The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Some $13.4bn flowed through FTX's Bahamas accounts in the ten months immediately prior to the crypto exchange's collapse, its liquidators revealed yesterday, as they sought to dispel allegations it was "a nullity".

Brian Simms KC, the Lennox Paton senior partner, and PricewaterhouseCoopers (PwC) accounting duo, Kevin Cambridge and Peter Greaves, asserted in filings with the Delaware Bankruptcy Court that there was "clear evidence" to refute assertions by John Ray, head of the 134 FTX entities in Chapter 11 protection, that the Bahamian subsidiary was a "short-lived" provider of services to the wider group.

The joint provisional liquidators' filings, contained in a pre-trial Order ahead of today's hearing before Judge John Dorsey, assert that FTX Digital Markets was much more than a "mere 'service provider'" given that it been providing credit facilities worth up to $20m to investor clients in the weeks immediately prior to the group's early November 2022 collapse.

The latest disclosures come as the Bahamian trio today seek the Delaware court's confirmation that they will not violate, or enjoy a waiver from, the worldwide asset freeze that was imposed when the 134 entities were placed into Chapter 11 bankruptcy protection before the Delaware courts. FTX Digital Markets was not included in these companies as it had already been placed into liquidation under the Bahamian Supreme Court.

Their application is being opposed by Mr Ray, who has consistently argued that their actions have - and will - interfere with the Chapter 11 cases amid the ongoing jurisdictional battle for control between himself and The Bahamas. The joint provisional liquidators say Delaware's confirmation is critical to making progress in the Bahamian liquidation as they need the Supreme Court to determine who their customers are and if assets were held on trust or belonged to FTX.

Moving to counter Mr Ray's claim that FTX Digital Markets was "a legal nullity", the Bahamian trio asserted: "Between November 2021 and June 2022, FTX Digital Markets opened bank accounts in its name that were used to receive and send fiat currency from and to FTX.com users.

"From January 20, 2022, through November 12, 2022, the FTX Digital Markets accounts maintained in FTX Digital Markets' name had receipts of $13.4bn and outflows of the same amount. From January 20, 2022, through October 31, 2022, the institutional FTX.com user account in FTX Digital Markets' name had receipts of $9.2bn and withdrawals of $8.9bn, clearly evidencing that FTX Digital Markets' accounts were being used to deposit and withdraw fiat to and from their accounts on FTX.com."

FTX.com was the crypto exchange's international platform, and the Bahamian provisional liquidators alleged that its embattled co-founder, Sam Bankman-Fried, and his fellow senior executives planned to "migrate" its customers to FTX Digital Markets after arriving in The Bahamas in late 2021. Users were to accept "new terms of service", and the migration completed by 2023, with all 'institutional' users switched over by the 2022 second quarter.

"High volume institutional users were to be migrated under the migration plan by the 2022 first quarter, other institutional users by the 2022 second quarter, 'low risk' (users with low know your customer (KYC) risk profiles) individual users by the 2022 third quarter, and 'medium risk' and 'high risk' individual users by the 2022 fourth quarter and 2023 first quarter, respectively," the Bahamian provisional liquidators said.

"Explicit in the migration plan is that users’ entire experience would be controlled and overseen by FTX Digital Markets.... The 2022 terms of service provide that FTX Digital Markets is the contractual counterparty for FTX.com users in respect of nearly all digital asset product lines offered on FTX.com, being spot market; spot margin trading; over-the-counter/off-exchange portal; futures market; volatility market (options contracts).

"These services make up approximately 90 percent of the trading on the FTX.com platform. As a result of the clear evidence of intention of both FTX Trading and FTX Digital Markets to migrate FTX.com users to FTX Digital Markets, and consistent with the migration of 90 percent of trading to FTX Digital Markets, FTX Digital Markets was also the obligor (party owing obligations) under the accounts provided to FTX.com users on the international platform."

The Bahamian provisional liquidators continued: "If an FTX.com user accessed his or her account on or after May 13, 2022, FTX Digital Markets became the contractual counterparty for that customer on FTX.com in respect of 90 percent of the services provided on FTX.com and as obligor in respect of the accounts of FTX.com users.

"Any new international customers who registered with FTX.com after May 13, 2022, became customers of FTX Digital Markets with respect to most of the services offered on FTX.com. FTX Digital was being recognised by the FTX.com users in more than its capacity as a mere 'service provider' because it was the contract counterparty to certain external documents, which were traditionally signed by FTX Trading.

"For example, FTX Digital Markets began providing lines of credit to international customers ranging between $250,000 and $20m." This, though, has not made much impression on Mr Ray and his team, who previously alleged: "FTX Digital Markets was no 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.

"Over 90 percent of customers who used the FTX.com exchange were customers before FTX Digital Markets even became operational in May 2022 and, once operational, FTX Digital Markets never earned a dollar of third-party revenue. FTX Digital Markets was an economic nullity within the FTX group.....

"The joint provisional liquidators inherited the corporate shell that Mr Bankman-Fried and his co-conspirators built to harbor their fraudulent enterprise in The Bahamas, and now use it to continue the jurisdictional battle. In doing so, they continue to cast confusion over the true ownership of the debtors’ property and waste the debtors’ assets in the process."