The Tribune

• Several offer to return monies to liquidators

• Not all of FTX’s $256m property deals closed

• $21m staff loans pursued; autos set for sale

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FTX’s Bahamian liquidators are “liaising” with local charities and non-profits over the collective $5.4m in donations they received from the collapsed crypto exchange to determine if they still hold any of these funds.

Brian Simms KC, the Lennox Paton senior partner, and the PricewaterhouseCoopers (PwC) accounting duo of Kevin Cambridge and Peter Greaves, in their May 24, 2023, report to the Supreme Court revealed that FTX Digital Markets, the Bahamian subsidiary, made some 95 donations during the almost two years immediately prior to the group’s November 2022 implosion.

“FTX Digital Markets made 95 donations (to the value of $5.4m) to local charities and community organisations in The Bahamas between January 1, 2021, and the insolvency. Some of those charities have written to the joint provisional liquidators to offer the return of funds to the estate. The joint provisional liquidators are in the process of liaising with the charities requesting an accounting of the sums received and confirmation of any remaining balances held,” the trio said.

Tribune Business understands that the FTX Digital Markets liquidators have written to all donation recipients to inquire about how much they received, and if they have spent all the monies. Should they still possess any funds, they have been asked not to spend these.

The $5.4m figure cited is a relatively small sun when set against the billions caught in FTX’s collapse, and it is thought that the Bahamian liquidators have taken no decision as to how they will approach the issue. One possibility is that they may settle just for the return of donations that have not yet been spent, but that remains to be seen.

Elsewhere, the Bahamian liquidation trio blasted the “numerous obstacles and lack of co-operation” placed in the way of progressing FTX Digital Markets’ winding-up by John Ray, head of the 134 FTX entities in Chapter 11 bankruptcy protection in Delaware. They also accused the FTX US chief of halting efforts to secure, and begin realising, the $256m worth of Bahamian real estate assets acquired by FTX prior to its November 2022 collapse.

Noting that “limited progress” has resulted, the FTX Digital Markets trio also revealed that some of the $256m acquisitions had not closed before they were appointed. “The joint provisional liquidators identified 41 properties with a total acquisition price of $256m conveyed in the name of FTX Property Holdings, or in the name of individual employees of FTX Digital Markets,” they informed the Supreme Court.

“FTX Property Holdings did not operate a bank account and, based on a review of the books and records, the joint provisional liquidators have concluded that all property purchases, operating and maintenance costs were financed by FTX Digital Markets prior to insolvency. FTX Digital Markets is potentially the only, or at least the largest, creditor of FTX Property Holdings.”

The Bahamian liquidators said the January 6, 2023, co-operation agreement worked out with Mr Ray stipulated that they would take the lead on winding-up the real estate portfolio - and realising value for FTX creditors and investors - via either a liquidation process supervised by the Supreme Court or other agreed procedure.

“To that end, the joint provisional liquidators prepared the necessary documentation for the issuance of a statutory demand and winding-up petition over FTX Property Holdings,” the Supreme Court report said. “On February 14, 2023, the statutory demand was served on the registered office of FTX Property Holdings.

“Service was objected to by the Chapter 11 debtors as being a violation of the automatic stay, even though the co-operation agreement expressly contemplated a winding-up by the Supreme Court of The Bahamas, and the service of a statutory demand was a condition precedent to such a winding-up.

“While the joint provisional liquidators disagreed entirely with the Chapter 11 debtors’ position on this matter, in the spirit of co-operation the joint provisional liquidators agreed to rescind the statutory demand with the understanding that the debtors would engage in discussions to commence the agreed-upon liquidation proceeding in The Bahamas,” the Bahamian liquidators continued.

“However, since this time, the Chapter 11 debtors have not engaged in discussions regarding the commencement of a liquidation proceeding and limited progress has been made to obtain control over the real estate. The joint provisional liquidators’ intention is to market and sell the properties as contemplated by the co-operation agreement and they will, if necessary, seek the assistance of the Supreme Court to do so.

