FTX seeks declaratory judgment to strip assets from Bahamas unit

By Sarah Lizee

Olympia, Wash., March 20 – FTX Trading Ltd. filed a complaint with the U.S. Bankruptcy Court for the Southern District of Delaware that seeks a declaratory judgment that would essentially strip FTX Digital Markets of assets.

Non-debtor FTX Digital Markets is the Bahamas-based arm of the group that has been in liquidation since November.

Through the complaint, the debtors are seeking a declaratory judgment that FTX Digital Markets has no ownership interest in any of the debtors’ property, and that transactions that former chief executive officer Sam Bankman-Fried used in an attempt to hide assets behind the Bahamas unit are avoidable as fraudulent transfers.

The joint provisional liquidators of FTX Digital Markets claim that the Bahamas arm is the constructive owner of FTX.com’s property, including fiat and cryptocurrency, intellectual property and customer relationships, as a matter of non-bankruptcy law.

Since FTX Digital Markets is the subject of proceedings in the Bahamas, the joint provisional liquidators say the q uestion of ownership should be resolved there.

But, if the debtors succeed in the adversary proceeding, there will be no property of FTX Digital Markets for local proceedings in the Bahamas to resolve.

“The JPLs’ claim to ownership of FTX.com’s property is based largely on constructive, equitable, and other non-documentary arguments that depend upon the false premise that FTX DM was the center of the FTX Group. Nothing could be further from the truth,” the debtors said in the complaint.

“FTX DM was no more than a short-lived provider of limited ‘match-making’ services for customer-to-customer transactions, on the cryptocurrency exchange built, owned and operated by debtor FTX Trading, its immediate corporate parent.”

The debtors called FTX Digital Markets a “legal nullity” and a classic example of abuse of the corporate form.

“It was created as a front to facilitate a conspiracy to defraud the debtors’ customers – a conspiracy to which three individuals have already pled guilty and for which a fourth, Mr. Bankman-Fried, is under indictment – rendering any and all transactions related to FTX DM avoidable,” the debtors said.

FTX said the joint provisional liquidators have inherited the “corporate shell” that Bankman-Fried and his co-conspirators built to harbor their fraudulent enterprise in the Bahamas, and now use it to continue the jurisdictional battle.

Recently, the joint provisional liquidators filed an application in the Bahamas court that seeks “binding directions and declarations” that the FTX debtors and their global stakeholders don’t own core assets, in advance of the Delaware court deciding the same issues.

FTX has headquarters in the Bahamas. The company filed Chapter 11 bankruptcy on Nov. 11 under case number 22-11068.

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