Bahamas Regulators Hold $3.5 Billion Worth of FTX Customer Assets

Former FTX chief executive Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt cryptocurrency exchange, walks from the Manhattan federal court after securing bail in New York, on Dec. 22, 2022. Jeenah Moon/Reuters

Regulators in the Bahamas are holding on to $3.5 billion worth of FTX assets that it claims are intended to be transferred to those who were monetarily affected by the crypto-fallout as customers of the company have filed a lawsuit to get their dues prioritized.

After crypto exchange FTX filed for bankruptcy in November, around $372 million worth of tokens were stolen from the company by an unknown actor. Based on the information regarding the cyberattack provided by former CEO Sam Bankman-Fried, the Securities Commission of The Bahamas determined that there was a “significant risk of imminent dissipation” of digital assets owned or under the control of FTX.

The commission thus requested, and subsequently obtained, a court order to safeguard these assets by transferring them to secure digital wallets that are under its exclusive control, according to a press release (pdf) on Dec. 29.

“On 12 November 2022, the Commission, in the exercise of its powers as regulator acting under the authority of an Order made by the Supreme Court of The Bahamas, took the action of directing the transfer of all digital assets of under the custody or control of FTXDM or its principals, valued at more than US$3.5 billion, based on market pricing at the time of transfer, to digital wallets controlled by the Commission, for safekeeping,” the release said.

The transferred digital assets will be held under the control of the commission on a temporary basis until such time that the Supreme Court asks the commission to hand them over to creditors and customers.

Alternatively, the commission might also transfer assets to the joint provisional liquidators (JPL) to be administered under the rules related to insolvency of the FTX estate.

FTX Creditors

FTX filed for Chapter 11 bankruptcy after concerns about the balance sheet of the company triggered a mass withdrawal of funds by depositors, which pushed the firm into a liquidity crisis.

The company had earlier estimated that there would be 100,000 creditors who would be affected by the collapse, but later raised it to more than a million.

In late December, FTX customers filed a class-action lawsuit against the company and its former top executives seeking a declaration that the firm’s digital asset holdings belong to customers.

The lawsuit argues that FTX had pledged to segregate customer accounts, but instead allowed them to be misappropriated. As a result, the customers should be repaid first, it said.

“Customer class members should not have to stand in line along with secured or general unsecured creditors in these bankruptcy proceedings just to share in the diminished estate assets of the FTX Group and Alameda,” the lawsuit stated.

Other Lawsuits

Bankman-Fried’s criminal case on the FTX collapse was recently reassigned to U.S. District Judge Lewis Kaplan, who is known to have earlier handled a sexual abuse lawsuit against Britain’s Prince Andrew and defamation lawsuits against former President Donald Trump.

The ex-FTX CEO is being accused by the U.S. Department of Justice of causing billions of dollars in losses due to the fallout. He was recently granted bail on a $250 million bond and is required to remain under detention in his parents’ California home. Bankman-Fried has not yet entered a plea.

Gary Wang, co-founder of FTX, as well as Caroline Ellison, former co-CEO of Bankman-Fried’s Alameda Research, are facing charges. They are pleading guilty to federal charges and are said to be cooperating with prosecutors.