Bahamian Securities Regulator Says It Ordered Transfer of FTX Crypto to Government Wallets

Bahamian Securities Regulator Says It Ordered Transfer of FTX Crypto to Government Wallets

The Bahamas Securities Commission announced on Thursday that it had ordered the transfer of the contents of FTX crypto wallets to government-controlled wallets the previous Saturday.

In a news release, the commission said it issued the order under existing authorities that allow it to take action if it needs to protect customers or their funds.

“The Bahamas Securities Commission (“the Commission”), in exercise of its regulatory powers acting under an order of the Supreme Court of the Bahamas, has taken steps to order the transfer of all digital assets of FTX Digital Markets Ltd. (“FDM”) to a Commission-controlled digital wallet, for safekeeping,” the statement read. “Urgent interim regulatory action was necessary to protect the interests of FDM’s clients and creditors .”

It’s unclear why the commission made the announcement five days after placing the order. It is also unclear whether and when exactly these transfers may have taken place. CBS executive director Christina Rolle did not return a phone call.

FTX filed for bankruptcy on Friday, November 11, in a chaotic filing that wrongly labeled a number of companies outside of the FTX umbrella as filing for bankruptcy. On the evening of November 11 and into the early hours of November 12, the company appeared to have been hacked, with hundreds of millions of dollars worth of crypto flowing out of FTX wallets. Some of these transactions were related to profane comments about former FTX CEO Sam Bankman-Fried.

FTX’s US General Counsel Ryne Miller tweeted as he investigated, only to later say that FTX was working to divert funds to cold storage wallets.

Read more: FTX Hacker Panicked, Still Holds $339 Million in Ether, Cryptos: Arkham Intelligence

The post may also allude to a jurisdictional fight between the United States and the Bahamas, where FTX was headquartered. SCB’s statement said, “The Commission does not understand that FDM is a party to the United States Chapter 11 bankruptcy proceeding.”

FTX Digital Markets filed for Chapter 15 bankruptcy in the United States on November 15, days after most of the other members of the FTX Group filed for Chapter 11 bankruptcy. Even stranger, FTX Digital Markets filed for bankruptcy in the Southern District of New York, rather than Delaware where the rest of the companies have filed.

Lawyers for FTX said in a filing Thursday that joint provisional liquidators appointed by the Bahamian court had filed the filing, which recognizes foreign bankruptcies, as part of an effort to undermine the larger group’s U.S. filings.

“The filing of the Chapter 15 case without notice and in SDNY is a blatant attempt to avoid the supervision of this Court and to keep FTX DM isolated from the administration of the rest of the debtors, who constitute the vast majority of the rest of the FTX Group. Under normal circumstances, this would be inappropriate and would be grounds for transfer to this Court. But these are not normal circumstances,” the lawyers said.

They went on to allege that Bankman-Fried was working with the Bahamian government in this effort.

“Mr. Bankman-Fried, the co-founder and majority owner of All Debtors and FTX DM, appears to support JPL’s efforts to expand the scope of FTX DM proceedings in the Bahamas, to undermine these Chapters 11 cases, and move debtors’ assets to accounts in the Bahamas under the control of the Bahamian government,” the filing said.

The SCB will “engage with other regulators and authorities” in different jurisdictions in the coming days, its press release says.

The regulator released a statement on Saturday announcing that it had not ordered FTX to allow Bahamian residents to withdraw funds, contradicting a claim FTX had previously made allowing withdrawals for people living in the Bahamas.

Read more: New FTX boss condemns management of crypto exchange during Sam Bankman-Fried’s tenure

UPDATE (November 18, 2022, 01:37 UTC): Add additional information.

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