Bahamas Regulators Protect $3.5 Billion in FTX Customer Assets from Imminent Dissipation

Key Points:

Regulators in the Bahamas have taken custody of $3.5 billion in customer assets from FTX.
This action was taken after the exchange filed for bankruptcy and suffered a cyberattack resulting in the theft of $372 million in tokens.
The Bahamas Securities Commission will hold onto the assets until directed by the Bahamas Supreme Court to deliver them to the rightful owners.

2 - 4 minute read

In a shocking turn of events, the Bahamian Securities Commission (BSC) announced late Thursday that it has taken custody of FTX customer assets worth over $3.5 billion. This comes after the cryptocurrency exchange filed for bankruptcy, and approximately $372 million worth of tokens were stolen in a cyberattack thought to be carried out by an external hacker.

According to a statement from the BSC, there was a significant risk of “imminent dissipation” of the digital assets under FTX’s custody or control, which could have prejudiced its customers and creditors. As a result, the BSC has decided to hold onto the assets until the Bahamas Supreme Court directs them to be delivered to the rightful owners.

The BSC also clarified that FTX founders Sam Bankman-Fried and Gary Wang no longer have access to the $3.5 billion in tokens that have been transferred. In addition, the Commission denied directing FTX to prioritize the withdrawals of its Bahamas-based clients.

This latest development has sparked speculation of a more aggressive regulatory approach towards the cryptocurrency industry by the Securities and Exchange Commission (SEC). In December 2022, the agency brought charges against Caroline Ellison, former CEO of FTX, and Gary Wang, the co-founder, in a case that could potentially lead to the SEC targeting centralized cryptocurrency exchanges.

In its complaint against Ellison and Wang, the SEC referred to FTX’s native token, FTT, as an “illiquid crypto asset security,” implying that the agency views all cryptocurrency assets as securities, regardless of how they are offered or sold. This marks a shift in the SEC’s approach to security regulation and could lead to greater regulatory efforts in the cryptocurrency industry.

If the SEC can convince courts to agree that cryptocurrency tokens like FTT are securities, regardless of how they are offered, the agency would be able to go after any intermediary that sells these tokens, including major cryptocurrency exchanges like Coinbase, Kraken, and Binance. These exchanges could be exposed to significant legal liability and either forced to participate in registered exchanges like the New York Stock Exchange or shut down.

This is not the first time the SEC has targeted the cryptocurrency industry. In November 2022, the agency settled charges against Ripple Labs and its two co-founders for selling over $1.3 billion worth of XRP, a digital asset, without registering it as a security. The settlement included a $700 million penalty, one of the largest ever imposed by the SEC in a digital asset case.

The recent developments with FTX and the SEC’s charges against Ripple highlight the need for greater regulatory clarity in the cryptocurrency industry. As the use of cryptocurrencies continues to grow, it is crucial for regulators to establish clear rules and guidelines to ensure the safety and security of investors.