Bahamian Regulators Assume Control of FTX’s Assets

The Securities Commission of The Bahamas announced on Thursday that it directed that all digital assets of FTX Digital Markets Ltd (FDM) be transferred to a digital wallet controlled by the Commission for safekeeping.

It has been revealed that at least some of the millions of dollars in FTX customer funds that moved off the exchange under very peculiar circumstances were moved at the direction of Bahamian regulators. FTX’s newly appointed CEO, John Ray said:

[There is] credible evidence that the Bahamian government is responsible for directing unauthorized access to the Debtors’ systems for the purpose of obtaining digital assets of the Debtors—that took place after the commencement of these cases.

The Securities Commission of The Bahamas said on Thursday that it made an order under existing authorities that allow for it to act if it needs to protect clients or their funds. In a press release, The Commission said:

The Securities Commission of The Bahamas (‘the Commission’), in the exercise of its powers as regulator acting under the authority of an Order made by the Supreme Court of The Bahamas, took the action of directing the transfer of all digital assets of FTX Digital Markets Ltd. (‘FDM’) to a digital wallet controlled by the Commission, for safekeeping. Adding, Urgent interim regulatory action was necessary to protect the interests of clients and creditors of FDM.

In the latest court filing to become public, FTX said that it has “secured only a fraction of the digital assets of the FTX Group that they hope to recover” adding that it has $740 million in a cold wallet. Reports by Decrypt add that FTX conceded that they were unable to account for three main gaps in tracked assets:

These balances exclude cryptocurrency not currently under the Debtors’ control as a result of (a) at least $372 million of unauthorized transfers initiated on the Petition Date, (b) the dilutive ‘minting’ of approximately $300 million in FTT tokens by an unauthorized source after the Petition Date, and (c) the failure of the co-founders and potentially others to identify additional wallets believed to contain Debtor assets.

Unauthorised transfers to the tune of $650 million were detected on November 11, which led many to think that it may have been part of a large hack targeting FTX. On that same day, FTX US general counsel Ryne Miller labeled the transfers as “unauthorised” adding that the firm has begun moving its remaining assets to cold storage to “mitigate the damage.”

Rumours had been circulating that the unauthorised transfers were the doing of Bahamian authorities, but The Commission issued a statement denying this, saying that “it has not directed, authorized, or suggested to FTX Digital Markets Ltd. the prioritization of withdrawals for Bahamian clients.” The Commission’s statement said that an action such as that could constitute “voidable preference” under its bankruptcy rules and might have required “clawing back funds from Bahamian customers.” The agency added:

In any event, the Commission does not condone the preferential treatment of any investor or client of FTX Digital Markets Ltd. or otherwise.

FTX Digital Markets filed for Chapter 15 bankruptcy in the United States on November 15, just days after the rest of the FTX group filed for Chapter 11 bankruptcy. Strangely, FDM filed in the Southern District of New York, instead of in Delaware where the rest of the companies issued their filings.

To say that what has gone down with the FTX group is bizarre, strange, and downright confusing would be the least. More information is coming to light each day which leaves customers, investors, and the whole crypto industry, as a matter of fact, scratching their heads, and the overall market in shatters.