The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A key financial adviser to FTX's US chief yesterday disputed as "misleading" assertions that some $7.7bn is currently owed to the failed crypto exchange's Bahamian subsidiary.

Edgar Mosley, in testimony before the Delaware Bankruptcy Court as John Rays' team continued their battle with the Bahamian joint provisional liquidators, argued that any sums owed to FTX Digital Markets are "dwarfed" by those due to the failed crypto exchange's 134 affiliates now in Chapter 11 bankruptcy protection in the US.

Asked to explain allegations that the Bahamian liquidation trio had "clouded the title" as to who controlled specific assets, he said: "This $7.7bn that's been referenced by the joint provisional liquidators in a few places, most notably in their interim report, in my opinion is misleading.

"I'm not saying the number is incorrect. I'm saying they're choosing to show only one side of the ledger. In this case, these are amounts transferred from FTX Digital Markets to a debtor. It ignores the fact there are corresponding transfers from the debtors to FTX Digital Markets. It's just stating, and giving a number, and not giving the reader the benefit of the net amount."

Mr Mosley argued that there was "a net inflow" of funds and other assets from the FTX entities now in Chapter 11 bankruptcy protection plus Alameda Research, the private trading arm/hedge fund controlled by embattled FTX co-founder Sam Bankman-Fried that played a critical role in the crypto exchange's November 2022 collapse.

Arguing that the $7.7bn outflow was "dwarfed" by what was injected into the Bahamian subsidiary, Mr Mosley added: "I don't view that as the amount due to FTX Digital Markets. In the interim report it sits in the receivables section, and indicates $7.7bn is owed to FTX Digital Markets by the debtors.

"I view that as misleading. I don't think it's incorrect. I see it as incomplete and purposefully incomplete. That's why I say clouded the title, and somehow FTX Digital Markets is entitled to the assets of the debtors."

Brian Simms KC, the Lennox Paton senior partner, and PricewaterhouseCoopers (PwC) accountants Kevin Cambridge and Peter Greaves, in their first interim report to the Supreme Court revealed they are probing whether $7.7bn was withdrawn from FTX Digital Markets via “legitimate” transactions as they yesterday revealed virtually all countries are represented in its 2.4m-strong client base.

The trio, in particular, said they are examining whether $5.6bn worth of transactions between FTX Digital Markets and other entities in the group, and a further $2.1bn transferred to related parties, were improper or conducted for legal, appropriate reasons.

“The joint provisional liquidators have also identified over $5.6bn in inter-company transfers from FTX Digital custodial accounts to FTX Trading, and $2.1bn in related party transfers from FTX Digital custodial accounts to Alameda. It is possible, however, that these transfers could relate to legitimate withdrawals from the FTX international platform,” they revealed.

Mr Mosley, though, was less sure on key questions that the Bahamian provisional liquidators are seeking answers to so that they can progress FTX Digital Markets' winding-up. He agreed that the question of which FTX clients were customers of the Bahamian subsidiary, as opposed to the FTX US entities, "affects a lot of parts of the case" once it is determined.

And he admitted that Mr Ray and his team, of which he is a part, have not analysed the data in their possession to determine if FTX's international clients had been "migrated" to FTX Digital Markets under the May 13, 2022, "terms of service".

Mr Greaves, testifying for the Bahamian provisional liquidators, argued there were multiple "signposts" indicating this migration to FTX Digital Markets was well underway by the time the crypto exchange collapsed. Besides the $13.4bn that flowed through the Bahamian affiliate's bank accounts prior to the November 10, 2022, failure, there was also the enhanced Know Your Customer (KYC) due diligence required by the Securities Commission of The Bahamas.

Whereas FTX was previously required to keep details on file regarding beneficial owners with a greater than 25 percent equity stake, the crypto exchange's move to The Bahamas in September 2021 required that this be extended to those with a 10 percent stake as per the Digital Assets and Registered Exchanges (DARE) Act.

Mr Greaves said FTX conducted "a telephone campaign to reach out to customers" to obtain the necessary extra KYC data and include that in its files. And the latest "terms of service", he added, made clear that multiple services were to be provided by FTX Digital Markets.

He added that clients even received "pop-up" messages requesting that they send funds to bank accounts in FTX Digital Markets' name, as opposed to Alameda Research. However, the Bahamian provisional liquidators had been prevented from confirming this by Mr Ray and his team.

"I have some evidence of that, but the place I want to look for it, the debtors have denied us access," Mr Greaves told the Delaware Bankruptcy Court.