FTX Bankruptcy Court Is Warned Against Granting Bahamas 'Dangerous' IT Access

Testimony from new boss John Ray has proven inflammatory in the Bahamas, where parallel proceedings are also attempting to wind up the crypto exchange.

AccessTimeIconDec 14, 2022 at 5:54 p.m. UTC
Updated Dec 14, 2022 at 9:45 p.m. UTC
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A dispute over access to FTX’s computer systems deepened Wednesday, with Judge John Dorsey of the U.S. Bankruptcy Court in Delaware attempting to smooth the waters on rival claims from the U.S. and the Bahamas.

Giving access to FTX's platform would let funds slip away to an untrustworthy Bahamas government, while inflammatory congressional testimony from new CEO John Ray III risked taking the case “off the rails,” the court was told by the two opposing parties.

The hearing occurred the day after FTX founder Sam Bankman-Fried was denied bail in a Bahamas courtroom after being arrested at the U.S.’ request. The exchange filed for Chapter 11 bankruptcy protection in the U.S. on Nov. 11, and was liquidated in the Bahamas shortly after.

“This is dangerous information,” James Bromley, representing Ray's FTX, said of a demand from Bahamas-based joint provisional liquidators (JPL) to be given access to the Amazon and Google cloud services that underpinned the exchange.

“We do not trust the Bahamian government and … we simply don't trust that the JPLs will be able to hold this information and not provide it to the Bahamian government,” he added. “The Securities Commission of the Bahamas has already collaborated with the JPLs to obtain access to digital assets and to mint tokens.”

Bromley is worried that access to the platform will enable cryptocurrency to be transferred out of U.S. control. He has previously submitted as evidence a Nov. 10 email between Bankman-Fried and Bahamas Attorney General Ryan Pinder that suggested local users of the site would be given preferential access to assets.

Meanwhile, Brian Simms and other provisional liquidators in the Bahamas say they need to be able to review records so they can identify company assets and maintain value, warning that some crucial data could be auto-deleted if there are overlong delays.

“I've seen a lot of mega-cases go off the rails,” Simms’ lawyer Chris Shore told the court, also warning of high legal costs from a protracted dispute.

Given allegations “that a foreign government has colluded with somebody who is jailed right now … we’re at least tilting on the rails,” Shore said, in an apparent reference to congressional testimony given Tuesday by Ray about relations between Bankman-Fried and Bahamian authorities.

Judge Dorsey attempted to calm what he called a “heated debate,” and clearly hopes to find a solution that will let Simms get on with his job. Compromises were discussed such as offering a clone of the database, granting static access to information or setting legal limits on how Simms can use the data.

In a Tuesday statement, the Bahamas Securities Commission also hit out at Ray, accusing him of “misstatements” and of confusing Bahamian organizations that Shore noted are as distinct as Ray himself is from the U.S. Securities and Exchange Commission (SEC).

Simms is also seeking access to employee Slack and email records and the off-the-shelf accounting software QuickBooks. Such platforms may have been used for substantive decision-making and governance at the multi-billion-dollar company, to Ray’s apparent surprise.

Founder Sam Bankman-Fried has previously complained that his lack of access to personal and professional data from his time at the company means he can’t give a full account of FTX’s collapse. He now faces not just media interest and congressional hearings but a series of charges brought by the Department of Justice, the Securities and Exchange Commission and commodities regulator the Commodity Futures Trading Commission.

Dorsey will consider the case further on Friday and possibly at an additional Jan. 6 hearing, should mediation fail.

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Jack Schickler

Jack Schickler was a CoinDesk reporter focused on crypto regulations, based in Brussels, Belgium. He doesn’t own any crypto.


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