Bahamas AG Says FTX ‘Debacle’ Not the Fault of the Country

US regulators also failed to notice anything amiss at collapsing crypto exchange

Illustration by The Epoch Times. (Craig Barritt/Getty Images)

Bahamas Attorney General Ryan Pinder took to the podium Sunday night to defend his country’s securities regulators against “inaccurate allegations” by the U.S.-based legal team, led by veteran work-out attorney John Ray III, that has taken over management of FTX in bankruptcy, following the cryptocurrency exchange’s abrupt collapse in early November.

“It is possible that the prospect of multimillion-dollar legal and consultancy fees is driving both their legal strategy and their intemperate statements,” Pinder alleged, adding that “any attempt to lay the entirety of this debacle at the feet of the Bahamas because FTX is headquartered here would be a gross oversimplification of reality.”

Ray is reportedly earning $1,300 per hour, with a $200,000 retainer, to lead the work-out effort. Other attorneys are reported to earn $975 per hour, with other technical and investigative consultants earning $50,000 per month. In addition, many of the original 350 FTX employees are being kept on the payroll in order to try to preserve for investors whatever value of the company remains, but according to Ray, even figuring out who all these employees are has been challenging.

Ray states in his bankruptcy declaration of Nov. 17 that because of poor record keeping by the company’s human resources department, bankruptcy attorneys “have been unable to prepare a complete list of who worked for the FTX Group as of the petition date or the terms of their employment. Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date.”

Bahamas Attorney General Ryan Pinder addresses the nation regarding the FTX collapse on Nov. 27, 2022. (The Office of the Prime Minister, the Bahamas / screenshot via The Epoch Times)

Founded by Sam Bankman-Fried in 2019, FTX was valued at $32 billion by 2021 and was the third-largest exchange for cryptocurrency in the world, with more than a million investors trading its version of digital currency, known as FTT. Bankman-Fried’s net worth at the height of the crypto market was believed to be $16 billion.

The crypto market has had a difficult year across the board, falling from a total global market capitalization of $3 trillion a year ago to around $800 billion today, with other crypto companies facing bankruptcy. But FTX had specific problems beyond the general market decline.

On Nov. 6, Binance, a rival exchange to FTX, abruptly sold off its $2 trillion holdings of FTT, which it acquired in connection with a prior stake in FTX. Binance CEO Changpeng Zhao noted in a tweet: “Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books.”

Caroline Ellison, CEO of Alameda Research at the time, responded by tweet to Binance: “If you’re looking to minimize the market impact of your FTT sales, Alameda will happily buy it all from you today at $22!” But Alameda was unable to make good on this pledge, and the massive unloading of FTT sparked other investors to rush to sell the digital coin as its value collapsed, sparking a liquidity crisis at FTX.

According to Pinder, “FTX was experiencing the equivalent of a run on a bank, when customers are all rushing to withdraw all of their assets simultaneously.” Binance then offered to step in and acquire FTX, but quickly withdrew its offer once it got a look at FTX’s books, which Ray subsequently described as “a complete failure of corporate controls and a complete absence of trustworthy financial information.”

Liquidity issues, it now appears, were only the tip of the iceberg. To date, the investigation of FTX’s books indicates that money that investors put up to buy FTT crypto on the exchange was being passed from their exchange accounts to an affiliated hedge fund called Alameda Research. It was also being lent out to owners, used to buy houses in the Bahamas and elsewhere, donated to various progressive causes that Bankman-Fried supported, or paid out as political donations.

But the blame for regulators failing to notice any of this should not be placed solely on the Bahamas, Pinder said. Of the more than 100 subsidiaries and affiliates of FTX’s crypto empire, FTX Digital Markets is the only entity regulated in the Bahamas, according to Pinder. Alameda Research, the hedge fund affiliate of FTX, is registered in Delaware. According to Ray’s bankruptcy filing, however, other Alameda affiliate companies are registered in the Bahamas, as well as in Korea, Japan, the British Virgin Islands, Antigua, Hong Kong, Singapore, the Seychelles, the Cayman Islands, Australia, Panama, Turkey, and Nigeria.

‘Next Warren Buffet’

Numerous FTX subsidiaries are registered with the Securities and Exchange Commission (SEC), with some operating with licenses from the U.S. Commodity Futures Trading Commission (CFTC)—both U.S. regulators who were established to protect small investors and appear to have had no concerns about illicit activity at FTX prior to the bankruptcy filing. At the height of his success, Bankman-Fried was lauded on the cover of Forbes and Fortune Magazine, which referred to him as the “next Warren Buffet.”

