Bahamas Regulator Ordered FTX to Transfer Assets on 12 November

The Securities Commission of the Bahamas (SCB) had issued an order on 12 November for FTX Digital Markets (FDM) to transfer the contents of its crypto wallets to a government-controlled wallet, the SCB revealed via Twitter on 18 November.

According to the announcement, SCB decided exercise its power as a regulator and take “urgent interim regulatory action” at the time, as to protect the interests of clients and creditors of FDM. While it remains unknown when or if these transfers took place — and why the SCB publicly revealed the order 6 days later — the announcement could shed some light around the suspicious transfers that took place last week.

Last Friday, cryptocurrency exchanges FTX, FTX.US, and around 130 entities connected to them filed for Chapter 11 bankruptcy protection, and only hours suspicious transactions saw $663 million worth of assets drained from the platforms. $477 million are suspected of being stolen — with some speculations suggesting it was an inside-job — while the rest is believed to have been moved to cold storage by FTX’s team.

This revelation adds another factor to the already complicated bankruptcy process of FTX. While the majority of companies connected to FTX filed for Chapter 11 protection in Delaware, FDM filed a Chapter 15 bankruptcy protection — which allows a foreign debtor to file for bankruptcy protection in the U.S — in New York in order to seek recognition of the Bahamian liquidation proceedings. The court-appointed provisional liquidator of FDM in the Bahamas, Brian Simms, argued that he was the only one “authorized” to take such actions because the “FTX Brand was ultimately operated from a single location: The Bahamas”.

The bankruptcy attorneys hired FTX Trading Limited last week noted that former FTX CEO Sam Bankman-Fried was trying to undermine the entire Chapter 11 bankruptcy process, and move assets from the debtors to accounts under the control of the Bahamian government. The filing said:

“The filing of the Chapter 15 Case without advance notice and in the SDNY is a blatant attempt to avoid the supervision of this Court and to keep FTX DM isolated from the administration of the rest of the Debtors, which constitute the vast majority of the remainder of the FTX group.”

Another FTX bankruptcy filing from Thursday revealed that the exchange’s venture-capital and trading affiliate, Alameda Research, had given out $4.1 billion in loans to related parties. Former CEO Sam Bankman-Fried had personally received a $1 billion loan from the company, while FTX’s director of engineering Nishad Singh obtained $543 million. Two other entities, Euclid Way Ltd. and Paper Bird Inc., had received a total of $2.3 billion in loans from Alameda. The new CEO of FTX, John J. Ray, said in the filing:

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”