US Bankruptcy Judge John Dorsey sided with the restructuring advisers for the control of $73B asset who took over FTX from its co-founder Sam Bankman-Fried, who faces federal fraud charges. During the hearing at the U.S. Bankruptcy Court for the District of Delaware, Judge Dorsey considered a key point of contention between the case’s various players for dispute resolution: A central question in the US bankruptcy is who has a claim on billions of dollars in cash and crypto coins.
Importance of FTX Digital
Liquidators based in the Bahamas argued that a Bahamian judge should preside over part of the bankruptcy case, FTX’s restructuring advisors, who took over the exchange after the company’s founder Sam Bankman-Fried was arrested on fraud charges last December, argued against the request. They also argued that the unit owns FTX.com’s property, the company said in US court papers.
The sides offered very different descriptions of how important FTX Digital was to the crypto exchange’s operations.
The Bahamian liquidators argue that FTX Digital took on a central role when the FTX companies moved their headquarters to the Bahamas from Hong Kong in 2021, ultimately taking responsibility for all of FTX’s non U.S. customers. A court ruling in their favor could place the Bahamian company, and not the U.S. debtors, in charge of collecting $73B assets and deciding how to distribute them to FTX customers.
FTX’s U.S.-based bankruptcy team argues that the Bahamian affiliate was a “corporate shell” and the “centerpiece” of founder Sam Bankman-Fried’s effort to funnel FTX customer deposits “out of the reach of American regulators and courts.”
Control of FTX’s disputed assets
The judge overseeing FTX’s U.S. bankruptcy said on Thursday that he would not defer to a Bahamian court about key issues like which FTX entity should collect assets and repay customers of the bankrupt crypto exchange. He shot down a request to relinquish control over embattled crypto exchange FTX’s $7.3 billion in disputed assets during a Thursday bankruptcy hearing, dashing Bahamian liquidators’ hopes that the island nation’s judicial system could stake a claim to some of the assets.
The judge ultimately sided with FTX’s advisors, adding: “The [courts in the Bahamas] may have concurrent jurisdiction,” Dorsey said. “But as a practical matter, they don’t have access to the assets.”
“Under no circumstances would I ever defer a core” issue in the bankruptcy case to a foreign court, Dorsey said. “Only I have access to the assets.”
A liquidator in the Bahamas has asked Dorsey for permission to bring certain legal issues before a Bahamian judge who is overseeing the insolvency case of one small unit of the FTX empire. Advisers to FTX claim that is a back-door attempt to grab assets in the US and move the reorganization out of a federal court in Wilmington, Delaware, US.
While Judge Dorsey made his point of view on the disputed assets clear, he has not yet made an official ruling on FTX Bankruptcy. He plans to do so on June 9, when the case is back in session.
The case is FTX Trading Ltd., 22-11068, US. Bankruptcy Court for the District of Delaware.
FTX founder Bankman-Fried and several company insiders have been indicted on fraud charges for their role in the company’s collapse. In contrast to Bankman-Fried’s not-guilty plea, the former members of his inner circle have pleaded guilty and agreed to cooperate with prosecutors.
