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Bankruptcy

The lawsuit claimed FTX Digital Markets was an "economic nullity" within the FTX Group "created as a front to facilitate a conspiracy to defraud the Debtors’ customers".

The legal teams representing Alameda Research, FTX US, and FTX Trading have filed a complaint against the Bahamas-based FTX Digital Markets, claiming the company was a “fraudulent enterprise” used as a shell entity to obfuscate the question of the firm's ownership.

In a March 19 filing with the United States Bankruptcy Court for the District of Delaware, FTX debtors said FTX Digital Markets, or FTX DM, as well as the joint provisional liquidators (JPLs) had claimed the Bahamian arm was the “constructive owner” of FTX.com’s fiat and crypto assets as well as other intellectual property. According to the complaint, these “baseless claims” by FTX DM “will harm FTX.com customers and all other creditors of the FTX Debtors” as the company continues with bankruptcy proceedings in the United States.

“The JPLs’ claim to ownership of FTX.com’s property is based largely on constructive, equitable, and other non-documentary arguments that depend upon the false premise that FTX DM was the center of the FTX Group,” said the filing. “Nothing could be further from the truth. FTX DM was no more than a short-lived provider of limited ‘match-making’ services for customer-to-customer transactions, on the cryptocurrency exchange built, owned, and operated by Debtor FTX Trading, its immediate corporate parent.”

The complaint alleged:

“FTX DM was an economic nullity within the FTX Group. FTX DM was a legal nullity as well. The peculiar history of FTX DM is a classic example of abuse of the corporate form. It was created as a front to facilitate a conspiracy to defraud the Debtors’ customers.”

As part of the court filing, the debtors sought a ruling which would assert that FTX DM had “ownership interest” in the property at the center of the bankruptcy case. In addition, the legal team cited former FTX CEO Sam Bankman-Fried’s criminal and civil charges in the U.S., claiming he had connections with Bahamian authorities aimed at minimizing his “criminal and civil exposure should the massive fraud be discovered”.

John Ray's team is suing the Bahamas JPL (FTX Digital Markets)

Essentially a dispute over who owns the main exchange.

Disappointing they couldn't have worked this out themselves and are now using creditor money on both sides for pointless lawyer battles. pic.twitter.com/PYKoeTFmEz
— FTX 2.0pium (FTX Creditor) (@AFTXcreditor) March 20, 2023

FTX Group filed for bankruptcy in the U.S. on Nov. 11, one day after the Securities Commission of The Bahamas, froze FTX DM’s assets and suspended the firm’s registration. The country’s supreme court later approved the appointments of PricewaterhouseCoopers’ Kevin Cambridge and Peter Greaves to act as provisional liquidators for the FTX DM case.

Bankman-Fried has pled not guilty to criminal charges in the U.S., while civil cases brought by federal financial regulators have been deferred until after SBF’s October trial. The former FTX CEO is currently free following a $250-million bail bond, but has frequently appeared in court to have the issue of bail revisited after it was discovered he used encrypted-messaging apps and a virtual private network.

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The invitation was mediated by former CFTC Commissioner Mark Wetjen, who joined FTX US as the Head of Policy and Regulatory Strategy in Nov. 2021.

Before crypto exchange FTX and its founder Sam Bankman-Fried (SBF) got tied down around allegations of misappropriation of users’ funds, SBF was among the most influential crypto entrepreneurs. Long before FTX collapsed, an allegedly leaked email exchange with a top regulator shows SBF’s intent to get the exchange federally regulated.

On May 28, 2022, nearly six months before FTX filed for bankruptcy and SBF resigned as the CEO, Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg received an invitation to meet SBF on June 13, 2022, Washington Examiner reported. The email was mediated by former CFTC Commissioner Mark Wetjen, who joined FTX US as the Head of Policy and Regulatory Strategy in Nov. 2021.

