On Sunday, November 27, 2022, Attorney General and Minister of Legal Affairs Senator the Hon. Ryan Pinder made a National Statement on behalf of The Government of The Commonwealth of The Bahamas, on the current situation regarding FTX Digital Markets Limited.
The AG explained that The Bahamas is a place of laws and the rule of law, and the exercise of due process, characterizes the integrity of its jurisdiction. “As the third-oldest democracy in the western hemisphere, our legal, regulatory and financial sectors have stood the test of time.”
He said given how quickly things have moved, it is hard to believe that it was only on November 2, that an article first appeared on the news site CoinDesk, with the details of a leaked financial statement of Alameda Research, a trading company also founded by Sam Bankman-Fried founder and CEO of FTX US Derivatives.
“I want to pause here to emphasize that among the over 100 companies located in dozens of jurisdictions around the world, FTX Digital Markets is the only entity regulated in The Bahamas,” AG Pinder said.
“Alameda Research is NOT regulated in The Bahamas. To the extent Alameda Research is found to have committed any improprieties in The Bahamas, then of course it will be subject to our jurisdiction.”
He said the balance sheet of Alameda Research, CoinDesk reported at that time, revealed that a large portion of their assets were held in FTT, a token issued by an FTX entity, that granted token holders a discount on trading fees.
The AG said four days later, on November 6, Binance, a crypto exchange that is a major rival to FTX, announced that it was selling off all its substantial holdings in the FTT token.
He said this announcement prompted many FTX investors to withdraw hundreds of millions of dollars in digital assets from FTX – causing a liquidity crunch.
“In short, FTX was experiencing the equivalent of a ‘run on the bank,’ when customers all rush to withdraw assets simultaneously. Two days later, on November 8, it was reported that Binance had entered into a non-binding agreement to buy FTX. However, the very next day, November 9, Binance pulled out of the deal.”
Attorney General Pinder noted that one day later, November 10, the Securities Commission of The Bahamas, announced that it had taken action to freeze the assets of FTX Digital Markets, had suspended the registration of FTX Digital Markets as a licensee under The Digital Assets and Registered Exchanges Act, also known as the “DARE Act”, and applied to the Supreme Court of The Bahamas, pursuant to its regulatory authority under the DARE Act, to place the company into provisional liquidation.
“The speed with which the Securities Commission was able to move was remarkable by any standard. Over the course of eight days, market confidence was lost in a company which at one point had a $32 billion valuation.”
He said, “The Securities Commission deserves the highest praise for moving so swiftly and decisively to suspend FTX Digital Markets’ license and appoint provisional liquidators.
“In addition, the Securities Commission recognized that given the nature of digital assets, and the risks associated with hacking and compromise, placing FTX Digital Markets into provisional liquidation was not sufficient to protect the customers and creditors of the company.”
The AG said, therefore, pursuant to their authority under the DARE Act, and pursuant to an order of the Supreme Court of The Bahamas, the Securities Commission secured the assets of FTX Digital Markets to be held on behalf of and for the benefit and restitution of clients and creditors of FTX.
He explained that the Commission was the first regulator in the world to take significant steps with respect to the FTX group of companies, which has operations and regulated activities throughout the world. This was done for the purpose of protecting the interests of FTX’s customers and creditors, as well as the integrity of the Bahamian financial services industry.
Attorney General Pinder said, “The Securities Commission was able to move so quickly because of the strength of the legislative framework which was already in place in The Bahamas to regulate digital asset companies like FTX Digital Markets. No other jurisdiction in the world moved or could have moved this quickly in circumstances such as these.”