The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The private trading entity created by Sam Bankman-Fried, and alleged to have played a key role in FTX’s multi-billion dollar implosion, was based and controlled in The Bahamas despite not being licensed to operate in this jurisdiction.

Brian Simms KC, the Lennox Paton partner, and PricewaterhouseCoopers (PwC) accounting duo, Kevin Cambridge and Peter Greaves, revealed that Alameda Research was effectively operating in this nation illegally out of offices it shared with FTX’s Bahamian subsidiary, FTX Digital Markets.

Referring to their limited co-operation to-date with FTX US chief, John Ray, the trio wrote in their latest report to the Supreme Court: “On February 15, 2023, as part of the co-operation agreement and upon the request of the Chapter 11 debtors, the joint provisional liquidators facilitated access to Alameda devices for imaging by representatives of the Chapter 11 debtors.

“Although not licensed to operate in the jurisdiction, Alameda operated from The Bahamas sharing the FTX Digital Markets offices. In addition to the device imaging, the joint provisional liquidators handed over paper files for Alameda stored in the FTX Digital Markets offices.”

Alameda Research, established by Mr Bankman-Fried, FTX’s founder, as a private investment/trading firm focused on the digital assets industry, is said to have been central to the crypto exchange’s November 2022 collapse. After a series of speculative and risky investments failed to pay off, and Alameda’s financiers and lenders demanded their funds back, FTX client monies were allegedly used to finance these repayments.

Meanwhile, the Bahamian liquidation trio have demanded “the games have to stop” as they seek the Delaware Bankruptcy Court’s approval to have all 134 FTX entities under Mr Ray’s control in Chapter 11 bankruptcy protection named as defendants in their counterclaim to his original lawsuit that sought to deny them access to any assets caught up in the crypto exchange’s multi-billion dollar collapse.

“From the onset of these cases, the FTX Digital Markets defendants have sought to expeditiously advance FTX Digital Markets’ provisional liquidation for the benefit of their tens of thousands of claimants in their proceeding,” the Bahamian liquidators asserted. “They have, however, been forced into a game of whack-a-mole with the counterclaim defendants.

“For instance, when the FTX Digital Markets defendants attempted to enforce the counterclaim defendants’ promise to turn over FTX Digital Markets’ own information in the counterclaim defendants’ possession, that promise disappeared.

“When the FTX Digital Markets defendants attempted to exercise their bargained-for right to initiate a liquidation proceeding for [FTX Property Holdings] to enable the sale of hundreds of millions of dollars of real estate in The Bahamas, the counterclaim defendants proclaimed the exercise of that bargained-for right was an automatic stay violation and instructed their own advisors to sell certain of the properties themselves,” the trio further argued of Mr Ray and his team.

“When the FTX Digital Markets defendants attempted to jointly tee up a legal process to determine account holders’ rights as between the FTX Digital Markets and counterclaim defendants’ estates, the plaintiffs filed this adversary proceeding. The games have to stop.”

Explaining the rationale for naming all 134 FTX entities in Chapter 11 bankruptcy protection as defendants, the Bahamian liquidators alleged: “The FTX Digital Markets defendants have brought these counterclaims to remediate the counterclaim defendants’ seriatim, material breaches of the co-operation agreement fully and finally.

“In order to effectuate complete relief, all parties to the co-operation agreement must be joined as parties to the counterclaims - not just the hand-picked set of entities the counterclaim defendants selected as parties to this adversary proceeding.....

“The additional counterclaim defendants must also be joined to the counterclaims because the FTX Digital Markets defendants cannot be afforded complete relief without them. As described more fully in the counterclaims, the counterclaim defendants have collectively breached the co-operation agreement primarily through counsel, financial advisors and/or Mr Ray acting on behalf of the counterclaim defendants as a consortium,” the trio continued.

“Such breaches included, among other things, interfering with the FTX Digital Markets’ defendants’ efforts to regain control of bank accounts in their name located in the US, withholding FTX Digital Markets’ data from the joint provisional liquidators, trying to seize the Tether Funds, obstructing the proper administration of FTX Property Holdings, and refusing to co-operate with the joint provisional liquidators on restarting the international platform.

“Further, judicial economy weighs in favour of joining the additional counterclaim defendants. If the additional counterclaim defendants are not joined to the counterclaims and it is later revealed that some (if not all) of them participated in the breaches, their absence would, at best, delay the proceedings or, at worst, deprive the FTX Digital Markets defendants of complete relief.”

Mr Simms and the PwC duo are alleging that Mr Ray and his team have breached the two sides’ co-operation by interfering with their recovery of some $45m in stablecoins despite previously agreeing the Bahamian liquidators should take possession of these assets.

The stablecoins, held presently by Tether, represent a potentially key funding source for the FTX Digital Markets liquidation as their value is backed one:one by fiat currency. However, the local trio alleged: “Despite the clear terms of the co-operation agreement, not even a month had passed before the counterclaim defendants made claim to the Tether funds.

“The counterclaim defendants have also recently conceded that they have made efforts to secure the Tether funds for themselves. Due to the conflicting estates’ claims to the Tether funds, and although the joint provisional liquidators have asked representatives at Tether to release them, Tether has not released the Tether funds to the joint provisional liquidators to-date.

“By asserting ownership over the Tether funds, the counterclaim defendants have interfered with the joint provisional liquidators’ execution of their court-mandated duties as the provisional liquidators of FTX Digital Markets’ estate and have breached the co-operation agreement.”