Law enforcement in the Bahamas revealed on Thursday that officials seized assets belonging to defunct cryptocurrency platform FTX and moved them to a government-controlled wallet for “safekeeping.”
The cryptocurrency platform, which was controlled by young multibillionaire Sam Bankman-Fried, filed for bankruptcy last week after users discovered that trading firm Alameda Research, a company run by former Bankman-Fried love interest Caroline Ellison, had allegedly been using consumer holdings from FTX to make investments.
In the days after FTX imploded, cryptocurrency assets mysteriously began disappearing in what was widely reported to be a hack. Bahamian authorities confirmed in a press release that officials acted under an order from the Supreme Court of the Bahamas to transfer “all digital assets” held by FTX to a digital wallet controlled by the nation’s Securities Commission.
“Urgent interim regulatory action was necessary to protect the interests of clients and creditors,” the government said.
Attorneys representing FTX debtors filed an emergency motion which acknowledged that American and Bahamian officials must closely coordinate before asserting that all bankruptcy proceedings should occur in the District of Delaware. “Having two bankruptcy courts consider related issues simply makes no sense,” the lawyers wrote. “It would result in potentially inconsistent opinions, duplication of efforts, and unnecessary expense.”
Fallout from the bankruptcy has provoked calls in the United States for greater regulations on the cryptocurrency sector and will be the subject of a bipartisan hearing hosted by the House Financial Services Committee next month. Bankman-Fried, whose fortune disappeared overnight when the company filed for bankruptcy, is reportedly seeking $8 billion from investors to cover withdrawal requests made by customers.
John Ray III, the corporate lawyer who once represented plaintiffs impacted by the collapse of fraudulent energy company Enron, has since replaced Bankman-Fried as chief executive to manage the bankruptcy proceedings. In a court document filed with the United States Bankruptcy Court for the District of Delaware, Ray contended that the team managing the cryptocurrency empire was shockingly inept.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” the seasoned attorney wrote. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
Ray also revealed that Bankman-Fried and other senior employees lacked disbursement controls “appropriate for a business enterprise,” allowing them to “purchase homes and other personal items for employees and advisors” in the Bahamas using company money. Bankman-Fried moved FTX to the island nation last year.
House Financial Services Chairwoman Maxine Waters (D-CA) and Ranking Member Patrick McHenry (R-NC) announced that the committee will seek to hear testimonies from Bankman-Fried, as well as corporate leadership of Binance, a competitor of FTX which nearly acquired the company amid the liquidity crisis spurred by consumers worried about the safety of their holdings. “Unfortunately, this event is just one out of many examples of cryptocurrency platforms that have collapsed just this past year,” Waters remarked in a press release. “We need legislative action to ensure that digital assets entities cannot operate in the shadows outside of robust federal oversight and clear rules of the road.”