Lawyers for crypto exchange FTX are suing to keep its Bahamian affiliate out to sea.
Not just because the bankrupt crypto firm was recently revealed to owe a Margaritaville Beach Resort location in the Bahamas $600,000, nearly 10 times more than originally estimated — making the Jimmy Buffet branded hospitality venture its second largest unsecured creditor, after a $6 million Amazon Web Services (AWS) bill.
Rather, a recent court filing from FTX Group alleges that FTX Digital Markets (FTX DM), the company’s island-based arm, was created specifically as “a front to facilitate a conspiracy to defraud the Debtors’ customers — a conspiracy to which three individuals have already pled guilty.”
The complaint is being brought against the Bahamian joint provisional liquidators (JPL) overseeing the wind-down of FTX DM and seeks to strip the on-island regulators from any claim over FTX assets. Under dispute are hundreds of millions of dollars worth of real estate, among other rights and assets.
“The JPLs inherited the corporate shell that Mr. Bankman-Fried and his co- conspirators built to harbor their fraudulent enterprise in The Bahamas and now use it to continue the jurisdictional battle. In doing so, they continue to cast confusion over the true ownership of the Debtors’ property and waste the Debtors’ assets in the process,” the filing states, going on to call FTX DM both a “legal” and “economic” nullity.
Read more: FTX Crypto Bankruptcy Filing Shows $8.6 Billion Shortfall
It is not the first time FTX’s post-bankruptcy management has sparred with their respective peers in the Bahamas.
As reported by PYMNTS, the Bahamian regulators seized various FTX assets in the immediate aftermath of the crypto exchange’s bankruptcy and collapse, which they still retain control of.
Lawyers for FTX Group allege that FTX DM was “formed and functioned as an offshore haven for a continuous fraudulent scheme, as well as a conduit through which the fruits of that fraudulent scheme could be channeled to insiders and third parties outside of the reach of any independent and effective regulatory authority.”
Calling the Bahamian “shell company,” which was in operation for six months, a “centerpiece” of FTX founder Sam Bankman-Fried’s “criminal and massive fraud,” FTX Group lawyers are requesting that U.S. federal Bankruptcy Judge John Dorsey make a “declaratory judgment that FTX DM has no ownership interest in any of the Debtors’ property.”
Separately, the liquidators for FTX DM last Wednesday (March 15) asked the Bahamas Supreme Court to rule on which FTX entity is responsible for re-paying customers and should control its assets.
“The JPLs have been tasked by this Honourable Court with maintaining the value of assets owned or managed by FTX Digital and to take all and any necessary steps that the JPLs consider fit to protect the assets of FTX Digital wheresoever situate,” states the Bahamian team’s Directions Application, adding that, “Until the JPLs have some certainty … the provisional liquidation will in effect and substance stall.”
The JPLs go on to argue that FTX DM took on a more central role as FTX moved to the Bahamas from its earlier headquarters in Hong Kong.
Representatives of FTX DM did not immediately respond to PYMNTS’ request for comment.
As reported by PYMNTS, FTX’s new management uncovered $3.2 billion in transfers to the company’s founders, with $2.2 billion going to Bankman-Fried.
Among the other former FTX principals receiving the “payments and loans” were former engineering director Nishad Singh ($587 million), co-founder Gary Wang ($246 million) and Alameda Research CEO Caroline Ellison ($6 million).
Wang, Singh, and Ellison have all since pleaded guilty to the criminal charges filed against them for the active roles they are accused of knowingly playing in the disastrous, multi-billion-dollar implosion of the FTX enterprise group of companies and are cooperating with federal authorities in their investigation.
Sam Bankman-Fried, the founder of both FTX and Alameda, has so far maintained his innocence from under house arrest at his parents’ California home on the Stanford campus.
As reported by PYMNTS, he is nearing a new bail agreement with federal prosecutors.
The failed crypto founder’s criminal court date is set for October 2023.
The federal government’s civil cases against Bankman-Fried are on hold until after his criminal trial.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More