• US chief claims transfer not explained

• Ignores Securities Commission letter

• $100m Bahamian payouts ‘alarming’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FTX’s Chapter 11 chief yesterday alleged to the US Congress that efforts to obtain “clarity” over the Securities Commission’s action to safeguard $300m in client assets had been “shut down” by The Bahamas.

John Ray, who replaced the now-jailed and indicted Sam Bankman-Fried as chief executive of 134 FTX entities, told a House of Representatives Financial Services Committee hearing on the crypto currency exchange’s collapse that the Bahamian regulator’s efforts to protect investors from hackers had “violated the automatic stay” or freeze imposed by the Chapter 11 bankruptcy protection in Delaware.

He used the Capitol Hill hearing to blast the Bahamas’ provisional liquidation process for having “no transparency”, and continually talked up Chapter 11 as being the ideal legal framework for restructuring, winding-up and selling-off FTX’s assets as the battle for control between himself and this nation escalated to new heights.

The FTX Trading boss labelled the “push back” by The Bahamas over his efforts to dominate efforts to secure FTX’s assets as “extraordinary”, “irregular” and “a bit unprecedented” even though the provisional liquidators for the crypto exchange’s local subsidiary, FTX Digital Markets, were appointed first and are asserting that he was incorrectly installed.

Mr Ray also branded the $100m crypto asset payout by FTX to 1,500 “Bahamian” clients over a 25.5 period between November 10 and 11, much of which would have violated an asset freeze imposed by the Supreme Court, as “obviously alarming” and pledged to follow the money trail to determine who the beneficiaries are - a task that the provisional liquidators for the Bahamian subsidiary will also perform.

The US House of Representatives hearing thus saw The Bahamas’ integrity and reputation take a further public battering over the FTX implosion, even though much of what was said will be viewed by the Government, the Securities Commission and the Bahamian joint provisional liquidators as misleading and even misinformation.

For the Securities Commission has already provided much of the “clarity” over the $300m asset transfer that Mr Ray has been demanding. Tribune Business has seen correspondence from Robert Adams KC, the Delaney Partners attorney representing the Bahamian regulator, explaining to Mr Ray’s local attorneys that the Securities Commission obtained the Supreme Court’s approval to transfer FTX client assets to a secure digital wallet within its control for protection.

Mr Ray’s own evidence, filed with the Delaware Bankruptcy Court on Monday, includes the November 22, 2022, order by Chief Justice Ian Winder confirming that the Securities Commission is acting as a trustee - under Supreme Court supervision - where it is holding the assets transferred from FTX Digital Markets in trust, or escrow, for the benefit of clients and creditors to safeguard them from the threat of hacking.

Mr Ray himself admitted before the US congress that a hack of FTX’s systems had occurred, thus justifying the Securities Commission’s actions. Mr Adams’ letter, meanwhile, contained an offer by the Bahamian regulator to organise a meeting between itself, Mr Ray and the provisional liquidators “to assist in the efficient and mutually respectful conduct” of legal proceedings in both The Bahamas and US. That invite has yet to be taken up.

And Mr Ray himself conceded that FTX’s collapse was no fault of The Bahamas, telling yesterday’s hearing: “The extent of the lack of controls, the way this business was operated, I don’t think it matters where this company operated.”

However, several Financial Services Committee representatives focused on the crypto exchange’s activities in The Bahamas in the run-up to its collapse taking their cue from allegations made by Mr Ray in previous court filings.

Firebrand New York congresswoman, Alexandria Ocasio-Cortez, a member of the left-wing ‘Squad’, went to the extent of suggesting that should The Bahamas and the provisional liquidators be recognised as the main forum for FTX’s winding-up it would “be of value to Mr Bankman-Fried”. This, though, neglects the fact that the FTX founder was yesterday denied bail and remanded into custody as part of his extradition proceedings.

Bryan Steil, a Republican representative from Wisconsin, said resolving the mess created by the crypto exchange’s failure is “complicated by the fact FTX was domiciled in a foreign jurisdiction. We should ask tough questions as to why a company like FTX would set itself up in The Bahamas rather than the US”.

Under questioning from the congressman, Mr Ray confirmed that assets had been removed from FTX post-Chapter 11 filing by a hack of its systems and, separately, “at the direction of the Bahamian authorities”. He added: “It was both. Some was as a result of the hack, and some was done as a result of the Bahamian authorities”.

Asked why “the Bahamian authorities”, meaning the Securities Commission, would do this, and whether the informed him, the FTX Trading chief replied: “It wasn’t a request; they just did it. They were aided by former employees of FTX.”

He subsequently revealed that the Securities Commission had taken “about $300m” in digital and crypto assets into its safekeeping through the transfer from FTX Digital Markets. Mr Ray, in legal documents previously seen by Tribune Business, asserted that this had involved the “minting of new tokens” - meaning the creation of new money - likely by Mr Bankman-Fried and fellow FTX co-founder, Gary Wang, at the Bahamian regulator’s request.

Further questioned by Mr Steil if this was done to protect FTX Digital Markets’ clients and investors, Mr Ray answered: “Unlike the Chapter 11 process, there’s no transparency. We’re repeatedly asked The Bahamas for clarity, and been shut down on that...... They put a statement out that it was in the interests of creditors, but in our view it violated the automatic stay of Chapter 11.

“We think the Chapter 11 is the only open, transparent process that gives customers visibility as to what’s happening and when they will get that money and how they will get their money. The process in The Bahamas is not a transparent process.” Mr Ray said he had made the case for The Bahamas to embrace Chapter 11 as the main FTX proceeding, but “the push back we’ve gotten is extraordinary... It seems irregular and we’re investigating”.

Asked by William Timmons, a South Carolina Republican, if the Bahamian joint provisional liquidators were seeking to “try and wrangle control of this bankruptcy” through their Chapter 15 filing for recognition as a foreign main proceeding with the US courts, the FTX Trading chief replied: “It seems that way....

“It’s fair to say we think the bankruptcy process here is the one place that has transparency and the greatest ability to maximise value for creditors. We work all the time with other liquidators. This [The Bahamas’ stance] is a bit unprecedented.”

The Bahamian joint provisional liquidators, Brian Simms KC, the senior Lennox Paton attorney and partner, and PricewaterhouseCoopers (PwC) accounting duo Kevin Cambridge and Peter Greaves, have hit back at Mr Ray by arguing that he was not validly appointed due to FTX Digital Markets’ court supervision in this jurisdiction.

However, Mr Ray promised that he, too, will pursue the $100m of withdrawals permitted for FTX’s 1,500 Bahamian clients when the crypto exchange’s assets were supposed to have been frozen by both the Bahamian Supreme Court and Chapter 11 proceedings.

Asked “what does your Spidy (Spiderman) sense say about what’s gone on there”, Mr Ray replied: “It’s obviously alarming. In my job, I keep focused on one thing: Follow the money. We’ll investigate who received the money and what the circumstances were.”

And he “absolutely” pledged to report back to the US legislature, when asked at the hearing’s end by Jake Auchincloss, the committee’s Democratic vice-chair: “If you find any evidence of improper collusion between Mr Bankman-Fried and the authorities in The Bahamas and elsewhere you will make that known to us.”

Maxine Walters, the committee’s chair, and whose husband was once US ambassador to The Bahamas under the Clinton administration, said: “I am deeply troubled to learn how common it was for Bankman-Fried and FTX to steal from the cookie jar of customer funds to finance their lavish lifestyles.”