Securities Commission of The Bahamas Took $3.5 Billion in Crypto from FTX for “Safekeeping”

 

The Securities Commission of The Bahamas has announced that it took $3.5 billion in crypto from FTX for safekeeping, according to a statement distributed by the Commission yesterday (December 29, 2022).

The Commission stated that based on information provided by former FTX CEO Sam Bankman-Fried concerning cyberattacks, the Commission decided there was a significant risk of “dissipation” of digital assets under the custody or control of FTXDM (the FTX entity regulated in the Bahamas).

The Commission explained that it exercised its regulatory powers to protect the digital assets by transferring them to digital wallets controlled by the government, thus setting up a dispute between the newly installed bankruptcy managers as part of the Chapter 11 filing.

The Commission said that it has asked for direction from the Bahamian Supreme Court due to “the dispute between the court-appointed Joint Provisional Liquidators (JPLs) of FTX Digital Markets Ltd (FTXDM) and the US Debtors over the JPLs’ rights of access to the records of FTXDM.”

The Court has entered an order affirming that the Commission may only lawfully provide assistance to a domestic regulatory authority or overseas regulatory authority. The Order further indicated that the JPLs may cooperate with, and provide information to, the US Debtors by sharing with their representatives, in a highly confidential manner, certain information respecting the digital assets being held in the secure digital wallets established by, and under the control of, the Commission.

The Commission said that it has filed with the Court a Third Affidavit of Christina R. Rolle, Executive Director of the Commission, which sets out the manner in which the Commission has exercised its regulatory powers in relation to FTXDM. The Affidavit was filed in regards to a dispute with the JPL and the US Debtors – which do not trust the Bahamian authorities. Referencing comments made by James Bromley, an attorney for US debtors, the affidavit states his claims are “untrue and calculated to disparage the Commission as regulator of FTXDM…”

The Affidavit includes copies of emails between the Commission, FTX executives, and the Bahamian Police. FTX lost its registration with the Bahamas on November 10th, and a request was made to freeze FTX assets the same day. A provisional liquidator was also announced. On November 12, the Court ordered the transfer of all digital assets on FTX to wallets controlled by the Commission.

Last month, the Commission issued a statement regarding Bahamian withdrawals claiming it did not authorize or suggest that FTXDM prioritize withdrawals for Bahamian clients. The Commission added that such transactions may be “characterized as voidable preferences under the insolvency regime and consequently result in clawing back funds from Bahamian customers.”

In November, the Commission announced that it took control of digital assets under its powers as a regulator acting under the authority of an Order made by the Supreme Court of The Bahamas, claiming it was necessary to protect the assets and interests of clients and customers under the Digital Assets and Registered Exchanges Act, 2020 (DARE Act).

The control of the digital assets is said to be on a “temporary basis” until the Court determines who will receive the assets under rules governing insolvency.

The Commission said it will continue to conduct a diligent investigation into the causes of FTX’s failure, and act in accordance with directions issued by the Supreme Court of The Bahamas, while collaborating with other supervisory authorities.

 

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