By Dietrich Knauth
(Reuters) -Liquidators for FTX’s Bahamas unit, FTX Digital Markets, have asked a New York City court to recognize its bankruptcy in the Bahamas, saying they “reject the validity” of the cryptocurrency exchange’s U.S. bankruptcy proceedings.
The Bahamas liquidators, who were appointed on Nov. 10 by the Securities Commission of the Bahamas, filed a Chapter 15 petition late on Tuesday in U.S. bankruptcy court in New York, asking the court to help them obtain records from FTX and block asset transfers to protect creditors of the Bahamas-based company.
Chapter 15 proceedings are used by foreign companies to seek U.S. courts’ cooperation in cross-border bankruptcy cases.
FTX and more than 100 affiliates filed for bankruptcy in Delaware on Nov. 11 in one of the highest-profile crypto blowups, leaving an estimated 1 million customers and other investors facing total losses in the billions of dollars.
But Bahamas affiliate FTX Digital Markets entered liquidation proceedings first, after securities regulators there declared the company insolvent and revoked its license. The Bahamas liquidators said they were not seeking to dismiss the U.S. bankruptcy, but noted that their actions may “impact” the Chapter 11 cases.
One of the liquidators, Bahamas-based restructuring attorney Brian Simms, said in court documents filed with the petition that the U.S. proceedings were not authorized under Bahamas law.
FTX CEO John J. Ray III declined to comment.
Simms’ statements might signal a brewing dispute over who takes the lead in the bankruptcy, or they could simply be meant to ensure that the Bahamas liquidators’ efforts are not overridden by the Delaware bankruptcy proceedings, according to bankruptcy attorneys who are not involved in the case.
“Whether that suggests that they are going to attack the cases that were filed in Delaware or not, we don’t know,” said bankruptcy attorney Evan Jones, who is not involved in the case.
The Bahamas court has authorized the liquidators to protect the assets of all FTX affiliates that operate from the Bahamas, where the entire corporate structure is headquartered, according to the Chapter 15 filing. That means that only the Bahamas liquidators have the power to place FTX affiliates into bankruptcy, according to Simms.
(Reporting by Dietrich Knauth and Alex Cohen in New YorkEditing by Alexia Garamfalvi and Matthew Lewis)