*Sam Bankman-Fried's meeting invitation to FDIC Chairman Martin Gruenberg. Source: Washington Examiner*

In the latter half of the email, Wetjen told Gruenberg that FTX is in the “unusual position of begging the federal government to regulate us.” He further added:

“We have an application before the CFTC that lays out for the agency how to do so. All the CFTC has to do is approve it. Once the CFTC does, the others will follow — the other major US exchanges also have CFTC licenses.”

In response to the SBF’s request, Gruenberg agreed to meet the duo, as shown in the leaked email below.

*FDIC chairman Martin Gruenberg accepts* Sam Bankman-Fried's meeting invitation. Source: Washington Examiner

Following the collapse of FTX, SBF’s political ties were uncovered amid parallel investigations. An FDIC spokesperson confirmed that the FDIC chairman met SBF as part of “routine courtesy visits with leaders of financial firms and institutions.”

Alongside federal investigations, FTX’s new management started conducting internal investigations to track down missing funds.

Sharing the FTX Debtors’ press release just issued: https://t.co/r7PlneGSXF
— FTX (@FTX_Official) March 16, 2023

Recent court documents revealed that SBF and five other former executives of FTX and Alameda Research received $3.2 billion in payments and loans from FTX-linked entities. SBF reportedly received the lion’s share of the funds at $2.2 billion out of the lot.

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Sam Bankman-Fried to propose revised bail package ‘by next week’

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The move comes after a judge expressed displeasure about SBF’s use of encrypted-messaging apps and virtual private network services while on bail.

The lawyer representing crypto entrepreneur Sam Bankman-Fried (SBF) in the ongoing FTX case will soon present a revised bail package to Judge Lewis Kaplan of the Southern District of New York. The move comes after Kaplan expressed displeasure about SBF’s use of encrypted-messaging apps and virtual private network (VPN) services while out on bail.

Legal proceedings around FTX’s downfall led SBF to avoid possible jail time with a $250 million bail bond. However, while on bond, the entrepreneur used Signal, an end-to-end encrypted messaging service, to contact former FTX and Alameda colleagues. Kaplan forbade SBF from using such apps and threatened to revoke bail privileges if he acted out of order.

Following up on this order, Bankman-Fried’s lawyer, Christian Everdell, revealed on March 18 that SBF and federal prosecutors “have been working diligently to agree on a set of specific bail conditions that will address the concerns expressed by the government and the court,” Bloomberg reported. In the letter, Everdell stated:

“We believe we are close to a resolution and anticipate being able to present the court with a proposed order outlining these conditions by next week.”

SBF maintains his innocence in claims relating to the misappropriation of FTX users’ funds. However, the entrepreneur could face 115 years of jail time if found guilty under the eight counts against him.

During the ongoing restructuring of FTX, the current administrators revealed that FTX and Alameda Research’s former top brass received $3.2 billion in payments and loans from FTX-linked entities.

Sharing the FTX Debtors’ press release just issued: https://t.co/r7PlneGSXF
— FTX (@FTX_Official) March 16, 2023

Out of the lot, Bankman-Fried reportedly received the lion’s share of the funds at $2.2 billion.

As Cointelegraph reported, FTX’s management is investigating its rights to pursue potential action against the recipients and their subsequent transferees.

FTX debtors report $11.6B in claims, $4.8B in assets with many crypto holdings ‘undetermined’

March 17, 2023 Coin Telegraph

Assets

The presentation reported $25 million in donations — political and otherwise — from three of the FTX silos, but added “limited information” was available on crypto donations.

The debtors in FTX’s bankruptcy case hreported the various company silos had more than $4 billion in scheduled assets as of November 2022, but said they were still investigating the firm's crypto holdings.

In a March 17 filing with United States Bankruptcy Court for the District of Delaware, FTX debtors submitted a presentation to the committee of unsecured creditors on its Statement of Financial Affairs, or SOFAs, which also detailed the scheduled assets and claims of the company. According to the filing, the West Realm Shires silo — which includes FTX US and Ledger X — FTX.com, Alameda Research, and FTX Ventures had roughly $4.8 billion in scheduled assets and $11.6 billion in scheduled claims.

