By NEIL HARTNELL 

Tribune Business Editor 

nhartnell@tribunemedia.net

A NEW York judge is being urged to return $143m seized by the US federal authorities to FTX’s Bahamian liquidators who have a “superior interest” to these assets.

John Ray, FTX’s US chief, and his Bahamian counterparts have partnered in petitioning Judge Lewis Kaplan to order that the cash and other assets be handed over to their combined liquidation estate so that they can finance investor recoveries and be paid out to victims of the failed crypto exchange. 

The $143m, which was seized by the US Justice Department from two US banks in late 2022 within weeks of FTX’s collapse, is among assets being held by the federal authorities to help satisfy a mammoth $11.02bn forfeiture order and money judgment against Sam Bankman-Fried, the exchange’s disgraced founder who is now serving a 25-year jail term.

Also included in the assets that Mr Ray and FTX Digital Markets’ liquidators want transferred to the liquidation estate are the two aircraft acquired with $27.445m of FTX funds by Bahamian aviation operator, Trans-Island Airways. The firm’s principal, Paul Aranha, recently handed over the last of the two planes after securing a $2m settlement with Mr Ray and the US Justice Department.

Brian Simms KC, the Lennox Paton senior partner, and Price- waterhouseCoopers (PWc) accounting duo, Kevin Cambridge and Peter Greaves, in their joint petition with Mr Ray are arguing that the $143m, two planes and other assets were never owned by

Bankman-Fried but, instead, were vested in FTX Digital Markets or the 134 entities under Mr Ray’s care in Delaware.

Thus their title, interest and rights to these assets is “superior” to all other claims, and the southern New York court should order that they be returned to either Mr Ray or FTX’s Bahamian subsidiary to help cover creditor claims. 

“The funds formerly held in the accounts registered in the name of FTX Digital Markets are not, and have never been, Bankman-Fried’s assets, and the interests of the debtors and/or FTX Digital Markets in those funds were at all relevant times superior to any interests of Bankman-Fried,” the joint petition asserted over the $143m.

“FTX Digital Markets was founded in The Bahamas in November 2020, after which time FTX Trading and affiliated entities transferred approximately $143m into FTX Digital Markets’ bank accounts at Farmington State Bank, doing business as ‘Moonstone Bank’, and Silvergate Bank.

“After extensive negotiations, the debtors and FTX Digital Markets have reached an agreement regarding the disposition of the funds held in the FTX Digital Markets accounts.” Referring to the court-approved settlement that both sides have entered into, the petition added: “FTX Digital Markets is subject to a liquidation proceeding in The Bahamas.

‘“The global settlement agreement also represents the successful outcome of months-long negotiations between the debtors and the joint official liquidators of FTX Digital Markets over commitments to co-ordinate the insolvency proceedings and maximise recoveries for creditors.

“Following the return of these funds, and upon the confirmation of the debt- ors’ plan of reorganisation, the funds held in these accounts will be distributed to creditors by FTX Digital Markets in accordance with the stipulated property allocation in the global settlement agreement between the debtors and FTX Digital Markets.”

The US Justice Department’s seizure of the $143m from FTX Digital Markets’ US bank accounts initially starved the Bahamian liquidators of much-needed funds to finance their work. However, as part of the two sides’ global settlement deal, Mr Ray and his team committed to helping recover this money and securing its release from the federal authorities.

FTX’s liquidators, almost exactly one year ago, warned creditors in their second report to the Supreme Court that it was then increasingly likely they would have to battle the US Justice Department in the courts to recover the $143m given that prospects of an amicable resolution had become “more remote”.

Revealing at the time that they had received legal advice concluding there are “grounds to challenge” the federal government’s seizure of the funds, the trio added that they had negotiated “patiently and constructively” with the US Justice Department to secure their return but time to reach a consensual solution was running out and they saw no choice but to initiate litigation to recover such a substantial sum.

Meanwhile, Mr Ray and the Bahamian liquidators, in their June 14, 2024, legal filings are also seeking an order requiring the US Justice Department to hand over to their combined liquidation estate the two planes - a Bombardier Global 5000 and Embraer Legacy - that were acquired with funds belonging to FTX and Alameda Research, the latter being Bankman-Fried’s private trading arm.

