The Tribune

• FTX creditor group blasts Ray's attacks on nation

• He, Bahamian JPLs 'not playing nicely in sandbox'

• Call for 'cross-border protocol' with Supreme Court

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An FTX creditor/investor group yesterday leapt to The Bahamas defence by branding claims that the Government was "in cahoots" with Sam Bankman-Fried as "shockingly inappropriate".

This nation, and the Bahamian provisional liquidators for FTX Digital Markets, appeared to gain some friends in the battle for jurisdictional control of the collapsed crypto currency exchange's fate as the group called for the creation of a "cross-border protocol" with the Delaware Bankruptcy Court to address all further legal and other disputes.

Conceding that Brian Simms KC, the Lennox Paton senior partner, and the PricewaterhouseCoopers (PwC) accounting duo of Kevin Cambridge and Peter Greaves, "do not seem to be 'playing nicely in the sandbox'" with FTX US chief, John Ray, the group said the crypto exchange's creditors were "paying the price" for the two sides' battles through legal fees and wasted time that is reducing potential asset recoveries for themselves.

Asserting that the fight between the Bahamian joint provisional liquidators and Mr Ray, who controls 134 FTX entities, is "no longer productive or cost efficient", the group's filing with the Delaware Bankruptcy Court also backed the bid by Mr Simms and his colleagues to lift - or otherwise gain relief from - the worldwide asset freeze imposed by the US Chapter 11 bankruptcy protection proceedings.

Describing themselves as an "ad-hoc group" of FTX creditors and former customers, they argued that the Delaware Bankruptcy Court should pay no attention to Mr Ray's frequent attempts to trash The Bahamas and its handling of the crypto exchange's collapse by suggesting the Government, Securities Commission and joint provisional liquidators were in collusion with Mr Bankman-Fried.

"The debtors not so veiled allegation in their complaint against FTX Digital and the joint provisional liquidators - that the Bahamas government was in cahoots with Sam Bankman-Fried and is, therefore, an untrustworthy forum to address FTX-related issues - is shockingly inappropriate and is the type of 'battling' this court should not countenance," the group argued.

"Equally concerning is the apparent willingness of the debtors to violate this court’s recognition order in the FTX Digital Markets Chapter 15 case, and a key standing doctrine in the United States that requires leave of the court to sue a fiduciary appointed by such court."

The Securities Commission has previously argued it had little choice but to engage with Mr Bankman-Fried, and his close associates, to safeguard some $456m in digital assets from potential hacking and losses because they were the only ones who possessed the keys to the digital wallets where they are stored.

While questions remain over the identities of the 1,500 "Bahamians" who were able to extract a combined $100m from FTX's platforms, despite the existence of asset freezes in both The Bahamas and US, the "ad-hoc" investor/creditor group backed the joint provisional liquidators' bid for relief from the Chapter 11 stay.

The group, which is different from FTX's "official committee of unsecured creditors", which is backing Mr Ray, argued that the Supreme Court in The Bahamas should address all non-US legal issues. "Given the Bahamas court’s relative expertise in Antiguan and/or UK law, it seems an enormous waste of the estates’ resources and this court’s time to become as knowledgeable on these non-US law issues as is the Bahamas court," they argued.

"While the debtors would very much like to control both these Chapter 11 cases and the provisional liquidation proceedings, they must accept the fact that two sets of insolvency cases must be able to proceed simultaneously in as expeditious a manner as possible. Perhaps one solution is for the Bahamas court to use its expertise to make findings of fact and conclusions of law that would be deemed by this court similar to a magistrate’s recommendations.

"In any event, it is clear that there must be a protocol established in these cases between the Bahamas court and the [Delaware] Bankruptcy court so that future disputes among the parties as to jurisdiction, process and legal authority in both the Chapter 11 and Chapter 15 stays can be avoided," the group added.

"Simply punting these issues down the road, as the parties did in the co-operation agreement by reserving all rights and essentially agreeing not to agree, is no longer productive or cost-efficient. Moreover, as the joint provisional liquidators point out in their motion to dismiss, the co-operation agreement mandates, among other things, that the debtors and the joint provisional liquidators must 'work together in good faith to determine ownership of assets that are subject to competing claims'.

"A two-court protocol would clearly further the spirit of that provision and the purpose of of the co-operation agreement." The FTX "ad-hoc" group also agreed with Mr Simms and the PwC duo that multiple issues need to be resolved before FTX can reach the stage of a Chapter 11 reorganisation plan.

The Bahamian trio have consistently argued that key questions yet to be answered are the identities of FTX Digital Markets' customers, and who was migrated to it from the crypto exchange's international platform prior to the November 2022 collapse, and whether - and which - assets belong to the company or investors/clients. However, they allege that Mr Ray, who controls 134 FTX entities in Chapter 11 bankruptcy protection, responded by initiating litigation.

"Despite the co-operation agreement, the debtors and the joint provisional liquidators do not seem to be 'playing nicely in the sandbox', and the customers and creditors of the debtors are paying the price both in wasted effort and estate legal fees," the FTX creditor group asserted. "There can be no serious objection to creating a two-court protocol between this court and the Bahamas court so that issues regarding jurisdiction and process do not further hold up both sets of cases.

"As the joint provisional liquidators point out, such protocols are regularly approved in cross-border cases, and some prior protocols have included provisions permitting both courts to hear and concurrently adjudicate key issues in the cases. The fact that the debtors do not like that FTX Digital Markets became subject to provisional liquidation proceedings in The Bahamas before these Chapter 11 cases were commenced is no reason for refusing to create solutions to address the cross-border nature of these proceedings.

"Other questions regarding the nature, ownership and control of customer deposits, interpretation of the various Terms of Service, substantive consolidation of the debtors (and perhaps non-debtor) entities, and competing claims to assets, to name a few, are going to arise before these cases are completed, and the estates should not be forced to go to battle each time either the debtors or the joint provisional liquidators assert their fiduciary duties," the filings added.

"The ad-hoc group strongly suggests that a cross-border protocol be established so that these jurisdictional disputes no longer disrupt both proceedings. A two-court protocol will enable the parties to work together, benefiting all creditors of all the estates and assisting the two courts in their efforts to resolve the cases before them."