Bahamas-FTX Dispute Heats Up as Bankman-Fried Prepares for Trial

A media and legal dispute between FTX’s new U.S. owners and regulators in the Bahamas has worsened as the two prepare to take their case to a full court hearing later this week.

Each side is seeking to associate the other to the alleged underhand dealings of the crypto exchange's former CEO, Sam Bankman-Fried, who is awaiting trial for fraud in the U.S. after being extradited from the Bahamas and released on bail.

Central to the dispute is who can have access to FTX’s internal systems, such as internal Slack messages and the QuickBooks accounting software. Bahamas liquidator Brian Simms says he needs the data to wind up his side of the company, as a local court ordered him to do in November. New FTX chief John Ray III says the request has “staggering overbreadth.”

As Bankman-Fried prepares for his arraignment in New York, a Delaware bankruptcy court will have to adjudicate in a jurisdictional dispute between the two parties that have publicly accused each other of being “reckless in the extreme” and having a “cavalier attitude toward the truth.”

In late December, the Bahamian government hired law firm Brown Rudnick LLP – famous for representing actor Johnny Depp in his defamation lawsuit against ex-wife Amber Heard – to handle communications with media outlets and government agencies in the U.S., Bloomberg Law reported Tuesday.

In one corner stand liquidators who argue the company was in practice run from the Bahamas; in the other, Ray, who says the Bahamas entity of the company is at best a sideshow.

FTX Digital Markets was “never the center of the FTX group” and is “a virtual nullity” within Bankman-Fried’s empire – merely a short-lived matchmaking service that operated for just six months and earned no third-party revenue, Ray’s legal team argued in a legal deposition posted Friday.

FTX says that any information shared with counterparts in the Bahamas would be abused, and that the Bahamian government and liquidators “colluded” with FTX founders Bankman-Fried and Gary Wang, who, in Ray’s words, left the company “more closely resembling a crime scene than an operating business.”

Simms and the Bahamas Securities Commission “worked with Mr. Bankman-Fried, under criminal indictment for one of the largest financial crimes in history … to take digital assets” from FTX’s cloud service on Nov. 11-12, only seeking court approval after the fact, Friday’s the filing from FTX's new management said, accusing Bahamas liquidators of malpractice.

“It is also possible that after his appointment Mr. Simms violated his fiduciary duties as provisional liquidator by allowing the withdrawal window to remain open for Bahamas residents,” the filing said, referring to a one-day window in which $100 million in FTX assets were withdrawn, and by transferring funds to the Commission.

Ray also appears to disbelieve a claim by Bahamian authorities that they hold $3.5 billion in FTX assets, describing the valuation as “reckless in the extreme.”

Either the Bahamians have further assets they haven’t disclosed or the tokens they do hold – mainly 195 million shares of FTX’s own FTT token – are now worth closer to $167 million given the collapse in value, the FTX filing said.

The Dec. 30 filing received a furious rejoinder from the Bahamas Securities Commission, which on Monday issued a press release saying it “must once again correct material misstatements” made by Ray.

A claim that Bahamian authorities had instructed the minting of new tokens after bankruptcy was declared are “unfounded” and “without evidence,” the Commission said.

Court filings supplied by FTX include a Nov. 13 Slack message by Wang that said a transfer of FTT was directed by Bahamas regulators and a Nov. 12 letter from the Commission’s executive director, Christina Rolle, to Tether instructing the company to simultaneously burn and mint USDT coins.

FTX’s claims regarding asset valuation are “based on incomplete information,” the Commission’s press statement added.

Ray’s “continued lack of diligence … reflects a cavalier attitude towards the truth,” it said – adding that FTX’s current senior managers, including Ray, were appointed by Bankman-Fried. Asked by CoinDesk, the Commission didn't offer any further explanation of how it arrived at the $3.5 billion figure.

A substantive hearing on the issue is due to begin Friday. U.S. Bankruptcy Judge John Dorsey will preside.

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

Update (Jan. 3, 2023 17:17 UTC): Adds that the Bahamian government has engaged the services of U.S. law firm Brown Rudnick LLP in fourth paragraph.