An investigation by a local regulator is now being conducted into claims of improper behaviour regarding the safekeeping of customer cash by FTX’s Bahamas-based subsidiary. On Thursday, the assets of the local branch of the troubled cryptocurrency exchange FTX were frozen by the Bahamas securities regulator.
According to the statement, Bahamas’ Securities Commission took the initial step toward putting FTX Digital Markets (FDM), a local subsidiary, into what is known as provisional liquidation, where assets would be preserved for the time being rather than being distributed to creditors.
FTX’s FDM registration terminated
The regulator has further terminated FDM’s registration, which gave the business unit permission to operate in the Bahamas, to “proactively” address the rapidly evolving issue, according to a statement from the regulator.
FDM is a Bahamian division of parent company FTX Trading Ltd., which also owns and runs FTX writ-large. FTX.US, the US division of CEO Sam Bankman-enterprises, Fried’s is not included in FTX and its subsidiaries.
The action was taken in response to reports that showed how FTX and its sibling trading company, Alameda Research, had been pooling assets, including the exchange’s native FTT token, to support Alameda’s balance sheet. Since then, authorities and market players have analysed whether FTX has been unlawfully misusing Alameda to trade customer cash, actions which caused Binance to walk out of its acquisition details upon them discovering, stating FTX’s issues were beyond their means.
The Commission acknowledged that it was aware of the reports. According to the Commission’s evidence, any such acts would have been against customary governance, without client approval, and perhaps illegal. The statement read, “the commission is aware of public remarks indicating that client assets may have been mishandled, mismanaged, and/or moved to Alameda Research.”
According to the commission’s first findings, the watchdog said the arrangement might be unlawful without customer approval. To oversee its investigation, the regulator chose Brian Simms, senior partner and director of litigation and insolvency at the legal firm LennoxPaton.
Bankman-Fried and the other executives of FDM have lost their operational authority, and FTX and its clients’ assets cannot be relocated without Simms’ prior agreement.
According to the announcement:
“The commission found that the correct course of action was to place FDM into provisional liquidation to preserve assets and stabilise the firm. The commission is devoted to collaborating with the provisional liquidator to ensure the best result for FTX’s clients and other stakeholders.”
What to expect?
After the announcement that the directors of FDM had also lost their authority the body further stated that none of the company’s assets, including those held in trust or for clients, may be transferred, assigned, or used in any other way without the interim liquidator’s written consent.
Amid the crisis, not only the Bahamas regulator Commission has taken proactive action to address the matter since the FDM-related incidents started to take place, but various other cryptocurrency watchdogs have also jumped into the saga intending to scrutinise SBF’s FTX actions. More watchdogs are still expected to remark on the issue as new developments seem to appear in the saga every minute. Crypto markets plunged, causing various asset prices to fall drastically. However, as of Coinmarketcap, BTC, Crypto’s most valued asset, seems to be on slow recovery as the asset registered a 3.5 % price increase in the last 24 hours.