By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
FTX’s Bahamian liquidators will next Wednesday seek US legal recognition that will enable them to conduct investigations and pursue the local subsidiary’s assets held in the United States.
Brian Simms KC, the Lennox Paton senior partner, and PricewaterhouseCoopers (PwC) accountants, Kevin Cambridge and Peter Greaves, on Saturday filed legal documents confirming their bid for Chapter 15 status is to be heard before Delaware Bankruptcy Court judge, John Dorsey, on February 15.
Obtaining recognition as a so-called “foreign main proceeding” under US bankruptcy law is a vital first step in the trio’s efforts to take control of, and protect, assets that belong to FTX Digital Markets, the collapsed crypto exchange’s former Bahamian subsidiary, and its creditors/ investors.
In particular, gaining such recognition will give the Bahamian liquidators standing to begin negotiations with the US Justice Department over the $143m seized by the latter from FTX Digital Markets’ accounts held at two US banks. It will also give the trio’s bid to track and trace other assets full legal force, as the two banks holding the $143m - Silvergate and Moonstone - both declined to hand the funds over to the liquidators without a supporting order from the US courts.
The Bahamian liquidators, in their legal documents, asserted that Chapter 15 recognition was vital “to protect FTX Digital, its creditors and other parties” as well as “preserve the value of assets” belonging to the failed crypto exchange and its former clients and creditors.
Asserting that they have “demonstrated that there is a material risk that FTX Digital will suffer irreparable harm” without Chapter 15 recognition, the trio submitted a proposed recognition order to the Delaware court that - if granted - will see “all of the property of FTX Digital within the territorial jurisdiction of the US entrusted to the joint provisional liquidators, and the joint provisional liquidators are appointed as the exclusive representatives of FTX Digital”.
“The joint provisional liquidators are hereby authorised to examine witnesses, take evidence and seek the production of documents concerning the assets, affairs, rights, obligations or liabilities of FTX Digital to the full extent provided to a debtor-in-possession,” the proposed Order states.
A major potential obstacle to Chapter 15 recognition was removed by the Bahamian provisional liquidators’ co-operation deal with FTX US chief, John Ray, and his team, which ended two months of hostilities during which the latter sought to impugn The Bahamas’ reputation and integrity - including that of the Government, Securities Commission and liquidators - in what seemed to be an effort to ensure Delaware took control of the crypto exchange’s global winding-up.
The two sides’ agreement obliges each to seek judicial recognition and approval of the agreement in their respective Bahamian and Delaware courts, and one aspect involves a commitment by Mr Ray and his team not to oppose the bid for Chapter 15 recognition.
The US Justice Department, in legal filings seen by this newspaper, is arguing that it was entitled to seize the $143m held at the US banks because they - and FTX Digital Markets - were not covered by any freeze or stay as they were outside the Chapter 11 bankruptcy protection proceedings.
“The United States has seized..... approximately $56m in US currency and 87 million euros from accounts at Moonstone Bank and Silvergate pursuant to judicially authorised seizure warrants issued in the southern district of New York,” the Justice Department said.
“The debtor [FTX Digital Markets] has asserted an interest in some or all of the seized assets. The automatic stay does not apply to the US actions, however, because the seized assets are not property of any bankruptcy estate as this is a Chapter 15 case. Even if there is an automatic stay in place, the seizures were permissible because they would be governed by the criminal and/or police or regulatory power exceptions to the automatic stay.”
Tribune Business previously reported that FTX Digital Markets had more than $93m on deposit with Silvergate Bank, an institution well-known for providing services to the crypto and digital assets industries, with the remaining near-$50m balance held at the 26th smallest bank in the US, Moonstone Bank.
The latter is headed by Jean Chalopin, also chairman of Lyford Cay-based Deltec Bank & Trust. The Bahamian bank has repeatedly denied any ties to Moonstone, asserting that the only connection is the common shareholdings of Mr Chalopin.