A Bahamas regulator confirms that SBF was directed to move assets during FTX's bankruptcy proceedings

Key points: 

• At least some of the millions of dollars in FTX customer funds that were mysteriously withdrawn from the exchange last week were moved across the Bahamas at the direction of regulators.
• Bahamian regulators had directed the co-founders of FTX to make “certain post-application transfers” and that such assets “are held under the control of the Government of the Bahamas on FireBlocks.” 
• The regulator said the measures were taken to protect the interests of customers and creditors in its jurisdiction.
• The individual or group responsible for the unauthorized transfer remains unknown, but Blockchain Observers have tweeted their theories, attributing some of the withdrawals to "white hat FTX employees," while others "Possibly controlled by [Bankman-Fried and Wang]".

At least some of the millions of dollars in FTX customer funds that were mysteriously withdrawn from the exchange last week were moved across the Bahamas at the direction of regulators. The embattled company made the claim in a new filing, which was confirmed by the Bahamas Securities Commission itself late Thursday.

“[There is] credible evidence that the Bahamian government is responsible for directing unauthorized access to debtors’ systems to obtain debtors’ digital assets — which occurred after these cases began,” read the filing, signed by new FTX CEO John Ray, famous for handling the liquidation of Enron.

The company went on to say that its co-founders, Sam Bankman-Fried and Gary Wang, were on record saying Bahamian regulators had directed the couple to make “certain post-application transfers” and that such assets “are held under the control of the Government of the Bahamas on FireBlocks.” 

This is not the first accusation against the island nation, which it has previously denied. But this time, Bahamian regulators have reversed course.

“The Securities Commission of the Bahamas, pursuant to an order from the Supreme Court of the Bahamas exercising its powers as a regulator, has taken action to restrict the transfer of all digital assets from FTX Digital Markets Ltd to digital wallets controlled by the Commission,” the agency said on Thursday.

The regulator said the measures were taken to protect the interests of customers and creditors in its jurisdiction.

The back and forth is the latest twist in the scramble for the remaining FTX holdings. The latest developments come as U.S. regulators asked Bankman Fried to testify before the House Financial Services Committee in December to explain the FTX debacle.

In its most recent filing, FTX said it "secured only a small portion of the digital assets that FTX Group wishes to recover," and said it now holds $740 million in a new cold wallet. However, they fail to close three critical gaps in tracking assets:

“These balances do not include the result of (a) the initiation of unauthorized transfers of at least $372 million on the filing date, and (b) the unauthorized dilutive “minting” of FTT tokens of approximately $300 million, currently out of the debtor’s control and (c) the failure of the co-founders and possibly others to identify other wallets believed to contain the debtor’s assets.

The unauthorized transfer was discovered on Nov. 11, the same day FTX filed for bankruptcy and tracked live on Twitter by blockchain investigators, sparking a flurry of speculation. At the time, the transfers totaling $650 million were believed to be part of a massive hack targeting the bankrupt company.

At 2 a.m. EST that night, FTX U.S. General Counsel Ryne Miller called the transfers "unauthorized," and said that FTX had begun moving the company's remaining assets into cold storage to "mitigate losses."

The Securities Commission of the Bahamas previously issued a press release stating that it was taking action to freeze the assets of FTX Digital Markets. On the same day, FTX released its own statement that it had begun allowing withdrawals of Bahamian funds to comply with the country’s regulators.

But when rumors surfaced that the unauthorized transfers were the work of Bahamian authorities, the Securities Commission of the Bahamas issued a statement rejecting FTX's claims, stating that "they sold FTX Digital Markets Ltd. without ordering, authorizing or proposing for Bahamian clients Priority withdrawals."

The statement acknowledged that such actions could constitute a "revocable priority" under bankruptcy rules and would require "recovery of funds from Bahamian clients."

"In any event, the Commission will not condone the preferential treatment of any investor or client of FTX Digital Markets Ltd., or otherwise," the agency said.

As such, the individual or group responsible for the unauthorized transfer remains unknown, but Blockchain Observers have tweeted their theories, attributing some of the withdrawals to "white hat FTX employees," while others "Possibly controlled by [Bankman-Fried and Wang]".

🧵1)
On Nov. 12th around 02:22 UTC "FTX wallet drainer" started stealing funds: 0x59ABf3837Fa962d6853b4Cc0a19513AA031fd32b

On Nov. 12th at 03:53 someone (likely white hat FTX employees) began rescuing funds to 0xd8019a114e86ad41d71a3eeb6620b19dd166a969 before sending to multisig

— Nick bax.eth (@bax1337) November 17, 2022

FTX’s Bahamian subsidiary, FTX Digital Markets Ltd., filed for Chapter 15 bankruptcy protection on Nov. 15, seeking cooperation from U.S. courts with foreign courts as its foreign bankruptcy proceedings involve the U.S.

The Securities Commission of the Bahamas has expressed its disbelief that FTX Digital Markets, Ltd. is a party to FTX US Chapter 11 bankruptcy proceedings. The agency said it would work with other regulators and authorities "across multiple jurisdictions" to resolve issues affecting FTX Digital Markets' creditors, clients, and stakeholders.

Brian Simms, a partner at Nassau law firm Lennox Paton, was appointed as interim administrator. He said FTX has no right to file for bankruptcy in the U.S. — and called for FTX’s U.S. assets to be handed over to Bahamian liquidators.

The FTX debacle and subsequent contagion among cryptocurrencies have prompted global regulators to call for stricter regulation of the digital economy.