By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fears have been voiced that FTX’s co-founder violated a Bahamas Supreme Court Order when he placed some 134 group entities under Chapter 11 bankruptcy protection in Delaware.

US attorneys representing the Bahamian joint provisional liquidators for FTX Digital Markets, the collapsed crypto exchange’s local subsidiary, have raised concerns that Sam Bankman-Fried breached the asset freeze and Order obtained by the Securities Commission on Thursday, November 10, through such actions.

That Order, issued by Chief Justice Ian Winder, also stripped Mr Bankman-Fried and his fellow FTX Digital Markets directors of all their powers and transferred control of the company to Brian Simms KC, senior partner at the Lennox Paton law firm. However, the FTX co-founder then signed the documents placing FTX Trading and the group’s non-Bahamian assets into Chapter 11 protection at 4.30am on Friday morning.

Warren Gluck, an attorney with Holland & Knight, the US law firm acting for Mr Simms and his fellow joint provisional liquidators, PricewaterhouseCoopers (PwC) accountant duo Kevin Cambridge and Peter Greaves, told a November 18 court hearing that Mr Bankman-Fried had no authority to place the remainder of the group in Chapter 11 bankruptcy protection because he longer had the power to do so.

Chief Justice Winder’s Order was made the day before the Chapter 11 proceedings were initiated in Delaware, and Mr Gluck asserted: “For a number of reasons, there is a serious question regarding the validity of those Chapter 11 filings, principally because they occurred after the Bahamas Securities Commission had placed FTX Digital into bankruptcy proceedings; what they call insolvency proceedings.”

Asserting to the southern New York federal bankruptcy court that his clients “significant and substantial concern” about this, given that Mr Bankman-Fried had been removed as FTX Digital Markets’ head, Mr Gluck explained that the Supreme Court “required anyone at FTX Digital to obtain express written instructions prior to taking an act from the provisional liquidator of FTX Digital.

“And whereas no such instruction was issued or authorised in any way, shape, or form, at the time when the purported signature of Mr. Bankman-Fried was made from the Bahamas, he was at that time an officer or director or manager of the foreign debtor.

“It is metaphysically impossible from our view - and again,we have respectfully requested a statement as to how it could be otherwise, but metaphysically impossible [for that] signature to have not also been made by Mr Bankman-Fried in his capacity as employee, manager or director of FTX Digital. And on that basis, there is concern that that act was directly in violation of The Bahamas’ court order at a minimum.”

The revelations over Mr Bankman-Fried’s potential violation of the Supreme Court’s Order came as former prime minister, Dr Hubert Minnis, yesterday told Tribune Business that neither himself nor anyone on his administration had met or come into contact with FTX or its co-founder prior to being voted out of office on September 15, 2022.

“Not to me knowledge,” he replied, when asked if moves for FTX to relocate to The Bahamas from Hong Kong were initiated under his administration. “I never met the person [Mr Bankman-Fried]; I only saw them on TV. Not to my knowledge, and I checked with my personnel, and they said they never met him. I checked and asked my people if they had any meeting I didn’t know about. They told me ‘no’.

“I was not even aware that they were having a groundbreaking [for FTX Digital Markets $60m headquarters] in my constituency. I’ve never met the individual.” That suggests, if accurate, that FTX decided within a few short weeks of the 2021 general election that it would relocate to The Bahamas with breathtaking speed. Allyson Maynard-Gibson KC, former attorney general and minster of financial services and investments, was the company’s attorney.

Observers yesterday warned that The Bahamas is at grave risk of being caught-up in a US political firestorm due to FTX’s well-known political contributions to Democrats and their party. They warned that this is ripe for investigation with the Republicans back in control of the House of Representatives, which could lead to increased scrutiny of The Bahamas and the crypto exchange’s dealings here by US law enforcement and tax authorities.

One source, describing FTX as a largely American problem caused by US citizens, voiced fears that the Government’s near-total silence on the issue exposes The Bahamas to significant reputational damage. “This is an American problem by American citizens, and we are just the venue, but we are going to get the hit for this and no politician has the temerity and fortitude to stand up and defend us,” they said.

“There’s a lot of blame to be floated around. Nobody is getting the real problem. The jurisdiction is going to get a black eye here when we were the victim. I think the Government of The Bahamas is making a slip-up here. The jurisdiction will be seen as a possibly rogue jurisdiction, but everybody is missing the boat and not coming out and saying The Bahamas is the actual victim.”

Mr Gluck’s comments, meanwhile, made at a hearing before bankruptcy court judge, Michael Wiles, shed new light on why the Bahamian provisional liquidators for FTX Digital Markets are questioning the validity of the Chapter 11 bankruptcy proceedings in Delaware.

The transcript was published ahead of tomorrow’s Delaware bankruptcy court hearing on the bid by Robert J. Ray, chief executive for the FTX entities covered by the Chapter 11 filing, to switch the Bahamian provisional liquidators’ effort to obtain US legal recognition from New York to Delaware.

Judge Wiles effectively backed the transfer, saying: “Everything that you have said convinces me, if I were being asked on the issue, this case belongs in Delaware, not New York, and your arguments that it belongs in New York are extremely weak. I am not going to rule on anything that you have asked me to do.”

Mr Gluck, on behalf of the Bahamian provisional liquidators, had sought to make the case that The Bahamas - not Delaware - should be the primary venue for winding-up or restructuring the FTX group entities, with control of proceedings based here.

“FTX Digital is a Bahamas entity, which is the main centre of the FTX platform. All operations are conducted from any large campus in which hundreds of employees work. So it can be thought of as the main or primary operating company,” he asserted of the Bahamian subsidiary.

“FTX Digital was absolutely operated from The Bahamas with all of these hundreds of employees. It’s a large complex. It was regulated. And therefore, unless the test for recognition is somehow not met in a way that we can’t conceive, that the case for setting aside any other issues.... of the Bahamas provisional liquidation under Chapter 15 ought to be fairly clear and straightforward.”

This, though, was opposed by attorneys for Mr Ray, who charged: “Contrary to Mr Gluck’s representations, it is not the main  company by any stretch of the imagination in the FTX group of companies, not that it matters.”