“Some of the property purchases were not completed at the time of the joint provisional liquidators’ appointment, and the joint provisional liquidators are considering the strategy in relation to these with a view towards maximising recoveries for customers and creditors. The joint provisional liquidators hope to present the strategy for the sale of all the properties and seek the debtors’ agreement for the process to proceed.”

Besides confirming that operational and maintenance costs, including insurance, are current for all the properties, the Bahamian provisional liquidators added that they “continue to preserve the value of the assets held by FTX Property Holdings in The Bahamas.

“The joint provisional liquidators have had discussions with vendors regarding the completion of incomplete property acquisitions, and appropriately credentialled real estate agents, regarding optimal strategies to maximise value from real estate assets. While those discussions have been fruitful, there has been a recent delay triggered by the unannounced interference by the Chapter 11 Debtors in The Bahamas.”

Elsewhere, the Bahamian liquidators said the parents of Sam Bankman-Fried, the embattled FTX founder who is facing multiple criminal charges in New York over the crypto exchange’s collapse, have handed over the multi-million dollar Old Fort Bay home acquired for them “to the control of FTX Digital Markets”.

It was bought using the Bahamian subsidiary’s money, and the report added: “The joint provisional liquidators are assessing the next steps to preserve, maintain and ultimately realise value for the estate of FTX Digital Markets.” Former senior FTX executives and management are also in their sights.

“The joint provisional liquidators have identified that certain employees have received employee loans from FTX Digital Markets,” the trio said. “The company provided $20.9m in loans to six employees related to property purchases, as well as $850,000 to three employees in non-property related loans and salary advances. The joint provisional liquidators are initiating recovery actions in respect of these loans/payments.” None of the former employees were named.

And, while no valuations were published, the Bahamian provisional liquidators said they are planning to shortly seek the Supreme Court’s permission to sell-off FTX Digital Markets’ former vehicles, IT and office equipment. “The joint provisional liquidators have completed the vehicle fleet appraisal process. Valuations have been obtained from two independent appraisers,” they said in their Supreme Court report.

“The joint provisional liquidators require the sanction of the Supreme Court in order to commence selling assets. As substantially all of the motor vehicles, IT and office equipment are depreciating, the joint provisional liquidators are in the process of filing an application for sanction from the court in order to sell these assets.

“The joint provisional liquidators invited offers from local dealerships and bulk equipment purchasers in respect of these assets, and will advertise locally for sale to ensure an appropriate level of price discovery. The joint provisional liquidators continue to insure the company’s vehicle fleet, however, seek to recover a portion of the associated costs at the end of the insurance policy period as vehicles are sold and secured.”

The Bahamian liquidators reiterated that, of the $15bn in fiat currency deposited with FTX Digital Markets by clients, some $5.6bn was transferred to FTX Trading, an entity in Mr Ray’s control, with a further $2.1bn sent to Alameda Research, the private trading vehicle previously controlled by Mr Bankman-Fried. All told, some $7.7bn allegedly flowed out of the Bahamian subsidiary.

“Regrettably, despite the entry into the co-operation agreement, the joint provisional liquidators have faced numerous obstacles and lack of co-operation from the Chapter 11 debtors,” the Bahamian trio alleged of Mr Ray and his team. “In particular, the Chapter 11 debtors have sought to assert interests in and/or claims over ($45m in) US dollar stablecoins which the co-operation agreement expressly provided that the joint provisional liquidators would control.

“The Chapter 11 debtors have also denied the joint provisional liquidators full access to data to which the joint provisional liquidators are entitled pursuant to the co-operation agreement. Further, the Chapter 11 debtors have interfered with the joint provisional liquidators’ efforts to monetise and lead the liquidation process of FTX Property Holdings.

“The joint provisional liquidators’ requests for access to the e-mail, slack chat and google drive messages of FTX Digital Markets employees remains unfulfilled, which in turn is hampering the joint provisional liquidators’ abilities to discharge their fiduciary duties to their estate and stakeholders, including the customers of FTX Digital Markets. It is also unclear whether the AWS data provided by the Chapter 11 debtors is complete.”