtual nullity within the FTX group.”