The Tribune

Payouts included $500k ‘purported donation’, says US-appointed examiner

• ‘Purported donations’ revealed in DOJ-tied probe

• Ex-employee dismisses $1m ‘bonus’ bribe fears

• Exchange hired firm to seek out ‘lax’ regulation

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FTX and its jailed founder, Sam Bankman-Fried, paid $675,000 to “entities affiliated with high-ranking Bahamian government officials and their families”, it was revealed yesterday.

Robert Cleary, the examiner appointed by the US Justice Department trustee to investigate the crypto exchange’s collapse, revealed that one “purported donation” totalled $500,000 as the probe into the multi-billion dollar fraud inched a step closer to the Bahamian political and official elite.

His report, filed with the Delaware Bankruptcy Court, in a section entitled “payments to and contacts with Bahamian government officials”, drew on evidence assembled by Nardello & Co, a global investigations firm that specialises in bribery and corruption-related matters, plus Sullivan & Cromwell, the law firm working for FTX’s US chief, John Ray, to reach its conclusions.

“Sullivan & Cromwell and Nardello also found that the FTX group made several donations to entities affiliated with Bahamian government officials and their families,” Mr Cleary wrote. “For example, the FTX group sent $500,000 as a purported donation to an entity owned by relatives of a high-ranking Bahamian government official.

“In addition, the FTX group donated $175,000 to other entities affiliated with family members of high-ranking Bahamian government officials. Finally, Sullivan & Cromwell and Nardello’s investigation identified other contacts between the FTX group and Bahamian government officials.”

No names or identities were disclosed by the FTX examiner. However, there is no doubt that Mr Cleary, Mr Ray and their teams know who the “entities”, families and “officials” are as the report references that these details came from a Nardello report dated May 13, 2023, which is titled: ‘Issues concerning Bahamian insolvency proceedings involving FTX’.

Also mentioned as a source for the $675,000 payment information is a Sullivan & Cromwell report dated March 15, 2024, and described as a ‘Review of post-petition investigations for examiner’. The information in these documents and Mr Cleary’s report will also be available to the US Department of Justice.

The findings do not distinguish between Cabinet ministers/MPs and top civil servants in employing the term “official”. Nor do they say whether the “government officials” are affiliated with the FNM or PLP. While FTX’s collapse occurred under the Davis administration, the crypto exchange first arrived in The Bahamas - and was licensed - under its Minnis predecessor.

Tribune Business research, using prior Supreme Court reports by FTX Digital Markets’ liquidators, shows 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.

That would have occurred under the Minnis administration just six days before the general election. Former prime minister, Dr Hubert Minnis, could not be reached for comment yesterday but previously told this newspaper he could not recall seeing or dealing with any of FTX’s permit applications during his time in office. “They never reached us,” he said. “They never came before any committee I chaired or sat on.”’

Tribune Business yesterday also reached out to Latrae Rahming, the Prime Minister’s communications director, for comment from the Government but no reply was received before press time last night. However, Mr Cleary, who was previously US attorney for New Jersey and southern Illinois, and acted as lead prosecutor in the

‘Unabomber’ case, said the probe did not stop with the “purported donations”.

“Sullivan & Cromwell, with assistance from Nardello, also investigated other connections between the FTX group and current or former Bahamian government officials, including payments made and other benefits conferred in an apparent effort to secure influence in The Bahamas,” he wrote.

Among the payments scrutinised was the $1m “bonus” paid to “a former Bahamian government official”, then acting as an attorney for FTX Digital Markets, the group’s Bahamian subsidiary, in return for expediting the necessary licences that would permit the crypto exchange to operate in this jurisdiction.

Allyson Maynard-Gibson KC, a former attorney general and ex-minister of financial services and investments, declined to comment last June when asked by Tribune Business whether she was the person involved. “Our firm does not comment on any client nor any matter connected with any client,” she said, referencing the law firm, Clement T. Maynard & Company.

Mr Cleary’s report revealed that Can Sun, the former FTX general counsel who offered the $1m “bonus”, was dismissive and almost scornful when asked if this payment represented a “bribe”. He wrote: “Sullivan & Cromwell determined that this ‘bonus’ was offered to the former government official to secure her assistance in obtaining a necessary license for FTX Digital Markets under the Bahamas’ Digital Assets and Registered Exchanges Act.

“In its investigation, Sullivan & Cromwell developed evidence that, when asked whether these payments could possibly constitute bribes, the FTX group employee who offered the ‘bonus’ dismissed those concerns based on his view that the recipient of those payments was no longer a government official. The former Bahamian government official secured the licence for FTX Digital Markets within six weeks.”

