No use in trying to distance The Bahamas from FTX

Prime Minister Philip Davis yesterday broke his silence on the matter of last week’s implosion of cryptocurrency giant FTX Digital Markets Ltd., which is headquartered in The Bahamas.

He began his address in the House of Assembly by pointing out the volatility of the cryptocurrency market.

“Numerous crypto tokens and companies around the world have collapsed in the past few months, including Terra/Luna, Celsius, 3 Arrows Capital, and Voyager Digital, setting off a series of reverberations,” he said.

While it is true that the cryptocurrency market is unpredictable, FTX was easily one of the largest cryptocurrency exchanges on the planet, with an estimated one million people impacted by its collapse.

Davis went on to say a bit later in his address that the world was currently experiencing a “crypto winter”, as if to suggest that this turn of events was not that surprising given market conditions.

However, Brian Simms, KC, one of the joint provisional liquidators appointed to oversee the winding up of FTX, said in a chapter 15 bankruptcy filing in New York that, thus far, it appears that alleged “fraud and mismanagement” and “financial engineering, appear to have contributed to the insolvency of FTX Digital”.

Davis then sought to distance The Bahamas from FTX.

“As you know, the FTX group has one entity which is regulated in The Bahamas, FTX Digital Markets Limited,” Davis said.

That would perhaps be all well and good if Simms did not explain to the US court that The Bahamas winding up proceedings takes precedence.

“Despite the seemingly complex structure of the FTX brand companies, the entire FTX brand was ultimately operated from a single location: The Bahamas,” Simms said.

“All core management personnel likewise were located in The Bahamas.”

Simms also explained how FTX controlled its global operations from The Bahamas.

“[Former FTX CEO Sam Bankman-Fried] was the founder and controlling owner of the FTX network of companies that established the FTX Brand (the “FTX Brand”), and which were managed and operated by FTX Digital in The Bahamas,” he said.

“The FTX brand includes Alameda Research Ltd. (”Alameda”), a quantitative digital-asset trading firm also founded by SBF.

“Alameda is a wholly owned subsidiary of holding company Alameda Research LLC which, upon information and belief, is wholly owned by SBF.

“In addition, SBF is the 100 percent owner of Paper Bird Inc., which is the 75 percent owner of FTX Trading. Both Paper Bird Inc. and FTX Trading are holding companies.

“FTX Trading is the sole 100 percent owner of FTX Digital, FTX Hong Kong, FTX Japan Holding K.K., FTX (Gibraltar) Ltd., FTX Canada Inc., FTX Europe AG, FTX Digital Holding (Singapore) Pte. Ltd., and many other entities.

“SBF is the majority owner of West Realm Shires, Inc. d/b/a FTX US. For regulatory purposes, FTX US provided, within the United States, subset of services offered by FTX Digital.”

The prime minister also correctly noted that The Bahamas did not have “sole oversight of FTX’s worldwide operation”.

But given what Simms has said, at the end of the day, it is The Bahamas the world will likely look to, to determine what exactly transpired.

The prime minister also said, “Based on the analysis and understanding of the FTX liquidity crisis, to date, we have not identified any deficiencies in our regulatory framework that could have avoided this.”

We question the wisdom in this declaration considering that Simms said liquidators still do not understand the full picture of FTX’s demise.

“At the most basic level,” Simms said, “the joint provisional liquidators are presently unable to ascertain FTX Digital’s financial position, its assets and liabilities more generally, and does not have the totality of the information necessary to protect FTX Digital’s assets.

“Thus, the requested discovery in the petition is essential because the joint provisional liquidators cannot accurately trace assets and recreate the flow of FTX Digital assets without the ability to issue subpoenas.”

To be clear, neither The Bahamas, nor the prime minister, nor the government, nor the regulators brought FTX to ruin and drew the eyes of the world to us.

The fault ultimately rests at the feet of Bankman-Fried, even if his arrival was loudly celebrated.

Whatever Bankman-Fried did was done here, just as Bankman-Fried and FTX Digital are still here.

As former Prime Minister Perry Christie used to say, “It is what it is.”

And we do not see the use, at this point, in trying to distance The Bahamas from FTX.

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