FTX Sues Bahamian Liquidators, Claims US Firm Is Headquarters (Report)

FTX Sues Bahamian Liquidators, Claims US Firm Is Headquarters (Report)

Since FTX unceremoniously imploded in November, regulators and courts in both the United States and the Bahamas have worked tirelessly, with varying degrees of success, to return as many FTX-held assets as possible to the hands of their original owners.

While legal proceedings in the US have temporarily stalled, in part due to SBF's plea of ​​innocence, Bahamian regulators were able to seize some assets early on and appear to be closing in on FTX Digital Markets, the Bahamian subsidiary of the failed crypto exchange.

Dispute over the meaning of the Bahamian entity

The current lawsuit was filed by FTX US against the Bahamian authorities responsible for the liquidation of FTX Digital Markets. If the former wins the lawsuit, it could mean that a larger portion of the assets controlled by FTX would be disposed of by US courts, potentially leading to a larger clawback from US customers to the detriment of international customers.

To begin this process, FTX's new CEO, John J Ray III, filed a petition in the Delaware bankruptcy court requesting recognition that FTX Digital Markets "had no interest in FTX.com's cryptocurrency, intellectual property, or customer relationships."

The interim head of FTX posited that FTX DM was nothing more than a shell company created for the purpose of moving money out of the reach of US regulators and was not critical to the legitimate operation of the exchange.

“(FTXDM) was a corporate shell and the centerpiece of founder Sam Bankman-Fried’s efforts to funnel FTX Trading customer deposits and other valuable property and rights to the Bahamas beyond the reach of American regulators and courts.”

Bahamian authorities claim FTX DM was the main center

Despite FTX US's claim that FTX DM never provided significant operational services to FTX Group, Bahamian regulators demanded that the local Supreme Court decide which entity was more important to the exchange's operations and which should be the one that pays out customers once the dust settles.

According to Bahamian liquidators, the fact that FTX moved its headquarters from Hong Kong to the Bahamas proves that FTX DM was much more than just a shell company. Additionally, the company's business plans and a ToS update from May 2022 allegedly show a "clear intention" to move customer deposits to FTX DM, according to the Bahamas-based liquidators.

The dispute over the significance of FTX DM comes despite an agreement between FTX US and Bahamas authorities to coordinate recovery efforts. According to Bahamian authorities, the cooperation memorandum does not prevent them from seeking a decision on which FTX entity was central to the operations of the now-defunct crypto empire.

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