In an aerial view, the FTX Arena, which the Miami Heat call home, on Nov. 18, 2022, in Miami, Florida. Miami-Dade County and the Miami Heat are ending their arena naming rights deal with the company. (Joe Raedle/Getty Images)

He was praised for his support of progressive causes, which ranged from climate change to pandemic policy. Sam’s brother, Gabe Bankman-Fried, ran the advocacy group Guarding Against Pandemics, which sought to increase government efforts for pandemic prevention and to which Bankman-Fried donated millions.

Bankman-Fried had relationships and took meetings with prominent politicians and regulators, including SEC Chairman Gary Gensler, who seemingly also failed to notice anything amiss at FTX during a 45-minute phone call with Bankman-Fried. Bankman-Fried was the second-largest donor to the Democratic Party, after billionaire hedge-fund manager George Soros, and donated $10 million to Joe Biden’s presidential campaign. Of the tens of millions of dollars Bankman-Fried donated to political campaigns, $262,200 went to Republican candidates, while $40 million went to Democrats.

Pinder took no questions after his speech and did not address other open issues, including whether FTX founder and ex-CEO Sam Bankman-Fried would be extradited to the United States to face criminal charges or whether the global assets of the FTX empire would be consolidated from the various jurisdictions around the globe into the United States, as the bankruptcy team is attempting to do.

Bankman-Fried remains a headline speaker at the upcoming New York Times’ DealBook Summit, which also features BlackRock CEO Larry Fink, Secretary of the Treasury Janet Yellen, Meta CEO Mark Zuckerberg, actor Ben Affleck, and Ukrainian President Volodymyr Zelensky, among others. BlackRock was reportedly one of the investors in FTX.

A recent tweet from Bankman-Fried stated, “I’ll be speaking with [New York Times business columnist] Andrew Sorkin at the dealbook summit next Wednesday (11/30).”

The Times’ summit, billed as a gathering of “today’s most vital minds on a single stage,” identifies Bankman-Fried as “a 29-year-old American investor, entrepreneur, and philanthropist.”

“At this time, we expect Mr. Bankman-Fried will be participating in the interview from the Bahamas,” a spokesperson for the New York Times told The Epoch Times.

Bankman-Fried’s parents, both professors at Stanford University, are prominent supporters of the Democratic Party. His mother, Barbara Fried, is the founder of “Mind the Gap,” a secretive Silicon Valley fundraising organization for Democrat candidates. Mind the Gap has reportedly raised approximately $20 million from tech investors to support left-wing political campaigns.

‘A Very Complex Investigation’

In defense of Bahamian regulators, Pinder said that authorities in the Bahamas were the first in the world to act when trouble at FTX became apparent, and that there were “a number of protective measures” that were taken by the Bahamian Securities Commission on Nov. 10, including freezing FTX’s accounts, seizing FTX’s assets and putting FTX into provisional liquidation the day after rival crypto exchange Binance abruptly pulled out of a deal to acquire FTX.

“No other jurisdiction in the world moved or could have moved this quickly,” Pinder said. FTX filed for Bankruptcy protection in the United States on Nov. 11.

Regarding possible criminal activity by FTX’s former management team, Pinder stated that “it is a very complex investigation” and that he would give no further details “until we are confident that doing so will not jeopardize any aspect of the ongoing investigations.”

However, Pinder said that in the wake of the FTX bankruptcy, there was “little contagion beyond the digital assets sphere, both here in the Bahamas and around the world,” and he predicted that “the turbulence currently being experienced by the digital assets sector will pass.”

However, shortly after Pinder’s speech, crypto lender BlockFi filed for bankruptcy in New Jersey. Mark Renzi, BlockFi’s financial advisor, stated: “With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the Company.”

The Bahamas was one of the first jurisdictions in the world to establish a national regulatory regime for cryptocurrency. Earlier this year, the Bahamas enacted the Digital Assets Registered Exchanges Act (DARE), which established legal lines of authority for crypto regulation.

“We have been shocked at the ignorance of those who asserted that FTX came to the Bahamas because they did not want to submit to regulatory scrutiny,” Pinder said, adding that ultimately the world “will see that the Bahamas is a place of laws … and they will have found yet another reason why it’s better in the Bahamas.”