Sebastian Sinclair

The local Bahamas arm of crypto exchange FTX has filed for bankruptcy protection in New York, following more than a hundred affiliates which applied for their own in Delaware last week.



FTX Digital Markets’ provisional liquidator Brian Simms opted for Chapter 15 bankruptcy, while dozens of FTX companies went for Chapter 11. 



Simms was appointed by The Securities Commission of The Bahamas late last week after the regulator abruptly <a href="https://blockworks.co/news/bahamas-regulator-freezes-ftx-assets/" target="_blank" rel="noreferrer noopener">ordered the freeze</a> of FTX’s assets.



Chapter 15 affords mechanisms for dealing with insolvency cases involving debtors across multiple jurisdictions. Lawyers estimate FTX owes money to between 100,000 and one million customers around the world.



<a href="https://www.law.cornell.edu/uscode/text/11/1501" target="_blank" rel="noreferrer noopener">Under US law</a>, Chapter 15 is designed to provide for the “fair and efficient administration” of cross-border insolvencies that protects interests of all creditors and entities, including the debtor — in this case FTX.



On the other hand, Chapter 11 affords a particular business time to restructure its debt or liquidate assets in a bid to get back on its feet. Reports indicate former FTX CEO Bankman-Fried <a href="https://blockworks.co/news/sbf-attempts-to-find-ftx-investors" target="_blank" rel="noreferrer noopener">sought funding last weekend</a>, after FTX filed for bankruptcy.



The exchange last week failed to service withdrawals following a $6 billion bank run and a soured Binance buyout deal, leaving swathes of users out of pocket, ranging from <a href="https://blockworks.co/news/ftx-users-band-together-had-entire-net-worth-on-there-oops" target="_blank" rel="noreferrer noopener">regular traders</a> to crypto startups and <a href="https://blockworks.co/news/ikigai-fund-caught-up-in-ftx-contagion" target="_blank" rel="noreferrer noopener">hedge funds</a>.



Details have emerged indicating that Bankman-Fried built a backdoor in FTX systems to smuggle user crypto to his trading outfit Alameda Research. The unit apparently lost the funds after making risky bets across the crypto ecosystem.



Curiously, <a href="https://blockworks.co/news/ftx-re-enables-withdrawals-but-only-in-bahamas/" target="_blank" rel="noreferrer noopener">Bahamas residents</a> were first granted access to withdraw funds while the rest of customers across the globe looked on. Bankman-Fried claimed the move was in line with regulators’ requests. The Securities Commission of the Bahamas later denied that was the case.



FTX did not immediately respond to a request for comment.



Veteran insolvency practitioner John J. Ray III, who oversaw Enron&#8217;s bankruptcy reorganization in the early 2000s, <a href="https://blockworks.co/news/ftx-ceo-bankman-fried-resigns-bankruptcy-proceedings-begin/" target="_blank" rel="noreferrer noopener">replaced Bankman-Fried</a> on Friday and immediately commenced voluntary Chapter 11 bankruptcy proceedings for 134 <a href="https://www.docdroid.net/F0TqEsL/alameda-chapter-11-db-pdf#page=9" target="_blank" rel="noreferrer noopener">FTX-affiliated companies</a> (although Kenya-based firm AZA Finance, formerly BitPesa, has <a href="https://www.businesswire.com/news/home/20221111005572/en/AZA-Finance-Issues-Correction-to-Erroneous-Inclusion-in-FTX-Chapter-11-Bankruptcy-Filing" target="_blank" rel="noreferrer noopener">since</a> disputed its connection). 



The filing did not include Bahamas-headquartered FTX Digital Markets. Now that the firm has applied for bankruptcy protection, three others remain in question: FTX Australia, FTX Express Pay and LedgerX.



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