The legal teams for FTX Digital Markets, domiciled in the Bahamas, have been accused of being a “fraudulent enterprise” used as a front to hide the company’s ownership by Alameda Research, FTX US, and FTX Trading.
The Bahamas arm was allegedly claimed to be the “constructive owner” of FTX.com’s fiat and cryptocurrency assets as well as other intellectual property, according to a March 19 filing with the United States Bankruptcy Court for the District of Delaware by FTX debtors. These “baseless allegations” by FTX DM “would affect FTX.com consumers and all other creditors of the FTX Debtors,” the lawsuit says, as the business moves through with bankruptcy procedures in the United States.
“The JPLs’ claim to ownership of FTX.com’s property is based largely on constructive, equitable, and other non-documentary arguments that depend upon the false premise that FTX DM was the center of the FTX Group,” says the filing. “Nothing could be further from the truth. FTX DM was no more than a short-lived provider of limited ‘match-making’ services for customer-to-customer transactions on the cryptocurrency exchange built, owned, and operated by Debtor FTX Trading, its immediate corporate parent.”
“FTX DM was an economic nullity within the FTX Group. FTX DM was a legal nullity as well. The peculiar history of FTX DM is a classic example of abuse of the corporate form. It was created as a front to facilitate a conspiracy to defraud the Debtors’ customer,” the complaint alleges.
The debtors asked the court to rule that FTX DM had an “ownership interest” in the property at the focus of the bankruptcy dispute in their court petition. Sam Bankman-Fried, the former CEO of FTX, was also charged with criminal and civil offenses in the United States. According to the legal team, he had ties to Bahamian authorities to lessen his “criminal and civil liability should the vast fraud be revealed.”
On Nov. 11, FTX Group filed for bankruptcy in the United States, one day after FTX DM’s assets were frozen and the Bahamas Securities Commission stopped the company’s registration. Later, the selection of Kevin Cambridge and Peter Greaves from PwC to serve as interim liquidators for the FTX DM case received approval from the nation’s highest court.
Bankman-Fried has entered a not-guilty plea to all criminal allegations in the United States, and federal banking authorities’ civil lawsuits have been postponed until after SBF’s October trial. The former FTX CEO was granted freedom after posting a $250 million cash bond, but since it was learned he had been using encrypted communications applications and a virtual private network, he has repeatedly been in court to have the bail decision reconsidered.