FTX, the crypto exchange undergoing bankruptcy proceedings, has filed a lawsuit against the liquidators of Bahamas-registered FTX Digital Markets (FDM) in a bid to gain control of assets. The Block reports.
The plaintiffs are affiliated entities FTX.US, Alameda Research and West Realm Shires — the holding company founded by former CEO Sam Bankman-Fried.
The defendants named in the filing are FDM and its provisional liquidators: Kevin Cambridge and Peter Grives from PricewaterhouseCoopers, as well as Lennox Parton partner Bryan Simms.
According to the filing, FDM asserts that it is the ‘legitimate owner of FTX.com assets’ and believes the ownership dispute should be resolved in the Bahamas.
The U.S. bankruptcy filers, representatives of the FTX Group, challenge this, saying that the liquidators inherited “a corporate shell” used to pursue assets. “Baseless” claims of ownership would harm the exchange’s clients and creditors, its lawyers said.
The Bahamas Securities Commission blocked FDM assets on the day the FTX Group filed for bankruptcy in Delaware — November 11, 2022. Lawyers for the exchange estimate that the Bahamian unit controls assets worth “hundreds of millions of dollars.”
“The liquidators’ claims to own FTX.com assets are largely based on constructive, equitable and other undocumented arguments that rely on the false assumption that FDM was the centre of the FTX Group. Nothing could be further from the truth,” the exchange’s representatives said.
According to them, the Bahamian company was “an offshore haven for a fraudulent scheme and a conduit for its proceeds.”
“The peculiar history of FDM is a classic example of abuse of the corporate form. It was created as a front entity to facilitate a conspiracy to defraud the debtors’ clients, guilt in which has already been admitted by three people,” the lawyers noted.
Earlier in the probe were former Alameda Research head Caroline Ellison, as well as FTX co-founders Gary Wang and Nishad Singh.
According to a court filing presented in March, the aggregate shortfall of the exchange’s assets to cover customer claims amounts to $8.7 billion, with $1.6 billion in Bitcoin. The balance sheet does not include funds controlled by the FDM liquidators.
Authorities in the Bahamas arrested Bankman-Fried on December 13, 2022, at the request of the U.S. Department of Justice. He was later extradited to the United States, where released on bail in the amount of $250 million.
Unlike his colleagues, he did not plead guilty. In January, the number of charges against him rose from 8 to 12.