The joint provisional liquidators (JPLs) overseeing the winding up of cryptocurrency exchange FTX Digital Markets yesterday fired back at FTX's US debtors, who are seeking to strip them of any claim or access to FTX's assets.

In a motion filed in Delaware's bankruptcy court, the JPLs argued that the US debtors' adversary proceeding was "abrupt".

The filing, the JPLs said, was never discussed with them.

FTX US is 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".

"It also alleges, without any specificity, that every transaction that FTX Digital was involved in during its existence was fraudulent and is subject to avoidance," the JPLs said.

"The complaint then seeks an order that the US debtors may recover from the FTX Digital estate all such transfers, and interest thereon to the date of payment, as well as the costs of the adversary proceeding.

"The complaint specifically references recovering from FTX Digital's accounts at Moonstone Bank and Silvergate Bank, both of which are located in the United States.

"Most inflammatory, the complaint alleges, in contradiction of the US debtors' prior statements to this court, that Mr. Sam Bankman-Fried (SBF) moved the FTX enterprise to The Bahamas for the sole purpose of funneling customer deposits and valuable property to The Bahamas, 'out of the reach of American regulators and courts'.

"Bizarrely, the US debtors also allege, for the first time, that FTX Digital's 'formation and existence' was in furtherance of FTX's criminal conspiracy despite the fact that SBF was the same individual who hired the U.S. debtors' counsel and turned his enterprise over to Mr. [John] Ray.

"Finally, despite the fact that the [Securities Commission of The Bahamas] was the first regulator to take action against any FTX entity, the US debtors allege that SBF and those he directed 'maintained a close accommodating relationship with Bahamian law enforcement agencies', that FTX Digital was only 'ostensibly regulated by The Bahamas' and that when operating in The Bahamas, SBF and his cohorts were 'outside of the reach of any independent and effective regulatory authority'.

The JPLs, Brian Simms, KC, Peter Greaves and Kevin Cambridge, both of PricewaterhouseCoopers, were appointed by the Supreme Court last year after FTX collapsed.

The JPLs are asking the Delaware court to declare that the automatic stay imposed against FTX Digital Markets does not apply to an application they want to file in The Bahamas.

The JPLs want to file an application for directions in the Supreme Court of The Bahamas in connection with the provisional liquidation of FTX Digital Markets.

The application will address several legal issues that are "essential to identifying the creditors, assets and beneficiaries of FTX Digital Markets".

Alternatively, the JPLs are asking the US court to lift the automatic stay and allow them to file the application for directions without prejudice.

The JPLs said they raised the issue with the US debtors in a March 9, 2023 letter in an effort to coordinate with them. After a "letter campaign", both sides agreed to hold a meeting on Zoom.

"The call began constructively, and the JPLs explained what it was that they were seeking to do and why it was important to proceed with filing the application - to fulfill their duty to make a recommendation to The Bahamas court on whether liquidation or reorganization of FTX Digital will serve the best outcome for FTX Digital's estate, its customers and its creditors," the filing said.

"The JPLs explained that they could not progress towards this goal without an understanding of (i) who FTX Digital's customers and creditors are, and (ii) the scope of FTX Digital's rights to its and its customers' assets.

"Despite the JPLs' efforts to keep the discussion productive, it soon turned unproductive. The US debtors noted that FTX Digital was the only FTX entity that was not falling in line with their agenda, that the mere filing of the application would send a torpedo into the Chapter 11 cases, and that the US debtors would never consent to any jurisdiction other than the US to resolve any non-US law customer issues."

According to the filing, the JPLs reiterated their view that the best path forward was to work together.

"But, because the US debtors insisted that all Antiguan, Bahamian and English law issues should not be resolved at all, or should all be resolved by this court at some unspecified future time, there was no engagement on any consensual protocol for a coordinated resolution of outstanding legal issues," the filing said.

"The meeting ended with the US debtors committing only to think further on the issues discussed.

"Without any further engagement, on March 19, 2023, the US debtors filed the adversary proceeding."

The current falling out between the JPLs and the US debtors came after both sides agreed to work together.

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.

Bankman-Fried, the founder of FTX, is accused of defrauding his customers. He was charged with eight counts of fraud.

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