Home » FTX’s Bahamas entity was a ‘Shell’ to further fraud

FTX’s Bahamas entity was a ‘Shell’ to further fraud

by Tech Reporter
21st Mar 23 2:23 pm

According to FTX’s US leadership under restructuring expert John J. Ray III, the bankrupt exchange’s Bahamas arm, FTX Digital Markets (FTX DM), was a shell created to further fraud, CoinDesk wrote.

In a legal filing, FTX US requested to deprive the company’s Bahamas entity of all claims to assets, saying FTX founder Sam Bankman-Fried set it up only to perpetrate financial crimes.

Diplomatic tension is expected

The exchange’s US leadership accused Bahamas authorities of helping SBF evade justice. This claim is expected to cause legal and diplomatic tension.

Bahamas courts placed FTX DM into liquidation on November 10. The parent company filed for bankruptcy in Delaware the following day. The circumstances were confusing and led to arguments over who was authorized to access centrally held company data.

FTX DM was a nullity

FTX now wants the Delaware court to relieve Bahamas liquidators of all their duties because they believe the Bahamas arm was a legal and economic “nullity.” This means it doesn’t actually hold any intellectual property, fiat, or crypto, and therefore has no assets to resolve.

According to the filing, FTX DM was set up and operated as an offshore haven to accommodate a long-running criminal scheme. It claims entities made numerous transfers to the Bahamas company’s bank accounts, totaling $143 million.

What’s more, FTX DM had been set up very recently – in May last year – and was far from central to FTX’s business operations.

The filing states: “Mr. Bankman-Fried, and others at his direction, maintained a close, accommodating relationship with Bahamian law enforcement agencies.

“He aimed to leverage that relationship to minimize his criminal and civil exposure should the massive fraud be discovered.”

A possible solution

In January, Bahamas liquidators and John J. Ray concluded an agreement to cooperate in restructuring processes. Previously, Bahamas regulators had said Ray’s public statements were careless and untruthful.

SBF has pled not guilty to all the charges against him, including wire fraud, which are connected to the period when he was CEO at the crypto exchange. Other ex-FTX executives have pled guilty to criminal charges.

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