FTX U.S. Judge Questions Validity of Parallel Bahamian Bankruptcy Proceedings
In the ongoing FTX bankruptcy case, the judge presiding over the matter expressed skepticism regarding the significance of parallel bankruptcy proceedings taking place in the Bahamas.
In addition, the key issues under scrutiny include determining the FTX entity responsible for asset collection and customer reimbursement for the insolvent cryptocurrency exchange.
Liquidators’ Request for Bahamas Supreme Court Ruling
Meanwhile, liquidators representing FTX Digital Markets, the Bahamian subsidiary of the exchange, have requested U.S. Bankruptcy Judge John Dorsey’s permission to seek a ruling from the Bahamas Supreme Court, affirming their control over the crypto exchange for international clientele.
However, FTX’s U.S. bankruptcy team seeks to block the Bahamas litigation, deeming it an attempt to seize control and disrupt the ongoing customer repayment efforts.
During a recent hearing, Judge Dorsey questioned the value of a ruling from a Bahamian court, asserting his authority over the $7 billion in recovered assets held by the U.S. debtors. He emphasized that both courts would need to approve any asset transfers from the U.S. to the Bahamas.
The Importance of a Bahamian Court Ruling
The Bahamian liquidators argue that a ruling from the Bahamas court would provide clarity regarding the respective responsibilities of each party involved, facilitating cooperation between the U.S. bankruptcy case and the involuntary insolvency proceedings in the Bahamas.
Further, Dorsey is expected to deliver a final ruling soon, and encouraged both sides to attempt resolving the dispute through mutual agreement before then.
Conflicting Perspectives on FTX Digital’s Role
The opposing sides present contrasting views on the significance of FTX Digital within the crypto exchange’s operations.
The Bahamian liquidators contend that FTX Digital assumed a central role, when the FTX companies relocated their headquarters from Hong Kong to the Bahamas in 2021. According to their argument, FTX Digital became accountable for all non-U.S. customers.
Moreover, a favourable court ruling could grant the Bahamian entity control over asset collection and distribution to FTX customers.
In contrast, FTX’s U.S.-based bankruptcy team portrays the Bahamian affiliate as a mere “corporate shell”, utilized by founder Sam Bankman-Fried to redirect FTX customer deposits away from American regulators and courts.
Bankman-Fried and several insiders of the company face fraud charges in connection with the collapse of the exchange. Further, while Bankman-Fried pleaded not guilty, former members of his inner circle have pleaded guilty and agreed to cooperate with prosecutors.
The case, titled FTX Trading, is being heard in the U.S. Bankruptcy Court for the District of Delaware, under case number 22-11068.