• And rebut claim Bahamas ‘leave him in control’

• Own and bankruptcy attorneys faced ‘conflicts’

• FTX founder to say he complied ‘in good faith’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sam Bankman-Fried is set to tell a New York judge that Bahamian regulators, and not US bankruptcy attorneys, “were acting in the best interests of customers” immediately after FTX imploded.

Attorneys representing the embattled FTX founder, in legal papers filed late on Wednesday night, said their client would give evidence in a bid to rebut testimony from his former partner, Gary Wang, that he transferred digital assets to the Securities Commission of The Bahamas’ custody “in an effort to retain control” of the crypto currency exchange.

Mr Bankman-Fried began giving testimony before Judge Lewis Kaplan in the jury’s absence yesterday so that the latter could determine which portions are admissible. However, Mark Cohen, the former FTX chief’s lead attorney, set out the topics that they want to cover in an October 25, 2023, letter.

“We intend to elicit testimony regarding Mr Bankman-Fried’s intentions and beliefs on November 12, 2022, to rebut the inferences from Gary Wang’s testimony that Mr Bankman-Fried directed the transfer of assets to Bahamian regulators on that date, over the objections of FTX’s in-house and outside legal counsel, in an effort to retain control of FTX,” Mr Cohen wrote.

“This would include testimony regarding Mr Bankman-Fried’s belief that the Bahamian authorities, and not FTX’s in-house counsel or US bankruptcy counsel, were acting in the best interests of FTX customers.”

The date referenced was some two days after FTX collapsed, and its Bahamian subsidiary, FTX Digital Markets, placed into provisional liquidation by the Supreme Court. Brian Simms KC, the Lennox Paton attorney and senior partner, was named as provisional liquidator on November 10 last year, and he would soon be joined by PricewaterhouseCoopers (PwC) accountants, Kevin Cambridge and Peter Greaves.

Events on November 12 saw the Securities Commission obtain the services of Mr Bankman-Fried and Mr Wang to transfer digital assets held by FTX Digital Markets to the Bahamian regulator’s control. This was effected to prevent client/investor assets from being lost, hacked or stolen, thus reducing creditor recoveries.

The Securities Commission felt it had no choice but to enlist the FTX duo’s help as they were the only ones who controlled access to the assets via the keys to the electronic wallets in which they were held. The regulator also obtained an emergency Supreme Court Order approving the transfer amid fears that the assets could forever be lost unless swift action was taken.

As a result, the Securities Commission was subsequently said to have custody of $426m in digital assets. However, Mr Bankman-Fried’s US attorneys argued he needs to give evidence to rebut Mr Wang’s previous assertions about his “state of mind” when dealing with the Bahamian regulator and assets transfer.

“We anticipate eliciting testimony from Mr Bankman-Fried regarding his good faith intentions on November 12, 2022, with respect to compliance with orders by Bahamian authorities to transfer assets from FTX to the Securities Commission of The Bahamas over the objections of FTX’s in-house counsel and US bankruptcy counsel,” Mr Cohen wrote on his client’s behalf.

“Such testimony would require Mr Bankman-Fried to discuss his belief that the Bahamian authorities were acting in the best interests of FTX customers, whereas FTX’s in-house counsel and outside bankruptcy counsel in the US had conflicts of interest.

“This testimony is necessary to rebut the inferences from Mr Wang’s testimony concerning the events of November 12, 2022, and his assertions as to Mr Bankman-Fried’s state of mind.” The alleged conflicts of interest were not specified, and nor were the identities of the attorneys referred to. However, the mention of a “bankruptcy counsel” likely means Sullivan & Cromwell, the law firm acting for FTX US chief, John Ray.

“Mr Wang testified about meetings that Mr Bankman-Fried had with Bahamian liquidators and the Bahamian Securities Commission on November 12, after which Mr Wang transferred assets to Bahamian authorities,” Mr Cohen wrote. “Mr Wang testified that he was told to do this by ‘government officials’ and ‘Sam’.

“He further testified that Mr Bankman-Fried told him to do this because the Bahamian liquidators ‘seemed friendly and seemed willing to let him stay in control of the company’, and that the Bahamian Securities Commissioner [Christina Rolle] ‘believed the things [Mr Bankman-Fried] told her’ and was going to ‘order us to transfer . . . the remaining assets to The Bahamas’.

“Mr Wang also testified that Mr Bankman-Fried directed him to effectuate the asset transfer over objections by FTX’s in-house counsel and US bankruptcy counsel because the Bahamian authorities ‘seemed more friendly to him, and they seemed more likely to let him stay in control of the company, compared to the US’,” he added.

“Mr Bankman-Fried should therefore be permitted to rebut the inferences from Mr Wang’s testimony by testifying as to why, in good faith, he wanted to comply with the orders of the Bahamian authorities over the objections of FTX’s in-house counsel and US bankruptcy counsel.”

Meanwhile, Krystal Rolle KC, who was one of the Bahamian attorneys defending Mr Bankman-Fried in legal court proceedings prior to his extradition to the US, was one of two witnesses who testified on the FTX founder’s behalf before Judge Kaplan yesterday.

CNN reported she told the New York federal court that Mr Bankman-Fried co-operated with the Securities Commission when he was requested to transfer digital assets held by FTX Digital Markets to the regulator’s safekeeping. After a meeting with the Securities Commission, Mrs Rolle, Mr Bankman-Fried and Mr Wang immediately begin the “very, very long” process of transferring the assets, she said.

Previous international media reports incorrectly said it would be Christina Rolle, the Securities Commission’s executive director, rather than Krystal Rolle KC, giving evidence on Mr Bankman-Fried’s behalf. Those reports confused the two Rolles, and Christina Rolle confirmed this had occurred in a note to Tribune Business. She and the Securities Commission were yesterday seeking corrections to this.