According to court filings published yesterday, Ryan Salame, the former co-CEO of FTX Digital, informed the Securities Commission of the Bahamas on November 9 that FTX Digital had transferred funds to Alameda Research. Salame was in Washington at the time. That was the same day that Binance withdrew its offer to buy FTX.
The former co-CEO also stated that the only three people who could authorize such transfers were Sam Bankman-Fried (SBF), Nishad Singh, or Gary Wang.
However, it is claimed that transfers and co-mingling happened from day one in court cases filed yesterday by the U.S. Department of Justice, the SEC and CFTC.
Salame advised that the transfers were contrary to normal corporate governance for FTX Digital. That raises the question of Salame’s awareness of potential earlier transfers. Especially as Salame should know what is acceptable, given he is a U.S.-qualified accountant (CPA). He also made $23 million in U.S. campaign donations.
Disputes between Bahamas and U.S. insolvency firms
Various accusations are flying around between the U.S. Chapter 11 group, the local Bahamas liquidators and others. The Securities Commission of the Bahamas (the Commission) put the company into liquidation first.
A brief summary of the issues are:
- After stopping withdrawals, FTX paid $100 million to 1,500 Bahamas creditors.
- The U.S. bankruptcy team alleges that new FTT tokens were minted by the Securities Commission of the Bahamas.
- The Securities Commission of the Bahamas transferred the remaining assets into a cold wallet.
- The Bahamas bankruptcy team is requesting access to the FTX Digital systems because it’s the local liquidator and needs access to do its work. The U.S. side is declining.
It is widely known that FTX continued to pay out Bahamas debtors after it closed other withdrawals. An email from Sam Bankman-Fried (SBF) states this was his idea.
“We would be more than happy to open withdrawals to all Bahamian customers on FTX, so that they can, tomorrow, fully withdraw all of their assets, making them fully whole,” wrote SBF. It continues that he “could open it up immediately if you reply saying you want us to. If we don’t hear back from you, we are going to go ahead and do it tomorrow.”
In an affidavit the following day from Christina Rolle of The Commission, she expresses concern, questioning whether this is a voidable preference and will “subsequently result in attempts to claw back funds from Bahamian customers. In any event, the Commission cannot condone the preferential treatment of any investor or client of FTX Digital or otherwise.” The affidavit was on the November 10, and the same sentiment was repeated in a press release two days later, after the distributions happened.
What we did not see in the filings was an email from the Commission to SBF saying, “do not pay out Bahamas clients”.
Minting of tokens after insolvency
During a Congressional hearing earlier this week, the new FTX CEO, John Ray, stated that new FTT tokens were minted at the behest of the Commission.
This repeated an allegation he made in a letter to the Prime Minister of the Bahamas and its Attorney General. He wrote:
“FTX Global Debtors possess information that indicates the Commission was involved in directing others to access the computer systems of the FTX Global Debtors on or around November 12, 2022, that digital assets were transferred, that tokens were minted and that such actions were taken or facilitated by Messrs Bankman-Fried and Wang, perhaps among others, at the express direction of the Commission and Ms. Christina Rolle, Executive Director of the Commission.”
We’re not aware of a response to this other than a simple denial. However, the Commission stated in a press release that on November 12, the same day, it took physical control over the remaining assets.
It’s conceivable that the Commission decided it needed help from SBF or Wang to secure the assets, and while doing so someone – the question is who – minted additional tokens.
In the meantime, the Bahamian liquidators don’t have access to the records of the company they are liquidating. And are requesting expedited access.
The U.S. bankruptcy team is objecting because it is concerned that “Full and total access of Debtors’ cloud-based systems….would be provided immediately to the Government of the Bahamas and to Messers. Samuel Bankman-Fried and Gary Wang.”
The Bahamian legal team has said it’s okay not to have access to the live system if they can get access to a clone. Given the level of distrust, the challenge is that the clone could include private keys and/or passwords.
And so the saga continues.