Beleaguered Exchange Allegedly Used Customer Funds to Bail Out Sister Concern
The Bahamas Securities Commission has stepped in to freeze the assets of FTX Digital Markets (FDM), Sam Bankman-Fried’s failing crypto exchange, in the latest blow to the once-mighty platform.
The regulator announced the move on Nov. 10, stating it has suspended FDM’s local licenses and applied to the Supreme Court of The Bahamas to appoint a provisional liquidator tasked with managing the company’s assets.
“No assets of FDM, client assets or trust assets held by FDM, can be transferred, assigned, or otherwise dealt with, without the written approval of the provisional liquidator,” the commission said.
Mishandled Customer Assets
The regulator said it is aware of accusations claiming that FTX mishandled customer assets, including alleged transfers to Alameda Research, FTX’s sister trading firm. “Any such action would have been… potentially unlawful,” it said.
“The commission determined that the prudent course of action was to put FDM into provisional liquidation to preserve assets and stabilize the company.”
The commission has appointed Brian Simms of Lennos Paton Counsel as the provisional liquidator. FTX Digital Markets’ directors have also been suspended.
The news follows the spectacular implosion of FTX and Alameda after FTX suffered a sustained bank run earlier this week. The run happened after leaked financial documents revealed that 40% of Alameda’s balance sheet comprised FTX’s FTT token at the end of the second quarter, calling into question the firm’s ability to pay down its $7.4B in debts.
FTX’s reserves quickly began depleting as users sought to pull their funds from the platform, fuelling speculation FTX may not be solvent and driving accelerated withdrawal requests. On Nov. 6, FTX faced $5B in withdrawal requests.
On Nov. 9, Bankman-Fried conceded defeat, announcing that FTX could not service the incoming withdrawals and that its rival, Binance, had signed a letter of intent to purchase FTX. However, with regulators circling FTX and the exchange reportedly short of funds by as much as $8B, Binance backed out of the deal the following day.