FTX’s US and Bahamas bankruptcy teams make peace in rival cases

Rival teams leading FTX bankruptcy proceedings in the US and the Bahamas, which have clashed over the insolvency proceedings for the cryptocurrency exchange, struck a co-operation agreement on Friday following weeks of public feuding.

Under the agreement, “the parties commence work together to share information, secure and return property to their estates, co-ordinate litigation against third parties and explore strategic alternatives for maximising stakeholder recoveries”, the two bankruptcy teams said in a statement on Friday.

FTX, along with more than 100 companies in the cryptocurrency empire of Sam Bankman-Fried, filed for Chapter 11 bankruptcy in Delaware in November. But the crypto exchange’s corporate entity in the Bahamas, where it was headquartered, was placed into a separate proceeding by a local court, which appointed liquidators to oversee the collapsed firm.

John Ray, the veteran insolvency lawyer overseeing the Delaware bankruptcy for Bankman-Fried’s companies, has clashed with the Bahamian liquidators and regulators in the Caribbean nation, accusing them of violating US bankruptcy procedures. The Securities Commission of The Bahamas, meanwhile, said Ray’s group had a “cavalier attitude towards the truth”.

The international tussle threatened to complicate the sprawling bankruptcy of the FTX group, which was once valued at more than $32bn and now owes potentially billions of dollars to as many as 1mn creditors around the world.

The two bankruptcy proceedings will have to reconcile what assets belong to which entities. And which of those are able to repay creditors. Ray has criticised the former management of FTX for a lack of record keeping and blurred lines between different businesses.

FTX had accused the Bahamas of working with Bankman-Fried around the time of the November 10 US bankruptcy filing to improperly seize cryptocurrency wallets belonging to it. The island nation later valued that crypto at $3.5bn. The FTX team in the US said in court filings that the seized currency, comprised mostly of FTX’s own token, FTT, was worth less than $200mn.

“There are some issues where we do not yet have a meeting of the minds, but we resolved many of the outstanding matters and have a path forward to resolve the rest,” Ray said in the statement on Friday. The deal will be put to courts in both jurisdictions for approval.

To implement the truce, the sides will have to set aside escalating tensions. Ray’s group has said the liquidators in the Bahamas were too close to the country’s securities commission and that the two were “co-operating closely to do an end run around [the US] court and Chapter 11”.

“We do not trust the Bahamian government,” James Bromley, a lawyer working for Ray, told a Delaware court last month. He said FTX would fight any attempt to “seize control” of the bankruptcy “with all our strength”.

The Securities Commission of The Bahamas said earlier this week that Ray’s “unfounded statements have the impact of promoting mistrust of public institutions in The Bahamas”. The commission declined to comment on the co-operation agreement.

The agreement lowers the temperature of one of several legal battles being waged by Ray. Bankman-Fried intervened personally in the bankruptcy of his former crypto conglomerate on Thursday to press his claim to more than $400mn of stock in the online stockbroker Robinhood, which multiple parties — including bankrupt crypto lender BlockFi — have attempted to claim.

Lawyers for the former billionaire said he “requires some of these funds to pay for his criminal defence”.

The shares were seized this week by the US Department of Justice on the order of a judge in New York, where Bankman-Fried is facing a criminal case over FTX’s collapse.

US prosecutors, who last month charged Bankman-Fried with fraud and money laundering, on Friday issued a call to victims of the alleged fraud who may want to be heard in court. Bankman-Fried has pleaded not guilty to the charges.

Additional reporting by Joe Miller in New York