FTX Debtors make available summary presentation of the filed Schedules and SOFAs: https://t.co/Lr8PqxTHBt
— FTX (@FTX_Official) March 17, 2023

The data was based on petitioning financials from the four silos in November 2022. According to the report, Alameda held the majority of the scheduled assets at roughly $2.6 billion, but had “potentially material claims that have been filed as undetermined”. FTX.com had more than $11.2 billion in scheduled claims, but claims from FTX Ventures were undetermined.

Much of the data surrounding cryptocurrency holdings or transactions in the debtors’ report was not available. The presentation reported $25 million in donations — political and otherwise — from three of the silos, but added “limited information” was available on crypto donations.

Of the crypto-collateralized loans — largely in FTT tokens — made by the FTX companies, debtors reported more than 53 million tokens including Bitcoin (BTC), Ether (ETH), XRP, and USD Coin (USDC). However, they said “additional tracing of wallet and blockchain activity remains an ongoing matter”.

An investigation into crypto transactions as part of payments to FTX company insiders was also reported to be “ongoing”. Former CEO Sam Bankman-Fried received more than $2.2 billion of the payments.

FTX’s bankruptcy case has been ongoing since the firm filed for Chapter 11 protection in November 2022. In addition, Bankman-Fried faces both criminal and civil cases for his involvement in alleged fraudulent activities at the company.

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SBF’s inner circle received $3.2B, mainly from Alameda: Court filings

March 16, 2023 Coin Telegraph

Alameda

Billions worth of loans and payments flowed from FTX entities to Sam Bankman-Fried and five other former executives of FTX and Alameda Research.

FTX and Alameda Research's former top brass received $3.2 billion in payments and loans from FTX-linked entities, according to the FTX administrators handling the firm's restructuring.

FTX, now helmed by CEO John Ray III, has been tracking missing funds from the exchange since its collapse, which it estimates to be $8.9 billion in total.

According to a March 15 statement from FTX Debtors, financial statements it filed in the Delaware Bankruptcy Court point to billions of dollars worth of loans and payments that allegedly flowed to Sam Bankman-Fried and high-ranking executives, which came mainly from trading house Alameda Research.

Sharing the FTX Debtors’ press release just issued: https://t.co/r7PlneGSXF
— FTX (@FTX_Official) March 16, 2023

Bankman-Fried however reportedly received the lion’s share of the funds at $2.2 billion.

Others named in the list include former FTX director Nishad Singh, FTX co-founder Gary Wang, and former CEO of Alameda Research Caroline Ellison, among others.

It provided a rough breakdown of the payments made to the FTX executives, as follows:

$2.2 billion to Sam Bankman-Fried
$587 million to Nishad Singh — former FTX director of engineering
$246 million to Zixiao "Gary" Wang — FTX cofounder
$87 million to Ryan Salame — former co-CEO, FTX Digital Markets (FTX’s Bahamian entity)
$25 million to John Samuel Trabucco — former co-CEO, Alameda
$6 million to Caroline Ellison — former CEO, Alameda

The amounts exclude over $240 million used for various purchases, such as luxury properties in the Bahamas, donations to political and charitable causes and “substantial transfers” to non-FTX subsidiaries, it noted.

FTX’s management said it is currently investigating its rights to pursue potential action against the recipients, along with their subsequent transferees, and that ongoing efforts are “expected to result in the further identification of assets, liabilities and transfers.”

It added it’s looking at ways to claw back the funds from the former executives but said the “amount and timing of eventual monetary recoveries cannot be predicted at this time.”

Bankman-Fried is facing 12 charges relating to conspiracy, wire and securities fraud in connection to the alleged mishandling of funds at FTX and its affiliates. He previously plead not guilty to eight similar original charges.

Ellison, Wang and Singh have pleaded guilty to charges similar to those brought against Bankman-Fried and are cooperating with investigations spearheaded by federal prosecutors.

The first known instance of an executive from FTX or Alameda assisting authorities came as Salame blew the whistle to Bahamian regulators of the potential fraud being perpetrated at FTX which lead them to shutter the exchange just two days later on Nov. 11.

FTX

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