Mr Cleary’s report also singled out Valdez Russell, the former vice-president of communications and corporate social responsibility for FTX Digital Markets, who declined to comment on assertions he may face “potential claims” after purportedly receiving “twice the fees” set out in his employment agreement.

Mr Russell was not named, instead being referred to as “consultant one”, but the job description mentioned by Mr Cleary matches the one he had with FTX. Mr Russell, who has his own firm, VKR Insights, was said not to have replied to requests submitted under US bankruptcy laws by Quinn Emmanuel, a law firm, but it is understood these were passed on to his Bahamian attorneys.

“After the FTX coup moved its operations to The Bahamas, it retained consultant one in May 2021 to facilitate its move,” Mr Cleary wrote. “Consultant one was engaged specifically due to his connections with the Bahamian government.

“In September 2021, he was hired by FTX Digital Markets as its vice-president of communications and corporate social responsibility. Consultant one was successful in facilitating relationships between the FTX leadership and the Bahamian government, and assisted with several property acquisitions in The Bahamas.

“As a consultant, consultant one received twice the fees contemplated in his retention agreement. Though Quinn Emanuel has identified potential claims against Consultant one, such claims would be brought by the Bahamian liquidators pursuant to the settlement agreement with FTX Digital Markets.”

Foreign investors, uncertain about how to operate in The Bahamas, typically reach out to local law firms and Bahamians they feel they can trust to advise them on how to establish business and obtain the necessary approvals. The “potential claims” against Mr Russell were not identified, but appear to imply that some of the fee payments could be subject to claw back.

Meanwhile, also receiving a bonus over FTX’s Bahamas move was XReg Consulting. When the crypto exchange decided to relocate from Hong Kong in 2020, XReg was tasked with coming up with options for a new home, and one of the search criteria was to find jurisdictions that “offered lax regulation of crypto currency”.

“XReg additionally assisted on the acquisition of required business licences in Gibraltar, Cyprus, the UK, Singapore and The Bahamas, among other countries. XReg also drafted FTX Trading’s anti-money laundering policies,” Mr Cleary wrote.

“In total, it received approximately $4m for its services, including a $2.75m bonus upon the completion of FTX Trading’s business licence applications in Singapore and The Bahamas.” The Securities Commission has always argued that the DARE Act placed The Bahamas among the most well-regulated digital assets jurisdictions and enabled this nation to respond quickest when FTX collapsed.

Mr Cleary said Sullivan & Cromwell also probed the $50m loan to Bahamas- based Deltec Bank & Trust that was facilitated by Ryan Salame, the former head of FTX Digital Markets who faced an up to seven-year prison term at his sentencing next week. The loan, he wrote, was provided to ease Deltec’s “capital issues”.

“Sullivan & Cromwell investigated the circumstances surrounding two $50m loans involving Salame, Alameda and two other companies, Deltec International Group and Norton Hall Ltd,” the FTX examiner wrote.

“The investigation concluded that the loans were intended to ameliorate Deltec’s capital issues while ensuring that Deltec would ‘owe’ the FTX Group as a result, and the related promissory notes were structured to conceal Alameda’s role in the loans.

“The investigation further determined that Salame executed one note as a ‘director’ of Norton Hall despite not being a director of Norton Hall, and despite Norton Hall’s director being unaware of the note. Following the investigation the debtors reached a settlement regarding the loans, with Deltec agreeing to pay the value of the loan with interest and the remaining obligation extinguished.”

Mr Cleary also wrote that an investigation by the Quinn Emanuel’s law firm found that Deltec Ban “did not conduct any such inquiries” into the “unusual transactions” between FTX and Alameda Research, the latter being Mr Bankman Fried’s private trading arm.

The FTX examiner also touched on the return on $100m in assets to 1,500 purported “Bahamian clients in violation of the freeze imposed on FTX business by both the Bahamian Supreme Court and Chapter 11 bankruptcy proceedings in the US.

“Sullivan & Cromwell has also investigated certain non-fungible token (NFT transactions that occurred immediately before and on the petition date.,” M Cleary wrote.

“By analyzing withdrawal and trading data from that period, Sullivan & Cromwell found that those NFT transactions were part of a scheme whereby FTX com users, who could not withdraw funds from the exchange after FTX.com froze withdrawals, paid inflated prices for NFTs sold by Bahamian individuals.

“Those Bahamian individuals, who could withdraw funds from the exchange after FTX.com lifted the withdrawal freeze for Bahamian users on November 10, 2022, would in turn withdraw the proceeds from the sales of NFTs from FTX.com.....The debtors continue to assess next steps with respect to the individuals involved in these transactions.”

CORRECTION: The print version of this story had an incorrect headline stating the total sum was $765k. The amount is $675k. We apologise for the error.