Bahamas told Bankman-Fried to mint new cryptos as FTX crashed, lawyers say

(Bloomberg) – Bahamas government officials were working closely with Sam Bankman-Fried in an attempt to help him regain access to key computer systems of bankrupt FTX trading, FTX lawyers said in a court filing before the failed crypto magnate on Monday was arrested.

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Before Bankman-Fried was banned from FTX systems, the Bahamas asked him to mint hundreds of millions of dollars worth of new digital coins and then transfer those tokens to the control of island officials, according to the legal team that controls FTX.

The allegations escalate a fight between an American team of restructuring executives trying to collect FTX assets to repay creditors and officials in the Bahamas. Liquidators in the island nation have asked a US judge for access to FTX data controlled by their American counterparts.

“This is a request for live dynamic access that is being granted immediately to the government of the Bahamas and Messrs. Samuel Bankman-Fried and Gary Wang, who are in the Bahamas and are working closely with Bahamian officials,” American attorneys wrote in a court filing on Tuesday. Wang is co-founder of FTX.

Bankman-Fried and Wang did not immediately respond to messages requesting comment. Bankman-Fried was arrested in the Bahamas on Monday after the US filed criminal charges against him.

Bahamas Withdrawals

In an attempt to paint a portrait of the comfort between Bankman-Fried and Bahamas authorities, the company’s US attorneys retrieved an email dated Nov. 9 – just days before the bankruptcy – in which Bankman-Fried said, he would be “more than happy” to open up allowing withdrawals for all Bahamian customers to be fully made.

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“It is your decision whether you would like us to do this – but we are more than happy to do so and would consider it the least of our duties to the country and could open it immediately if you reply that you wish to do so,” said Bankman-Fried wrote, according to court documents.

According to FTX’s US attorneys, $100 million began leaving the platform the next day.

The demise of Bankman-Fried’s crypto empire sparked investigations by federal prosecutors, regulators and the FTX bankruptcy team. Bankman-Fried ceded control of FTX to restructuring expert John J. Ray III and a team of lawyers and financial advisors who are scouring the company’s books in search of cash, cryptocurrency and assets that could be sold to repay creditors .

Read more: FTX collapse ensnares creditors big and small around the world

Days after FTX bankrupted about 100 units in Wilmington, Delaware, the company’s American restructuring team accused the Bahamian government of interfering in US reorganization efforts. Bahamas officials are “responsible for directing unauthorized access” to FTX systems to gain control of digital assets under the supervision of a US court, US attorneys said in a court filing, citing social media posts and text messages by Bankman-Fried et al.

While Ray and his team attempted to take control of FTX’s computer systems, they watched as someone minted new coins. Eventually they came to the conclusion that Bankman-Fried and Wang were working on behalf of the Bahamas.

liquidation struggle

The FTX attorneys also complained of legal maneuvering by liquidators in the Bahamas to extend the scope of their powers beyond the individual FTX entity currently being liquidated by a Bahamian court. The liquidators have asked the US judge to force their American counterparts to give Bahamian lawyers access to trading platform data, email records and other information stored on FTX systems.

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An attorney for the Bahamas liquidator did not immediately respond to a request for comment.

The two sides will argue in federal court in January over how much respect the US team should have for the Bahamas case.

Read more: Bahamas scrutinizes local FTX customer withdrawals amid implosion

In US bankruptcy courts, creditors are repaid according to the priority of their debt, not their nationality. Typically, when multinational corporations file for bankruptcy in the United States, a federal judge has the power to distribute all of the corporation’s assets once a final plan of reorganization has been approved. Sometimes a company’s assets are so closely tied to debt to foreign creditors that additional bankruptcy proceedings are filed outside the United States.

When that happens, international litigation can drag on for years and delay payment to creditors.

The case is FTX Trading Ltd., 22-11068, USA. Bankruptcy Court for the District of Delaware.

–With support from Joanna Ossinger.

(Updates with Bankman-Fried’s arrest in fifth paragraph.)

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