While FTX is placed under Chapter 11 of US bankruptcy law, the Bahamian Security Council says it has held more than $3.5 billion worth of cryptocurrency from the platform’s digital wallets since November 12 .
Funds frozen for prevention
With the fall of the FTX empire, a question quickly arose: where did all the money go?
Sam Bankman-Fried, the 30-something billionaire, said he was broke after the exchange collapsed. Yet at the start of November, FTX was still the second largest exchange in the world, behind Binance.
We now have more information regarding FTX client funds. In a statement released on December 29, the Bahamian securities regulator, the Bahamas Securities Commission (BSC), announced that it had taken control of more than $3.5 billion in customer deposits on the FTX cryptocurrency exchange. This amount comes from a November 12 estimate.
The decision to protect customer funds came after $371 million worth of cryptocurrency disappeared hours after giant FTX collapsed on November 11.
The Bahamian regulator raised concerns about the security of crypto assets and the risks of “imminent dissipation.” The funds were therefore frozen.
This risk is particularly linked to the possibility of new acts of piracy. Added to this are reports of a possible theft of an FTX-controlled crypto wallet by a former employee. According to BSC, this can harm the interests of customers and creditors.
As a result, FTX client funds have been temporarily held by the Bahamas Commission since Nov. 12 “until the Supreme Court of the Bahamas orders the Commission to provide such funds,” the agency said.
Who owns these funds?
Today, the FTX case is being handled by two entities that find themselves in competition on the file. It is both the regulator in the Bahamas, where the American giant is headquartered, and in the United States, where FTX has placed itself under Chapter 11 of the American bankruptcy code.
Faced with the controversy arising from the FTX affair, the BSC assured that it had not asked FTX to prioritize withdrawals from Bahamian customers.
It is unclear who will be able to receive the funds due to the high number of injured individuals and entities in the case. This week, former clients of the exchange filed a class action lawsuit against FTX executives, including SBF.
The purpose of this legal action is to recognize the remaining assets of the company as belonging to the client. In fact, FTX also left a considerable asset to its creditors, to whom it owes at least $3 billion.
The plaintiffs therefore seek a statement confirming that funds held by FTX in the United States on behalf of US citizens as well as foreign clients do not belong to the former platform. This will put them at the top of the list when it comes to refunds.
It remains to be seen how the FTX situation will resolve itself and whether BSC’s intervention will actually protect the interests of customers and creditors.
Investment bank Jefferie estimates that FTX’s creditors could recover between 20% and 40% of their funds, as FTX has between $1 billion and $13 billion in debt and $2 billion to $4 billion in assets.
Therefore, this trial is likely to be eventful. But for now, “all transferred assets are under the sole control of the Commission,” said Bahamian Securities Commission Director Christine Rolle.