Bahamas told Bankman-Fried to mint new crypto as FTX collapses, lawyers say

Bahamas told Bankman-Fried

(Bloomberg) — Bahamian government officials worked closely with Sam Bankman-Fried and tried to help him regain access to key computer systems at bankrupt FTX Trading, lawyers for FTX said in a lawsuit before the bankrupt crypto tycoon to be arrested on Monday.

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Before Bankman-Fried was locked out of FTX’s systems, the Bahamas asked him to mint hundreds of millions of dollars worth of new digital coins and then transfer those tokens to the control of officials on the island, according to the legal team overseeing FTX.

The allegations escalated a battle between a US team of restructuring executives trying to gather FTX assets to pay off creditors and officials in the Bahamas. Liquidators in the island nation have asked a US judge to access FTX data controlled by their US counterparts.

“This is a dynamic live access request that will be granted immediately to the Government of the Bahamas and to Messrs. Samuel Bankman-Fried and Gary Wang who are located in the Bahamas and are working closely with Bahamian officials,” US attorneys wrote in a court filing Tuesday. Wang is the co-founder of FTX.

Bankman-Fried and Wang did not immediately respond to messages seeking comment. Bankman-Fried was arrested Monday in the Bahamas after the United States filed criminal charges against him.

Bahamian Withdrawals

In an effort to paint a portrait of coziness between Bankman-Fried and Bahamian authorities, the company’s U.S. lawyers subpoenaed an email from Nov. 9 — just days before the bankruptcy — in which Bankman-Fried said it would be “more than happy” to open up to withdrawals for all Bahamian customers, allowing them to be made whole.

“It’s your decision whether you want us to do that, but we’re more than happy to do it, and we would consider it the least obligation to the country and we could open it immediately if you said you would,” Bankman wrote Fried. according to court documents.

The next day, $100 million began to leave the platform, according to FTX’s US lawyers.

The fall of Bankman-Fried’s crypto empire sparked investigations by federal prosecutors, regulators and the FTX bankruptcy team. Bankman-Fried handed over control of FTX to restructuring expert John J. Ray III and a team of lawyers and financial advisers who are poring over the company’s books in search of cash, cryptocurrency and assets that could be sold to help paying off creditors.

Read more: FTX collapse catches lenders big and small around the world

Days after FTX filed for bankruptcy on about 100 units in Wilmington, Delaware, the company’s U.S. restructuring team accused the Bahamian government of interfering with U.S. reorganization efforts. Officials in the Bahamas were “responsible for directing unauthorized access” to FTX’s systems to gain control of digital assets under the supervision of a US court, US lawyers said in a lawsuit, citing social media posts and text messages from Bankman- Fried and others.

While Ray and his team were trying to control FTX’s computer systems, they observed someone minting new coins. Ultimately, they concluded that Bankman-Fried and Wang were working under orders from the Bahamas.

Elimination battle

FTX’s lawyers also complained of legal maneuvering by the Bahamian liquidators to extend the scope of their powers beyond the single unit of FTX currently being wound up by a Bahamian court. The liquidators asked the US judge to compel their US counterparts to give Bahamian lawyers access to trading platform data, email records and other information stored on FTX’s systems.

A lawyer for the Bahamas liquidator did not immediately respond to a request for comment.

The two sides will also argue in federal court in January over how much deference the U.S. team should give the Bahamas case.

Read more: Bahamas investigates domestic FTX customer withdrawals during implosion

In US bankruptcy courts, creditors are paid based on the priority of their debt, not their nationality. When multinational corporations file for bankruptcy in the US, a federal judge usually has the authority to distribute all of the company’s assets once a final reorganization plan is approved. Sometimes a company’s assets are so closely tied to debts owed to foreign creditors that additional bankruptcy cases are filed outside the US.

When that happens, international legal battles can drag on for years, delaying payment to creditors.

The case is FTX Trading Ltd., 22-11068, USA. Bankruptcy Court for the County of Delaware.

–With assistance from Joanna Ossinger.

(Updates with Bankman-Fried’s arrest in paragraph five.)

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