Bahamas government officials are working closely with failed crypto magnate Sam Bankman-Fried and trying to help him regain access to key computer systems of bankrupt FTX Trading, lawyers for FTX said in a court filing.
Before Bankman-Fried was blocked from FTX systems, the Bahamas asked him to mint new digital coins worth hundreds of millions of dollars and then transfer those tokens to the control of island officials, according to the legal team in control of FTX.
The accusations escalate a battle between an American team of restructuring executives trying to collect FTX assets to repay creditors, and officials in the Bahamas. Liquidators in the island nation have asked a US judge for access to FTX data controlled by their American counterparts.
“It is a request for live, dynamic access that would be provided immediately to the government of the Bahamas and to Messrs. Samuel Bankman-Fried and Gary Wang, who are located in the Bahamas and working closely with Bahamian officials,” American lawyers wrote in a court filing Tuesday. Wang is an FTX co-founder.
Bankman-Fried and Wang didn’t immediately respond to messages seeking comment. Bankman-Fried was arrested Monday in the Bahamas after the U.S. filed criminal charges against him.
Bahamas withdrawals
In attempting to paint a portrait of coziness between Bankman-Fried and Bahamas authorities, the company’s U.S. lawyers called out a Nov. 9 email — just days before the bankruptcy — in which Bankman-Fried said he would be “more than happy” to open up withdrawals for all Bahamanian customers, allowing them to be made whole.
“It’s your call whether you want us to do this — but we are more than happy to and would consider it the very least of our duty to the country, and could open it up immediately if you reply saying you want us to,” Bankman-Fried wrote, according to court papers.
The next day, $100 million began leaving the platform, according to FTX’s U.S. lawyers.
The fall of Bankman-Fried’s crypto empire set off investigations by federal prosecutors, regulators and the FTX bankruptcy team. Bankman-Fried gave up control of FTX to restructuring expert John J. Ray III and a team of lawyers and financial advisers who are poring over the company’s books in search of cash, cryptocurrency and assets that could be sold to help repay creditors.
Days after FTX put about 100 units into bankruptcy in Wilmington, Delaware, the company’s American restructuring team accused the Bahamian government of meddling in the U.S. reorganization effort. Bahamas officials are “responsible for directing unauthorized access” to FTX systems in order to get control of digital assets under the supervision of a U.S. court, American lawyers said in a court filing, citing social media posts and text messages from Bankman-Fried and others.
While Ray and his team tried to get control of FTX’s computer systems, they watched as someone minted new coins. Eventually, they concluded it was Bankman-Fried and Wang working at the behest of the Bahamas.
Liquidation fight
The FTX lawyers also complained about legal maneuvers by Bahamas liquidators to expand the scope of their authority beyond the single FTX unit currently being liquidated by a Bahamian court. The liquidators have asked the U.S. judge to force their American counterparts to give Bahamian lawyers access to trading platform data, email records and other information stored on FTX systems.
A lawyer for the Bahamas liquidator did not immediately respond to a request for comment.
The two sides will also square off in federal court in January over how much deference the U.S. team must give to the case in the Bahamas.
In U.S. bankruptcy courts, creditors are repaid based on the priority of their debt, not their nationality. When multinational corporations file bankruptcy in the U.S., a federal judge usually has authority to distribute all of the company’s assets, once a final reorganization plan is approved. Sometimes, a company’s assets are so closely tied to debt owed to foreign creditors, that additional insolvency cases are filed outside the U.S.
When that happens, international legal fights can drag on for years, delaying payment to creditors.
The case is FTX Trading Ltd., 22-11068, U.S. Bankruptcy Court for the District of Delaware.
