FTX funds frozen in the Bahamas

FTX Digital Markets (FDM) is the Bahamas-based subsidiary of FTX. 

Indeed, the company that owns the FTX.com exchange is FTX Trading LTD, which is headquartered in Antigua and Barbuda but has its own headquarters in the Bahamas.

The local Bahamas regulator has launched an investigation against FDM, and has frozen all its assets. 

However, these are not all of FTX’s assets, but only those on Bahamian soil. 

The Bahamas SEC’s decision on FTX’s accounts

The official statement from the Bahamian Securities Commission of The Bahamas (SEC) says that the Commission has decided to put FDM into provisional liquidation to preserve its assets and stabilize the company.

Brian Simms has been appointed as provisional liquidator, and all powers of the company’s directors have been suspended. 

The Commission writes: 

“no assets of FDM, client assets or trust assets held by FDM, can be transferred, assigned or otherwise dealt with, without the written approval of the provisional liquidator.”

Thus effectively all funds held by FTX in the Bahamas through FTX Digital Markets have been frozen. 

Furthermore, the same release mentions that some public statements suggest that client assets were mismanaged, and/or transferred to Alameda Research. Such actions would have been contrary to normal governance and potentially illegal, without the explicit consent of clients.

Therefore, criminal charges exist, with allegations of impropriety in safeguarding client funds.

FTX’s statements

FTX then posted on its Twitter profile some official information on the matter. 

1) Per our Bahamian HQ’s regulation and regulators, we have begun to facilitate withdrawals of Bahamian funds. As such, you may have seen some withdrawals processed by FTX recently as we complied with the regulators.

— FTX (@FTX_Official) November 10, 2022

It claims that under Bahamian regulations, they began enabling withdrawals of funds for local customers, so these would be the withdrawals visible on the blockchain. 

Evidently, these were funds that did not appear to be held in the Bahamas by FDM, but were owned by Bahamian clients. 

It was then also stated that the platform’s operations in Japan had been suspended. 

We are following the guidance of the JFSA and will be putting https://t.co/XblZK9n7s1 into close-only mode @FTX_JP is a separate entity that strictly follows the Japanese regulation on asset segregation https://t.co/q3bYGEuNIw

— FTX (@FTX_Official) November 10, 2022

However, they have not yet disclosed the total amount of FDM’s funds frozen in the Bahamas, nor how much cash they have on hand to possibly satisfy all withdrawals. 

Indeed, there is still an obvious notice on ftx.com informing them that withdrawals appear to be frozen. 

The funds on the exchange

FTX.com is FTX’s international crypto trading platform. It is owned by FTX Trading LTD, which is headquartered in Antigua and Barbuda. Whereas the operational headquarters is in the Bahamas, where FTX Digital Markets (FDM) owned by FTX Trading LTD operates. 

Instead, FTX.US is owned by another company that apparently is not having any problems. 

Part of FTX.com’s funds are held in the Bahamas by FDM, and are currently frozen. As a result, they cannot be used to meet customer withdrawal requests. 

Some are probably held in Antigua and Barbuda by FTX Trading LTD, but since this is only the registered office, it is possible that there are not many in Antigua and Barbuda. 

Instead, it is possible that much of the funds are kept elsewhere, perhaps in the US. 

FTX Trading LTD as of now is neither bankrupt nor in liquidation, and it does not appear that any US subsidiaries are either. 

In such a complex scenario, what is known instead is that FTX has not yet said exactly either how many funds it still has or how many of those funds are actually usable to meet customer withdrawal requests. 

Throughout this whole affair, the company has by no means demonstrated its ability to keep its customers well informed, and this flaw is continuing even now. 

The current situation with withdrawals

Many customers are still complaining about pending withdrawals on the platform, which were requested before they were blocked. So the queue of withdrawals already requested has not yet been exhausted. 

And then there are all those who would still like to withdraw, but cannot because withdrawals currently appear to be suspended indefinitely. 

However, there would not appear to be any problems with withdrawal requests on FTX.US. 

Yesterday FTX indicated that an agreement has been reached with Tron to allow withdrawals at least for TRX, BTT, JST, SUN and HT holders. 

FTX Announcement Regarding the Tron Credit Facility:

We are pleased to announce that we have reached an agreement with Tron to establish a special facility to allow holders of TRX, BTT, JST, SUN, and HT to swap assets from FTX 1:1 to external wallets.

— FTX (@FTX_Official) November 10, 2022

However, it is not yet known exactly whether such withdrawals are already active on the platform. 

Future scenarios and possible implications of the FTX affair

Regardless of the possible judicial implications of this affair, particularly with regard to the people responsible for what happened, many are wondering what will happen to FTX. 

While the US platform of FTX.US certainly seems likely to continue operating, there are still doubts about the future of the international platform FTX.com. 

There seem to be two most plausible scenarios. 

The first, supported in particular by co-founder and CEO Sam Bankman-Fried (SBF), is one in which a consortium of investors manages to put together sufficient funds to enable the exchange to resume withdrawals, satisfy all requests to do so, and then resume full operations. 

That scenario actually seems unlikely to date, as it appears that $9.4 billion is needed and perhaps only $1 billion has been found for now. 

The second scenario is that the company gives up and finally declares insolvency. This would lead to the bankruptcy and liquidation of FTX Trading LTD, since the Bahamian subsidiary is already in liquidation. 

According to SBF’s statement, it will have to wait until at least next week to see which of the two scenarios might come true.