Bahamas Regulator Freezes FTX Assets

A local securities regulator is cracking down on FTX’s Bahamas-based subsidiary over accusations of not safeguarding customer funds. 

FDM Under Provisional Liquidation

On Thursday, the Securities Commission of the Bahamas (SCB) revealed that it had frozen assets of FTX Digital Markets (FDM). While FTX is headquartered in the Bahamas, FDM is the Bahamian subsidiary of the exchange. Furthermore, the regulating body has also suspended the firm’s registration to operate on the islands and is looking to liquidate FDM, as is evident from its application to the Supreme Court of The Bahamas for the appointment of a provisional liquidator. Under this provisional liquidation, the assets under FDM would be safeguarded for the time being instead of being distributed among the creditors. 

SCB Suspends FDM’s Registration 

The regulator took these steps after news broke that FTX and sister trading firm Alameda Research have been sharing assets, specifically the exchange’s native token FTT, to boost the latter’s balance sheet. There has been industry-wide speculation that FTX has been improperly trading customer funds via Alameda. Therefore, the Securities Commission took the aforementioned steps to proactively prevent the situation from escalating further. 

The regulatory body announced the decision via a statement, saying, 

“The commission determined that the prudent course of action was to put FDM into provisional liquidation to preserve assets and stabilize the company. The commission is committed to working with the provisional liquidator to endeavor to obtain the best possible outcome for the customers and other stakeholders of FTX.”

Investigating The Matter

The commission has been investigating the claims that clients’ assets were mishandled, mismanaged, or transferred to Alameda Research. According to the initial findings, such arrangements are potentially illegal without the client’s consent. The regulating body has appointed Brian Simms of the law firm LennoxPaton, as the head of this inquiry. Not only has the regulatory body stripped FDM and its executives of their operational powers, but it has also ruled that assets belonging to FTX and its clients can not be moved without the approval of Simms. 

According to the Bahamian Supreme Court, 

“No assets of FDM, client assets, or trust assets held by FDM can be transferred, assigned, or otherwise dealt with, without the written approval of the provisional liquidator.”

Did Alameda Use FTX User Funds? 

Trading firm Alameda Research and crypto exchange FTX were founded by Sam Bankman-Fried. A few days ago, a leaked balance sheet revealed that Alameda held large amounts of the FTX’s native FTT token, which led to conjecture that Alameda was funding trades using FTX user funds. This led to a drastic depreciation of the FTT token and created a liquidity crisis for the exchange. It also resulted in a significant drop in fortunes for CEO SBF, who lost 95% of his net worth. As of now, the exchange is exploring every possible avenue to raise about $9.4 billion from its investors and rivals.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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Written by Amara Khatri on 2022-11-11 15:30:00.

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