FTX’s Bahamas Unit Commingled Client, Corporate Funds, Liquidators Say

FTX Digital Markets Ltd, the Bahamas arm of the collapsed crypto exchange, appears to have commingled corporate funds with client money, liquidators said in a Feb. 8 document filed in a local court.

The comments made in the accounting report echo those from John J. Ray III, the new boss of FTX’s U.S. entity, who has repeatedly lamented a lack of corporate controls at the company before he took over on Nov. 11.

“It appears that client monies have been commingled such that it may not be possible to clearly identify sums that constitute client monies as opposed to general corporate funds,” said the document, authored by Lennox Paton’s Brian Simms and PWC’s Kevin Cambridge and Peter Greaves. The trio were jointly appointed by a Bahamas court as liquidators on Nov. 10 and 14 last year.

Bank balances of $137 million labeled as for the benefit of FTX Digital’s customers were subject to only “limited controls and governance,” meaning, in practice, they weren’t segregated, the report said.

Of the $219.5 million total balance FTX Digital held in banks, $21.5 million has been realized by the liquidators, and a further $54.5 million is pending transfer to them, the document said. Another $143.2 million held in U.S. accounts has been seized by the Department of Justice, and other funds have been contested until the Bahamas bankruptcy is recognized in the U.S., the document said.

A Feb. 15 decision by Delaware Judge John Dorsey to grant Chapter 15 recognition to the Bahamas entity is an “important step” in the liquidation, Greaves said in an emailed statement, adding that liquidators “hope now to be in a position to work through the various roadblocks that have prevented us taking full control of FTX Digital's assets and information.”

Dorsey was on Wednesday informed of a $7.7 billion transfer between FTX’s Bahamas and U.S. arms, a sum that may now become subject to legal dispute.

Former senior executives from FTX have been charged with crimes including wire fraud and money laundering by the U.S. DOJ. While some have entered a plea deal, founder Sam Bankman-Fried has pleaded not guilty.

Read more: FTX Transferred $7.7B From Bahamian Estate to US Units Ahead of Bankruptcy Filing, Court Told