The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FTX’s Bahamian liquidators are accusing their US counterparts of interfering with a $45m stablecoin recovery and failing to preserve the value of the collapsed crypto exchange’s $241m local real estate empire.

White & Case, the Bahamian trio’s US attorneys, in a March 13, 2023, letter to legal representatives for John Ray, the FTX US chief, asserted that the latter and his team have failed to live up to their obligations under the January 6 co-operation agreement that previously ended open hostilities between the two sides.

While battle recommenced yesterday (see other article Page 1B), those acting for Brian Simms KC, the Lennox Paton senior partner, and the PricewaterhouseCoopers (PwC) accounting duo of Kevin Cambridge and Peter Greaves, also accused Mr Ray’s team of denying the trio access to critical data and messages vital to progressing the winding-up of FTX Digital Markets, the Bahamian subsidiary.

Brian Pfeiffer, of White & Case, cited four instances where Mr Ray and his team had breached their deal with his clients, as he wrote: “Regrettably, while the joint provisional liquidators have lived up to their obligations under the co-operation agreement, the debtors [Mr Ray and his team] have not.” The stablecoins, in particular, are especially valuable because they are backed by, or pegged to, a tangible asset such as fiat currency and are thus readily convertible.

Clause 4 in the January 6, 2023, agreement, which appears to have merely created a temporary ceasefire that lasted for two-and-a-half months, saw both sides agree that the Bahamian provisional liquidators would “be primarily responsible for recovering value from” some $45m worth of US dollar-denominated stablecoins presently frozen in The Bahamas. However, Mr Pfeiffer’s letter accused Mr Ray and his team of meddling and interfering with that recovery effort.

“Despite agreement that FTX Digital is to be responsible for recovering value from the Tether assets in The Bahamas, the debtors contacted Tether’s counsel, Michael Hilliard, and claimed that those assets belong to the debtors and not FTX Digital. This has had the predictable and obvious consequence that Tether has refused to release the assets into the control of the joint provisional liquidators as agreed in the co-operation agreement,” he wrote.

Mr Pfeiffer, on the Bahamian liquidation trio’s behalf, also asserted that Mr Ray, who is responsible for 134 FTX-related entities currently in Chapter 11 bankruptcy protection in the US, was though inaction failing to preserve the value of a major recovery source for the crypto exchange’s investors and creditors - the Bahamian real estate portfolio that was amassed during an estimated $256m spending spree.

Recent filings by Mr Ray’s team placed a $241m value on those assets, but Mr Pfeiffer wrote: “The co-operation agreement is clear that the value in properties owned by Propco (FTX Property Holdings) would be realised by a liquidation proceeding opened in The Bahamas.

“Despite this fact, the debtors have refused to cooperate with the joint provisional liquidators’ efforts to begin this process. As a result, Propco’s assets in The Bahamas are devoid of management, and risk dissipation and depreciation in value.”

Some 35 properties owned by FTX Property Holdings, all located on New Providence, were identified in previous court filings. These included no less than 16 properties at Albany, 15 of which were condominiums, valued between $4.75m and $30m. A further seven units were acquired in the GoldWynn project at Goodman’s Bay, valued between $563,520 and $1.449m.

Another four units, varying in value from $975,000 to $1.54m, were purchased in the One Cable Beach project developed by Jason Kinsale’s Aristo Development. Some $26.34m was spent on acquiring multiple units at the Veridian Corporate Centre developed by Sebas Bastian, with further outlays of $17.435m, $9m and $1.8m on property at Ocean Terrace, Old Fort Bay and Pineapple House respectively.

Meanwhile, Mr Pfeiffer’s letter also suggested that Mr Ray and his team have been less than fully co-operative in providing the Bahamian liquidators with total access to FTX Digital Markets’ cloud-stored data and records, which they control.

“Having agreed to share information, the debtors have failed to make available to the joint provisional liquidators What’s App, Slack, e-mails and other messages passing between employees of FTX Digital and others,” he wrote. “These communications are critical to fully understanding the parameters of FTX Digital’s estate.

“During our meetings on the co-operation agreement, the debtors expressly agreed to provide these communications, but now the debtors have inexplicably reversed their position to do so on the basis of privilege. The privilege in communications by employees of FTX Digital is clearly the privilege of FTX Digital, and not the debtors. Even if joint privilege exists with respect to certain documents the parties entered into a non-disclosure agreement to cover these exact situations.”

Mr Pfeiffer also alleged that Mr Ray and his team were in violation of both parties’ agreement, as set out in the co-operation deal, “to consult reasonably and in good faith” whenever either sought to initiate legal proceedings to recover assets related to FTX’s international platform that encompassed the Bahamian subsidiary.

Citing three occasions where the Chapter 11 companies had failed to abide by this, he wrote: “Despite this, and knowing the joint provisional liquidators’ position that such recovery actions seek the return of FTX Digital customer funds, the debtors have not consulted with us on a single action that has been taken in the Chapter 11 cases for recovery of assets.”

Mr Pfeiffer’s letter came during an exchange of correspondence with Mr Ray’s legal team over the Bahamian liquidators’ plans to seek “directions” from the Supreme Court on how FTX Digital Markets’ wind-up should proceed. As part of the process, they also intend to seek the Delaware Bankruptcy Court’s confirmation that such a move does not violate the asset freeze imposed by the Chapter 11 proceedings and, if it does, to seek the latter court’s relief.

This produced a negative response from Mr Ray’s attorneys, Sullivan & Cromwell, who on March 11, 2023, replied: “We were clear in the co-operation agreement that there could be no deference to Bahamian proceedings on FTX matters in which non-Bahamian stakeholders have an interest, especially in light of the history of why the founders went to The Bahamas in the first place and the harm they caused to non-Bahamians while there.

“The FTX debtors and many of the stakeholders with whom we consult also are concerned with statements by the joint provisional liquidators publicly, and to third parties and government officials outside of The Bahamas, that are uncoordinated and inconsistent with the positions of the FTX debtors, and in many cases appear to be intentionally misleading.

“The co-operation agreement was not intended to condone interference by the joint provisional liquidators with the Chapter 11 cases, almost the entirety of which involves non-Bahamian creditors, non-Bahamian assets and non-Bahamian recipients of avoidable transfers.”

Sullivan & Cromwell did not identify the statements they and Mr Ray are complaining about, or to who they were made. Not surprisingly, Mr Pfeiffer pushed back hard, writing: “With respect to your vague, unspecified and unsubstantiated claim that the joint provisional liquidators have made public statements and statements to third parties or public officials outside of The Bahamas that are somehow false or misleading, we refute this baseless allegation.

“All of the joint provisional liquidators’ statements have been true and correct. While it is certainly true that the joint provisional liquidators may have views that differ from those of the debtors, that does not make them false. This is not the first time that the debtors have made unsubstantiated and false statements about the joint provisional liquidators, the Bahamian court and The Bahamas.”

Mr Pfeiffer said the matters that the Bahamian liquidators were seeking “directions” on, namely exactly who are FTX Digital Markets’ clients among other key considerations, “fall squarely within the jurisdiction of the Bahamas court in relation to a Bahamas-incorporated company in provisional liquidation in The Bahamas”.

Noting that this did not interfere with the Chapter 11 cases, he argued that Mr Ray and his team “either misunderstand or ignore” the features of a Bahamian provisional liquidation including that both foreign and local stakeholders have equal standing. “FTX Digital cannot be forced to have matters that concern its estate to be determined by a foreign US court in a proceeding that concerns the separate estate of FTX Trading,” Mr Pfeiffer wrote.