By NEIL HARTNELL
Tribune Business Editor
The Supreme Court yesterday approved the Securities Commission’s bid to relegate its $221.55m claim against FTX behind those of the insolvent crypto exchange’s clients and other victims.
The digital assets regulator, in a statement, said Justice Loren Klein had given his blessing to its agreement with the three liquidators for FTX Digital Markets, the crypto exchange’s Bahamian affiliate, “to subordinate” its regulatory claim in favour of the interests of all other creditors.
The Securities Commission said the deal “enables the reprioritisation of the payment of all customers and other creditors of FTX Digital Markets, including any interest due to FTX Digital Markets customers, ahead of the Commission’s” own claim which consisted of penalties and sanctions levied against the crypto exchange for breaches of Bahamian law and regulations.
The laws breached included the Digital Assets and Registered Exchanges (DARE) Act and the Financial Transactions Reporting Act.
Christina Rolle, the Securities Commission’s executive director, told Tribune Business in November 2024 that the impending deal with FTX’s Bahamian liquidator trio was an “appropriate” position to take as the first priority was to make former customers and other creditors of the fraud-destroyed crypto exchange “whole” through the recovery of all that is owed to them.
The negotiations over the Securities Commission’s mammoth claim, which represents penalties and sanctions levied against FTX for breaching anti-money laundering and terror financing regulations, were revealed in a report filed with the Supreme Court that month by the joint liquidators for the crypto exchange’s Bahamian subsidiary.
Brian Simms KC, the Lennox Paton senior attorney and partner, and the PricewaterhouseCoopers (PwC) accounting duo of Kevin Cambridge and Peter Greaves, who are overseeing the winding-up of FTX Digital Markets, disclosed that the talks with the Securities Commission have focused on the latter “subordinating” its claim and standing behind other victims in the creditor payout queue.
“On August 15, 2024, the Securities Commission submitted a proof of debt in the FTX Digital Markets liquidation for a claim value of $221.55m representing the regulatory penalties imposed by the Securities Commission for FTX Digital Markets’ statutory compliance breaches,” the liquidator trio revealed.
“The joint official liquidators are in ongoing discussions with the Securities Commission regarding the potential subordination of the Securities Commission’s asserted regulatory claim to claims by other customers and creditors, including interest on such claims. Further, to direct any proceeds in respect of such asserted regulatory claim, if any, to the Supplemental Remission Fund to be established by the Chapter 11 debtors.”
That is understood to be a fund which, once established by John Ray in his capacity as head of the 134 FTX entities in Chapter 11 bankruptcy protection in Delaware, would receive monies due not just to the Securities Commission but other global regulators with claims against the crypto exchange. These monies would then first be used to further compensate victims of its November 2022 implosion.
Ms Rolle, yesterday signalling the Securities Commission is amenable to such a resolution, told Tribune Business: “We’re in the process of negotiating a settlement for penalties related to anti-money laundering and counter terror financing breaches.
“As part of that settlement, there will be subordination of the Commission’s claim in favour of the clients of FTX first. It’s subordinated in their favour. Other regulators have also subordinated their claims. It’s an appropriate thing to do as a regulator. As regulators our priority is for clients to be made whole. The settlement will be made public once it is finalised.”
The Bahamian liquidators also praised the Securities Commission for “expeditiously securing” customers’ digital assets in the immediate aftermath of FTX’s collapse to protect them from potentially being hacked and subsequently stolen or lost. Those assets have now been transferred to the custody of the Chapter 11 proceedings as part of the settlement with Mr Simms and the PwC duo.
“The global settlement agreement also includes a resolution in relation to the digital assets which the Securities Commission of the Bahamas had expeditiously secured to protect creditors and the company from an unlawful dissipation of its assets, ultimately resulting in the transfer of the digital assets at the direction of the joint official liquidators to the US debtors for the benefit of customers and creditors of both estates,” they said.
“Between 19-22 April, 2024, the Securities Commission, under the instruction and supervision of the joint official liquidators, transferred all of the seized assets to the US debtors.”
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