War of Words Breaks Out Between FTX's New Management and Bahamas Regulator

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A legal battle between FTX's new management and Bahamian regulators is increasingly turning into an angry media battle in which accusations of bad faith and playing fast and loose with the truth are beginning to fly.

On Jan. 2, the Securities Commission of The Bahamas tweeted out a letter accusing the FTX Group's bankruptcy CEO, John Ray III, of having "a cavalier attitude towards the truth and towards The Bahamas."

That came in response to a Dec. 29 filing in Delaware bankruptcy court by Ray's FTX Group that accused the Bahamian SCB and its appointees of "boldly" admitting that they violated the Delaware court's order freezing all FTX Group assets. That "conclusively" proves that they are planning "an end run around this court and Chapter 11."

There are a couple of major areas of dispute, most notably control of the bankruptcy process, with the SCB's court-appointed liquidators arguing that the company was actually run from The Bahamas, where Bankman-Fried and his top lieutenants lived.

That's based on FTX Digital Markets, the company's Bahamian arm, which an FTX Group filing called "a virtual nullity" that offered minimal services during its six-month lifespan and "never earned a dollar of third-party revenue."

Where's the Money?

A second big one is The Bahamas' seizure of FTX funds in the chaos around the bankruptcy that engulfed the FTX and FTX US exchanges, sister trading firm Alameda Research, and more than 100 other firms used for a wide variety of purposes. All are now referred to as the FTX Group.

Bahamian regulators seized hundreds of millions of dollars in digital assets in the custody of FTX DM and "violated" the Delaware bankruptcy court's asset freeze by allowing local customers to withdraw $100 million, the FTX Group filing said.

The filing also accused Bahamian regulators of "stonewalling" and said it was "reckless in the extreme" in valuing the assets seized at $3.5 billion. FTX management believes that refers to a cache of the failed exchange's native FTT tokens. A current market value puts them at $167 million, but in practice they may be unsellable. FTT tokens were the collateral that Alameda put up when it borrowed billions from FTX. Within 10 days of the revelation of just how much of it was on the books, the exchange collapsed in a crypto bank run.

Untrusted

Ray III's FTX Group management is also opposing what it calls wildly overbroad demand for information by the SCB.

For one thing, the Dec. 29 filing noted, despite working with internal records it found to range from completely untrustworthy to non-existent, FTX Group is "already responding to myriad targeted requests from the [Department of Justice, Securities and Exchange Commission, the Commodity Futures Trading Commission], state banking regulators, numerous states attorneys-general, and Congress" as well as the creditor committee and U.S. trustee.

Bahamian authorities cannot simply "force their way to the front of the line to the detriment of all other stakeholders," it added.

For its part, in the Jan. 2 letter it released on Twitter, the SCB said it sought to correct "material misstatements" by John Ray III, including those regarding accusations of it seizing FTX DM assets rather than taking them into safekeeping. Nor did FTX Group management attempt to request information from Bahamian authorities before making accusations, it added.

This "continued lack of diligence when making public statements concerning the

Commission is disappointing, and reflects a cavalier attitude towards the truth and towards The Bahamas that has been displayed by the current officers" the SCB said.

Those officers, it noted pointedly, were hired by Sam Bankman-Fried when the company filed for bankruptcy.