FTX sues for control of Bahamas assets, calls FTX Digital Markets ‘a front’ to defraud customers

Bankrupt crypto exchange FTX is suing the liquidators of its Bahamas entity, saying FTX Digital Markets wrongly claims to own the exchange and was actually “a front to facilitate a conspiracy” to defraud customers.

FTX’s new management wants a declaratory judgment from the U.S. Bankruptcy Court for the District of Delaware that says FTX Digital Markets “has no ownership” in any of the FTX debtors’ property. 

The FTX debtors have often been at odds with the team of lawyers, known as joint provisional liquidators under Bahamian law, tasked with winding down its Bahamian entity since the crypto behemoth filed for bankruptcy protection in November. The Bahamian entity still controls at least hundreds of millions of dollars-worth of assets. 

“If the FTX debtors succeed in this adversary proceeding, there will be no property of FTX DM for local proceedings in The Bahamas to resolve,” the filing says.

A lawyer for the joint provisional liquidators did not immediately respond to a request for comment. 

‘Corporate shell’

The plaintiffs in the adversary proceeding include FTX.US, the exchange’s sibling trading firm Alameda Research and West Realm Shires, Inc., a holding company formed by former FTX head Sam Bankman-Fried. They name FTX Digital Markets and its joint provisional liquidators Brian Simms, Kevin Cambridge and Peter Greaves, as defendants. 

According to the lawsuit, FTX Digital Markets claims to be “the constructive owner of FTX.com’s property” and says the ownership dispute should be settled in The Bahamas. The FTX debtors handling the bankruptcy in the United States disagree, saying that the liquidators inherited a “corporate shell” that they are using to continue a jurisdictional bankruptcy battle. The “baseless” ownership claims will harm FTX customers and creditors, lawyers say.

“The JPLs’ claim to ownership of FTX.com’s property is based largely on constructive, equitable, and other non-documentary arguments that depend upon the false premise that FTX DM was the center of the FTX Group. Nothing could be further from the truth,” the filing says. “The peculiar history of FTX DM is a classic example of abuse of the corporate form. It was created as a front to facilitate a conspiracy to defraud the debtors’ customers—a conspiracy to which three individuals have already pled guilty.”

Former Alameda Research CEO Caroline Ellison and FTX co-founders Gary Wang and Nishad Singh have all pleaded guilty to criminal charges related to their time at the bankrupt company. Former CEO Sam Bankman-Fried pleaded not guilty to a litany of criminal charges and awaits an October trial.

FTX Digital Markets was an “offshore haven for a continuous fraudulent scheme, as well as a conduit through which the fruits of that fraudulent scheme could be channeled to insiders and third parties outside of the reach of any independent and effective regulatory authority,” according to lawyers for the FTX debtors.

Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.

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