FTX’s Bahamas Unit Applies for Bankruptcy Protection in the US

FTX Digital Markets, the Bahamas subsidiary of troubled cryptocurrency exchange, FTX, has applied for Chapter 15 bankruptcy protection in the United States.

The unit is seeking protection from creditors in the US, a court filing registered late Tuesday in the Southern District of New York shows. This is even as another court filing processed the day before suggests that the FTX Group could be indebted to more than one million creditors. The development follows the approval of two provisional liquidators from PricewaterhouseCoopers by the Supreme Court of the Bahamas to oversee the comatose crypto exchange’s assets.

Last Friday, troubled FTX filed for a Chapter 11 bankruptcy proceeding in the District of Delaware, listing FTX.com, FTX.US, Alameda Research, and “approximately 130 additional affiliates companies.” However, FTX exempted LedgerX LLC, FTX Digital Markets Limited, FTX Australia Pty Limited and FTX Express Pay Limited from the proceedings.

While a Chapter 11 bankruptcy proceeding under the United States Bankruptcy Code enables a troubled business to reorganize its business affairs, debts and assets, a Chapter 15 filing allows foreign debtors to shied their assets in the country and protect against lawsuits from their customers.

Reactions from Regulators

The sudden collapse of FTX has drawn the attention of regulators across major financial markets in the world. FTX is currently under investigation by the Securities Commission of the Bahamas, the national regulator of the country where FTX was headquartered. Last Thursday, the local regulator suspended FTX’s registration and froze the company’s assets in a move it described as a “prudent course of action” to “preserve assets and stabilize the company.”

The Australian Securities and Investments Commission (ASIC) also announced on Wednesday the suspension of the license of FTX’s local subsidiary until 15 May 2023. However, ASIC said the local unit could offer limited services until 19 December. Earlier, Japan’s Kanto Local Finance Bureau had ordered FTX's local subsidiary in the Asian country to suspend its operations until 9 December.

Furthermore, the Cyprus Securities and Exchange Commission (CySEC) suspended FTX's license on Monday, only two months after granting the exchange full authorization to provide crypto derivatives and related services within the European Economic Area (EEA).

"No doubt this is not going to be isolated to one company--FTX. There are quite a few regulators in Europe ‘revoking’ many crypto registrations due to a lack of governance,” Remonda Kirketerp-Møller, the Founder and CEO of Muinmos, told Finance Magnates.

Meanwhile, the UK Financial Conduct Authority in a recent statement re-emphasized that FTX is not authorized in the United Kingdom. The UK watchdog clarified that cryptocurrency regulation in the European country is limited solely to the registration of cryptocurrency platforms under anti-money laundering and counter-terrorist financing rules. The market supervisor, therefore, urged FTX customers in the country to seek "impartial financial guidance" from the financial services company, Moneyhelper.