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  • Writer's pictureMichael Bacina

US$3.5B of FTX funds beached in Bahamas

Over the holiday break the Bahamian government dropped a stunning press release revealing that, following the collapse of FTX on 11 November and a reported hack on 12 November, the Bahamian government took custody of crypto-assets valued at US$3.5B.

While most of the FTX group has been placed under Chapter 11 bankruptcy in the US, FTX Digital Markets Ltd was placed under a court-appointed joint provisional liquidation with a separate liquidator. The Chapter 11 bankruptcy trustee is seeking information about the digital wallets holding the assets and the Bahamian Supreme Court approved the co-operation of the Bahamian liquidators with the Chapter 11 trustee.

As part of the court application, an affidavit was filed confirming that FTX Digital Market's registration under the Digital Assets and Registered Exchanges Act 2020 (The DARE Act) was suspended on 10 November, with FTX Digital Markets placed into liquidation before the other global entities followed on 11 November.

The Bahamian Securities Commission has continued to reject suggestions that assets were withdrawn from FTX to prioritize Bahamian customers, and explained that the transfer of assets occurred because:

[b]ased on information provided by Sam Bankman-Fried to the Commission concerning the cyberattacks ... the restricted access by the employees of FTX [Digital Markets] to its [Amazon Web Services] system, and other available information ... there was a significant risk of imminent dissipation as to the digital assets under the custody or control of FTX ... to the prejudice of its customers and creditors.

A court order was then sought to safeguard the assets and on 12 November:

all digital assets of under the custody or control of FTXDM or its principals, valued at more than US$3.5 billion, based on market pricing at the time of transfer, to digital wallets controlled by the Commission, for safekeeping

A sealing (or confidentiality) order was then made on 16 November. The assets are to be held to be delivered to the customers or creditors "who own them" or to the liquidator to be distributed under Bahamian insolvency law.

This disclosure may provide some hope to FTX customers who ultimately may see some kind of dividend or return of assets through the Bahamian insolvency process.


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