The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An attorney and “former Bahamian government official” was allegedly offered a $1m “bonus” to swiftly obtain the necessary licences so that FTX could move to this nation, it was asserted yesterday.

John Ray, head of the 134 FTX entities in Chapter 11 bankruptcy protection in Delaware, in his second report to the collapsed crypto exchange’s directors, alleged that the unnamed attorney and former “official” obtained the required permits and licences “less than six weeks later” - well inside the ten-week target.

“In moving to The Bahamas, where they incorporated FTX Digital Markets in July 2021, the FTX senior executives sought to minimise any substantive change to or scrutiny of their business,” Mr Ray said in his report, which was filed with the Delaware Bankruptcy Court.

“Thus, for example, on behalf of the FTX group, in July 2021, ‘attorney one’ offered a former Bahamian government official, acting as an attorney, a $1m ‘bonus’ to procure a necessary business license for FTX Digital Markets within ten weeks. The attorney obtained the license less than six weeks later.”

Mr Ray did not identify the “former Bahamian government official, acting as an attorney”. This newspaper reached out to the person who matched the description for comment. After contacting them by phone, and explaining the nature of the inquiry, they said they would call back after dealing with business-related matters.

They then reached out by e-mail, which was copied to their brother, also an attorney, asking that this newspaper submit written questions, a copy of Mr Ray’s report and the deadline for reply - all of which were provided by return e-mail. However, no reply was provided before press time last night, and efforts to contact them by phone, e-mail and What’s App proved fruitless.

There is nothing to suggest that the person in question is guilty of any wrongdoing in relation to their work for FTX, and Mr Ray’s report raises more questions than answers. The nature of the $1m “bonus”, and what exactly that represents, was not fully explained, while the reference to a ‘business licence’ is likely to really mean the licences and permits issued by the Securities Commission of The Bahamas to enable FTX to operate in this nation.

Tribune Business research, using prior Supreme Court reports by FTX Digital Markets’ joint provisional liquidators, shows that the crypto exchange’s Bahamian subsidiary was incorporated on July 22, 2021, and licensed and registered to operate in the Bahamas under the Digital Assets and Registered Exchanges (DARE) Act on September 10 that year - which would have occurred under the Minnis administration just six days before the general election.

However, Mr Ray’s report indicates he still possesses multiple documents and other evidence on FTX’s dealings in The Bahamas that has yet to be disclosed. This newspaper has reported that one of the issues that may give him significant leverage is the identities of the 1,500 “Bahamians” who were able to withdraw $100m from the crypto exchange in violation of local and US freezing orders in the immediate aftermath of its collapse.

The FTX US chief continued his theme of seeking to diminish the role played by FTX Digital Markets. “While [Sam] Bankman-Fried claimed publicly to welcome regulation of the crypto industry, in late 2020, when Hong Kong announced plans to regulate crypto exchanges, Bankman-Fried and the other FTX senior executives immediately sought to leave the jurisdiction,” Mr Ray alleged.

“With assistance from Attorney one, the FTX senior executives sought to move to a country in which they faced less regulatory risk. As Ellison described it in October 2021, the Hong Kong wants cryptocurrency trading platforms to be regulated FTX Group moved to The Bahamas because, with respect to its regulatory environment, The Bahamas was ‘friendly’ and ‘cutting back on red tape’.”

He continued: “Thereafter, FTX Digital Markets sought to open bank accounts in the US in its name. Despite the fact that FTX Digital Markets had no contractual relationship with FTX customers with respect to custody of fiat currency or the payment of fee revenue, FTX Digital Markets claimed in its account opening application that it intended to open both a [c]ustodial’ bank account to process FTX exchange customer funds, and an operating account that would be funded ‘from the parent company and also internal transfers from the [c]ustodial account (fees from customers)’.

“The bank opened the FTX Digital Markets accounts in December 2021. After that date, the FTX group appears to have used the FTX Digital Markets accounts, like other accounts, on a commingled basis for many purposes, including the cycling of money to and from customers to meet withdrawal requests when necessary and various investments, donations and expenditures.

“With respect to customer withdrawals, the FTX group appears to have used the FTX Digital Markets accounts in part as a pass-through vehicle to funnel at least $5.4bn in customer deposits to FTX Trading.” However, Mr Ray also appeared to bolster the case for the Bahamian joint provisional liquidators to take the lead in winding-up the crypto exchange’s $243m worth of real estate investments in this nation.

For he unveiled a chart that appears to confirm FTX Digital Markets, the Bahamian subsidiary, is the immediate creditor of FTX Property Holdings, the latter of which was used to acquire and hold many of the real estate purchases. Some $402m flowed from FTX Digital Markets to FTX Property Holdings to fund the acquisitions, with some three property purchases - all at the One Cable Beach Development - occurring in June 2021 before either company was incorporated.

“At the direction of Bankman-Fried and other FTX executives, the FTX group spent over $243m on real estate in The Bahamas, including multi-million dollar luxury properties for FTX group employees and their friends and family. The FTX group funded these real estate purchases from accounts that held commingled customer and corporate funds,” Mr Ray alleged.

“The FTX group purchased most of this real estate through a subsidiary, FTX Property Holdings, which was incorporated in The Bahamas in July 2021 at the request of Attorney one. Because FTX Property Holdings did not have its own bank account, however, FTX Digital Markets funded the purchases using its operating account in The Bahamas.”

Funds flowed from Alameda Research, Mr Bankman-Fried’s private trading company, into FTX Trading, the US entity controlled by Mr Ray, and into FTX Digital Markets to be passed on to FTX Property Holdings. “FTX Trading made the following six transfers of commingled funds to FTX Digital Markets, which totalled approximately $402m and constituted substantially all funds in the account,” Mr Ray added.

These involved a $2m transfer “on or around September 22, 2021”; a $50m payment “on or around October 6, 2021”; $50m “on or around October 28, 2021”; $100m “on or around December 29, 2021”; $150m on or around March 17, 2022; and $50m “on or around August 9, 2022”.

“Using these commingled funds, at the direction of Bankman-Fried and other senior executives, the FTX group purchased more than 30 properties, including a $30m six bedroom, 11,500 square foot penthouse in the Albany resort community in The Bahamas in January 2022. The property, known as the Orchid Penthouse, was home to Bankman-Fried, Singh, Wang, Ellison and others prior to the FTX group’s collapse,” Mr Ray alleged.