The United States (US) debtors for FTX, The Bahamas-based cryptocurrency exchange that imploded last year, have asked a Delaware judge to rule that FTX Digital Markets (DM), the Bahamian arm of the company, has no ownership in FTX's cryptocurrency, intellectual property or customer information.

The filing was a complete 180 to the recent cooperation agreement reached between the US debtors and the three joint provisional liquidators (JPL) appointed in The Bahamas to oversee the winding up of FTX DM.

The two sides spent weeks publicly sparring in court, the US Congress, radio and print media, but later agreed to work together to make FTX customers, who were allegedly defrauded by former CEO Sam Bankman-Fried, whole, and to share access to data.

But the US debtors said their filing, made on Sunday night, was "in response to serial threats by the JPLs to attempt to relocate these global bankruptcy cases to The Bahamas".

FTX is currently in Chapter 11 bankruptcy proceedings in the US.

"Lacking any basis to dismiss these Chapter 11 cases or transfer venue, the JPLs instead claim that FTX DM—a non-debtor—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," the court filing read.

"Since FTX DM is the subject of proceedings in The Bahamas, the JPLs insist that the question of ownership be resolved in The Bahamas. Indeed, they have claimed to the FTX debtors that it is their fiduciary duty under the laws of The Bahamas to do so."

The US debtors are seeking a "declaratory judgment that FTX DM has no ownership interest in any of the debtors' property and that the transactions that Sam Bankman-Fried and his co-conspirators used in an attempt to hide assets behind the veil of FTX DM are avoidable as fraudulent transfers".

"If the FTX debtors succeed in this adversary proceeding, there will be no property of FTX DM for local proceedings in The Bahamas to resolve," the court document read.

The debtors said FTX DM is nothing more than a company created as a "front to facilitate a conspiracy to defraud" FTX customers.

"FTX DM was no more than a short-lived provider of limited matchmaking services for customer-to-customer transactions, on the cryptocurrency exchange built, owned, and operated by Debtor FTX Trading, its immediate corporate parent," the filing read.

"Over 90 percent of customers who used the FTX.com exchange were customers before FTX DM even became operational in May 2022 and, once operational, FTX DM never earned a dollar of third-party revenue."

The US debtors argued that Bankman-Fried used FTX DM as a "centerpiece of a fraudulent scheme" to "funnel FTX Trading customer deposits and other valuable property and rights to The Bahamas, out of the reach of American regulators and courts".

"Mr. Bankman-Fried, and others at his direction, maintained a close, accommodating relationship with Bahamian law enforcement agencies, including, among others, the [Securities Commission of The Bahamas], and with the attorney general and prime minister of The Bahamas," the filing claimed.

"Indeed, Mr. Bankman-Fried aimed to leverage that relationship to minimize his criminal and civil exposure should the massive fraud be discovered."

Once indicted in the US, Bankman-Fried, a permanent resident in The Bahamas, was arrested and later extradited to the US from The Bahamas. Attorney General Ryan Pinder was present when US agents took a handcuffed Bankman-Fried onto a plane bound for New York in December.

FTX, which collapsed last November, was one of the world's largest cryptocurrency exchanges. The Securities Commission of The Bahamas (SCB) moved to put FTX DM into liquidation and FTX's new CEO John Ray III put FTX's US-based companies into Chapter 11.

The dispute started when Ray accused FTX DM's JPLs and the SCB of working with Bankman-Fried, also known as SBF, to undermine the bankruptcy proceedings.

He also accused the JPLs and SCB of working with SBF to transfer hundreds of millions of dollars of FTX's digital assets into a wallet controlled by the SCB without the consent of FTX US.

The SCB said the assets, worth $3.5 billion, were transferred under the authority of a court order.

Bankman-Fried is currently on $250 million bond and awaiting trial for fraud.

Click here to read more at The Nassau Guardian