The lawsuit claimed FTX Digital Markets was an "economic nullity" within the FTX Group "created as a front to facilitate a conspiracy to defraud the Debtors’ customers".
The legal teams representing Alameda Research, FTX US, and FTX Trading have filed a complaint against the Bahamas-based FTX Digital Markets, claiming the company was a “fraudulent enterprise” used as a shell entity to obfuscate the question of the firm's ownership.
In a March 19 filing with the United States Bankruptcy Court for the District of Delaware, FTX debtors said FTX Digital Markets, or FTX DM, as well as the joint provisional liquidators (JPLs) had claimed the Bahamian arm was the “constructive owner” of FTX.com’s fiat and crypto assets as well as other intellectual property. According to the complaint, these “baseless claims” by FTX DM “will harm FTX.com customers and all other creditors of the FTX Debtors” as the company continues with bankruptcy proceedings 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,” said 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.”
The complaint alleged:
“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’ customers.”
As part of the court filing, the debtors sought a ruling which would assert that FTX DM had “ownership interest” in the property at the center of the bankruptcy case. In addition, the legal team cited former FTX CEO Sam Bankman-Fried’s criminal and civil charges in the U.S., claiming he had connections with Bahamian authorities aimed at minimizing his “criminal and civil exposure should the massive fraud be discovered”.
John Ray's team is suing the Bahamas JPL (FTX Digital Markets)
— FTX 2.0pium (FTX Creditor) (@AFTXcreditor) March 20, 2023
Essentially a dispute over who owns the main exchange.
Disappointing they couldn't have worked this out themselves and are now using creditor money on both sides for pointless lawyer battles. pic.twitter.com/PYKoeTFmEz
FTX Group filed for bankruptcy in the U.S. on Nov. 11, one day after the Securities Commission of The Bahamas, froze FTX DM’s assets and suspended the firm’s registration. The country’s supreme court later approved the appointments of PricewaterhouseCoopers’ Kevin Cambridge and Peter Greaves to act as provisional liquidators for the FTX DM case.
Related: FTX liquidators report exchange held $2.4M ‘fleet of vehicles’ in the Bahamas
Bankman-Fried has pled not guilty to criminal charges in the U.S., while civil cases brought by federal financial regulators have been deferred until after SBF’s October trial. The former FTX CEO is currently free following a $250-million bail bond, but has frequently appeared in court to have the issue of bail revisited after it was discovered he used encrypted-messaging apps and a virtual private network.