“Beginning in early 2022, Bankman-Fried and other senior FTX group employees expressed a desire to acquire private planes, but noted concerns about the potential reaction if their ownership of those planes were publicly known,” the joint petition asserted.

“To obscure the acquisition of the planes, on February 1, 2022, Trans Island Airways, a charter company that had prior dealings with the FTX group, entered into a letter of intent to purchase the Global for $15.9m at the direction of senior FTX group employees.

“On February 2, 2022, debtor Alameda wired a $500,000 deposit directly to Global’s escrow agent, and on March 3, 2022, Ryan Salame [former head of FTX Digital Markets] caused another $15.4m of Alameda funds to be transferred to the escrow agent to complete the purchase of the Global. The debtors thus paid the entire $15.9m purchase price of the Global,” the legal filings continued.

“In addition, on August 16, 2022, debtor Alameda transferred $11.545m to the Legacy’s escrow agent, representing the entire purchase price of the Legacy. The debtors thus paid a total of $27.445m to purchase the planes.

“In addition to selecting the planes and paying their entire purchase price, the debtors also incurred extensive renovation costs to satisfy the whims of Bankman-Fried and other senior FTX group executives,” the documents added.

“For example, more than $4m in debtor funds were transferred to Paul Aranha, owner of Trans-Island Airways, for purported upgrades to the planes and other related invoices, including nearly $1.3m for Wi-Fi upgrades, approximately $900,000 for interior renovations and ‘aircraft bed systems’, and $975 for ‘board game purchases for SBF for airplane’.” 

Both planes are presently in the custody of US authorities waiting to be auctioned off with the proceeds to be used to compensate FTX victims. “The debtors and the [US] government spent many months negotiating with Aranha to secure the Legacy’s return to the US,” the joint petition said.

“As part of a resolution designed to avoid further expense and to maximise value for the debtors’ creditors and Bankman-Fried’s victims, the debtors and the government agreed to a stipulation and order whereby Aranha would return the Legacy to the US and consent to an interlocutory sale of the planes in exchange for being reimbursed for certain out-of-pocket expenses associated with maintaining the planes post-petition and returning the Legacy to the US.” The plane’s return has already happened.

“Amending the preliminary forfeiture order to provide for the return of the specific property to the debtors and/or FTX Digital Markets will benefit all the creditors and stakeholders in the Debtors’ Chapter 11 bankruptcy proceedings and FTX Digital Markets’ liquidation in The Bahamas,” Mr Ray and the Bahamian liquidators argued.

“With respect to the accounts identified, the debtors and/or FTX Digital Markets have a superior interest to Bankman-Fried. The Preliminary forfeiture order should be amended to exclude each of these categories of specific property and to provide for their return to the debtors and/ or FTX Digital Markets to allow them to be distributed for the benefit of the debtors’ creditors and Bankman-Fried’s victims pursuant to the Debtors’ plan of reorganisation.”

However, Mr Ray and the Bahamian liquidators face competition from former FTX clients who have an ongoing class action lawsuit in the south Florida district court that has named Deltec Bank & Trust and its chairman, Jean Chalopin, among the defendants. Both have denied any wrongdoing in relation to FTX and the claims against them.

Meanwhile, Bahamian liquidators have informed FTX victims that they are in line to recover more than the value of their assets/ investments should Mr Ray’s Chapter 11 reorganisation plan be approved by the Delaware courts on June 25.

“Customers of FTX.com or ‘FTX International’ are entitled to claim in either The Bahamas process or the US Process (the Chapter 11 bankruptcy of FTX Trading and its debtor affiliates),” they wrote on June 12, 2024.

“In either process, customers can expect to receive the same distribution at broadly the same time. At this stage, subject to the approval of the Chapter 11 plan, customers are anticipated to receive between 119-143 cents on the dollar.

“For those customers who submitted a proof of debt claim in the Bahamas process we will shortly be writing to you to confirm that you wish to continue to have your claim administered, processed adjudicated and settled in The Bahamas.

“For those customers who have not yet submitted a proof of debt claim in The Bahamas process, you will be able to do so up to the claim bar date, currently anticipated to be mid-August 2024.”