The Collapse of Crypto Exchange FTX in the Bahamas

The Bahamas. Aside from its quiet white-sand beaches, the archipelago is probably known as a tax haven among the rich, as there is no personal income tax. The island country’s favorable tax and regulatory frameworks have been a big draw for cryptocurrency companies. Fallen crypto exchange FTX is based in the Bahamas and according to reports from ReutersSam Bankman-Fried and his executives collectively bought $300 million worth of property in the tiny state.

On November 22, lawyers for cryptocurrency exchange FTX revealed that the company was run as a “personal fiefdom” for Bankman-Fried, with the founder’s parents and senior staff investing heavily in expensive real estate projects.

FTX collapse
One day before the FYX crash, Sam Bankman-Fred assured Twitter that all was well with the cryptocurrency exchange. (Sam Bankman Fried during an interview; Image Credit – YouTube/ CNBC)

Cryptocurrency exchange FTX’s Bahamas Vacation

Documents accessed by Reuters showed that the majority of purchases were luxury beachfront homes. Bankman-Fried reportedly “breakthrough” on the future FTX headquarters with a $60 million piece of land, but construction never began. He also shelled out thousands of dollars to feed his Bahamas-based staff, before cryptocurrency exchange FTX crashed. The billionaire founder also bought a 52-foot HCB yacht.

Local media also reported that FTX donated millions to local Bahamas charities and government, extending its influence well beyond the island.

However, FTX CEO John Ray acknowledged that the cryptocurrency exchange and its sister companies had no control over the functional accounting and human resources departments. He made the disclosures in a court filing after FTX filed for bankruptcy. Ray revealed that Sam Bankman-Fried also received a billion dollar personal loan from one of his companies.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information as happened here,” Ray wrote, after noting that he had twice worked on Enron’s collapse, in a court filing. this week. “From compromised systems integrity and flawed regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised people, this situation is unprecedented.” In early November, Binance backed out of the FTX purchase citing financial discrepancies.

A filing on Nov. 19 revealed that the crypto exchange owed 50 creditors approximately $3.1 billion. Over a million customers and other investors are facing millions worth of losses and have no idea when they will get their money.

Bahamian authorities take over

As news of the woes of the FTX crypto exchange spread, the Bahamian authorities stepped in to prevent things from getting worse. The Bahamas Securities and Exchange Commission revealed that it had ordered the cryptocurrency exchange to transfer all of its digital assets to a digital wallet controlled by the agency.

“Urgent interim regulatory action was necessary to protect the interests of clients and creditors” of FTX Digital Markets, the agency said. The regulatory agency made the decision after Ray’s court filings revealed the extent of financial irregularities and mismanagement at the crypto firm that led to FTX’s collapse.

Just one day before the FTX crash became official, Sam Bankman-Fried misled everyone by tweeting “FTX US users are doing fine”. It is clear that his actions have not gone down well with the Bahamian community. Those who worked at FTX were unaware that the company was recklessly directing billions of client deposits to its Alameda Research trading company, to be used for risky investments.

Earlier, the Royal Bahamas Police Force also revealed that they are investigating the crypto firm for possible misconduct related to the FTX crash. In the meantime, the brokerage will consult other regulators and work with authorities on how best to safeguard the interests of FTX’s creditors, clients and stakeholders.

Perhaps what has angered former employees and shareholders more than the collapse is Bankman-Fried’s refusal to take the situation seriously. His ambiguous tweets have done nothing to assuage concerns and, as one former employee put it Forbes. “You’re writing this cryptic crap and all you have to say is ‘sorry’.”

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