Sam Bankman-Fried, founder of FTX, center right, is escorted out of the Magistrate’s Court in Nassau, Bahamas, on Dec. 13, 2022. (George Robinson/Bloomberg)
Bahamian liquidators are set to scuffle with U.S.-based bankruptcy lawyers over the remains of Sam Bankman-Fried's crypto empire Wednesday, highlighting a key tension hanging over the downfall of FTX.
The sides have traded jabs in recent days through a series of unusually colorful court filings about who can access sensitive FTX data. U.S.-based lawyers have accused Bahamanian officials of working closely with Bankman-Fried, who was arrested in Nassau on Monday. Bahamian liquidators said they're entitled to the information so they can clean up a locally based subsidiary.
The conflict intensified Monday as Bahamas court officials demanded that millions of dollars of company-owned real estate on the island nation be removed from oversight by a U.S. judge. That effort, if successful, could give the liquidators control of millions of dollars more in assets.
"The Bahamian courts that have jurisdiction over the real estate cannot recognize this court's orders," the liquidators argued, citing local law. They want the holding company that owns the real estate — which includes the company's headquarters and a smattering of residences — to be removed from the U.S. bankruptcy, according to court papers.
The move escalates a battle between officials in the Bahamas and an American team of restructuring executives. Each side has previously argued that it should be leading the hunt for FTX assets to repay creditors. The Americans, on Monday, accused the Bahamas of meddling in their efforts by asking Bankman-Fried and one of his co-founders, Gary Wang, to mint new digital coins worth hundreds of millions of dollars and then turning that money over to Bahamian regulators — all while FTX was imploding.
Delaware Scuffle
U.S. Bankruptcy Judge John Dorsey will hold an emergency hearing on the dispute over access to FTX data on Wednesday. Dorsey is overseeing all of the U.S.-based FTX insolvency cases, about 100 units in total.
The liquidators want immediate access to FTX data controlled by their American counterparts. The U.S. FTX team says that would allow Wang to regain access just weeks after his alleged breach that resulted in a new batch of crypto coins going out the door. Bankman-Fried is in jail in the Bahamas awaiting extradition to the U.S. on fraud charges.
The liquidators control a single FTX entity, called FTX Digital, which is being supervised by a court in the Bahamas. The American team controls nearly all the rest of Bankman-Fried's former empire, which filed for Chapter 11 protection in Wilmington, Delaware on Nov. 11. That means most of the assets, wherever they are located, are likely under the authority of Dorsey, the bankruptcy judge in Delaware.
But in their court filing Monday, the liquidators demanded the property-owning unit be dismissed from bankruptcy and sold for parts in the Bahamas.
Among other things, they say the real estate should be liquidated in the Bahamas because the unit that owns it has no connection to the U.S. — not even a bank account. They also claim that two signatures were required to put property-holding unit into bankruptcy in the U.S.., but that only Bankman-Fried authorized the filing, so it is illegal.
The case is FTX Trading Ltd., 22-11068, U.S.. Bankruptcy Court for the District of Delaware.
