FTX’s digital assets seized in The Bahamas for ‘safekeeping’

The Bahamas unit of troubled cryptocurrency exchange FTX has had its digital assets seized by financial authorities in the Caribbean country.

The Securities Commission of The Bahamas said on Thursday it had transferred the digital assets of FTX Digital Markets (FDM) to a digital wallet under its control for “safekeeping”.

The regulator said it had taken the action on Saturday to protect the interests of clients and investors.

“Urgent interim regulatory action was necessary to protect the interests of clients and creditors of FDM,” the commission said in a statement.

“Under the Digital Assets and Registered Exchanges Act, 2020 (“DARE Act”), the Commission has the authority to apply for a judicial order to protect the interests of clients or customers of a registrant of the Commission under the DARE Act.”

The regulator said it was its understanding that FDM is not a party to bankruptcy proceedings in the United States involving parent company FTX.

“Over the coming days and weeks, the Commission will engage with other regulators and authorities, in multiple jurisdictions, to address matters affecting the creditors, clients and stakeholders of FDM globally to obtain the best possible outcome,” it said.

The announcement comes after a US court filing on Tuesday showed that FDM was seeking protection under Chapter 15 of the US Bankruptcy Code.

Non-US companies use the provision to protect themselves from creditors seeking to file lawsuits or tie up assets in the US.

FTX filed for bankruptcy last week after investors rushed to withdraw $6bn from the platform and a proposed rescue deal by its rival Binance fell through.

The collapse of FTX, the third-largest crypto exchange, has sent shockwaves through the crypto sector, prompting allegations of fraud and comparisons to the collapse of Lehman Brothers.

In a court filing on Thursday, new FTX CEO John Ray said he had never seen such a “complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here”.

Former CEO and founder Sam Bankman-Fried, who stepped down last week, said in an interview with Vox this week he regretted his decision to file for bankruptcy protection and that regulators “don’t protect customers at all”,  before appearing to walk back some of his comments.

Bankman-Fried and several celebrities who promoted FTX are facing an $11bn class action lawsuit from investors, while the US Department of Justice and the Securities and Exchange Commission are investigating whether Bankman-Fried or his company violated securities law.