interesting, since FTX was headquartered in the bahamas this seems lawful and not unreasonable. though some will argue the government doesn't have the right to do that, I think you sacrifice your protection when you commit fraud.
how quickly should the bahamas have announced about the asset seizure? is it common in other countries to not comment about (seizures in) ongoing investigations?
Another interesting angle to this is that the funds were collected in various different currencies, but all of them were converted into ETH. And they weren't converted carefully to make sure they got the full value, no attempt at OTC deals or anything; they were converted in a rush and dumped on the open market. This resulted in pretty clear loss of funds. It seems like a strange way for a government to operate.
That's not all: They also seized the funds with SBF's help after FTX had declared bankruptcy and SBF had stepped down as CEO. General counsel for FTX at the time indicated they were surprised by the fund movement and unaware of what was going on[1]. Shouldn't the Bahamas have been communicating with the people actually in charge of FTX at the time? Aren't those the people who would legally be in control of the funds?
I agree with your last paragraph, but the prior makes total sense. The government aren't crypto experts nor were they trying to min-max their incoming half a billion. They wanted it quick and easy.
I would expect a government to hold it as seized until they brought in both crypto experts and legal experts to help them determine what to do with it, probably via the judicial system. When Japan seized BTC from Mt Gox it was years before they converted it to Yen. The same goes for BTC seized by the US government in cases like Silk Road. The Bahamas didn't even convert it to the Bahamian dollar or USD. They converted to ETH. (Likely SBF did it for them.)
Nothing to do with crypto and more with the fact FTX corporate struture is such a mess, and account owbership close to impossible to identify. Based on that, authorities on the Bahamas, which hold jusrisdiction over at least part of FTX, did their thing by getting a person, that might or might not have been in a position of authority, to comply with a legal court order.
Ba
All in all, nothing to see here. And in case the confiscated assets cannot be confiscated by the Bahamas a court will ultimately return them.
Yes, however, governments do on occasion hire experts in various fields. During my last conference the discussion was exactly on how you can't just drop millions of BTC/ETH w/e into the market without effectively hurting the price. It is not like they were trying to be nice to the markets. The money just had to be split between several cooperating agencies so there was a reason to maximize return in USD.
I'm not defending their action, but there is a question of (a) authority and (b) capability. You're asking about authority, and yes SBF has stepped down, but the Bahamian regulator may have undertaken this on its own authority (possibly also with a judicial warrant, to perfect the authority), and so all they were lacking at that point was capability, which SBF could provide. It's sort of like if a criminal has a key to a shed with stolen goods in it -- we all agree the criminal does not legally own the goods, but he has the key, so you compel him to open it up.
The news article doesn't state the legal authority, but the statement from Securities Commission of the Bahamas of course does. "Under the Digital Assets and Registered Exchanges Act, 2020 (DARE Act), the Commission has the authority..."
The government has the right to do this because FTX agreed to this.
But does FTX have the right to agree to this? It’s like me agreeing with a stranger to sell your house and split the proceeds between us. FTX wasn’t entitled to the customers money and neither had the Bahamian authorities.
That makes no sense. They are incorporated under Bahamianan law, so that law takes precedence over any contractual agreement. I.e., FTX cannot enter into a contract that declares implicitly or explicitly that they won't follow said law.
FTX Trading Ltd. has a bunch of legal entities on the Bahamas. As shown in the latest Delaware court fillings. The Bahamas have at least jurisdiction over those legal entities and their assets. That FTX as a whole was unable, and/or unwilling, to keep proper track of accounts, cash and assets across their overly complicated corporate structure is hardly the Bahamas fault.
OK, yes, there are Bahamian entities over which Bahamian authorities likely have jurisdiction. But given what you say with regards to the complexity of FTX's corporate structure, it's likely difficult to determine that the assets that were transferred to Bahamian authorities actually belong to those Bahamian entities.
Maybe it's better that these assets are in the hands of Bahamian authorities, but it is highly questionable that the transfer happened after the Delaware filing, and that it was made in such a sloppy way that destroyed so much value.
My albeit very basic understanding is that once the bankruptcy filing was made in Delaware, the Bahamas had some obligation to defer to the Delaware courts.
It makes one wonder if this was actually an official action to begin with, and was not instead given a post hoc imprimatur only when it became obvious that the transfers could not be hidden.
Indeed - which is probably why the attorneys of the Delaware proceedings have applied to combine both cases.
Apparently, there is a court hearing scheduled for monday about that motion. I imagine the status of the seized funds will be one of the main topics of that hearing.
That's why crypto exchanges tend to be careful to not imply that they are banks. When you transfer your crypto to an exchange, the crypto is now theirs and they're just promising to give it back to you when you ask for it. Then they can do whatever they want with it internally until they go bust, at which point the promises all go in the trash.
That's just dodging the key question. Obviously the government has some rationale other than that they're taking it because they can. The problem is that they're still taking money that's owned by someone else, even if it's controlled by SBF. I'm sure there are strong international norms if not laws against a sovereign power directing a foreign financial actor to repay some sort of debt by pilfering client deposits, regardless of whether the debt is legitimate or not.
I suspect that if you deposit 100 ETH at FTX, legally, you no longer own the 100 ETH. Instead, you own an IOU from FTX stating that FTX owes you 100 ETH. FTX owns the ETH.
In an ideal world, an IOU from FTX for the amount of 100 ETH would be worth 100 ETH. Unfortunately, FTX is insolvent and bankrupt. The only thing the bankruptcy court can do is divide up FTX’s assets and distribute whatever FTX does have to their creditors. That is naturally going to entail taking possession of those assets.
This used to be a risk even with banks, and a lot of people during the Great Depression lost the money they had in the bank due to bank insolvency. The solution to this problem was the FDIC. If you have an American bank account, not only do you have an IOU from the bank for the number of dollars you have in that account, you also have an insurance policy from the FDIC that will pay you the value of the account (up to a specific limit) if the bank is unable to do so. And if the FDIC isn’t good for the money, that would mean the US government has defaulted on their debt, which probably means it’s the end of days, your dollars would have been worthless anyway, and you’re just going to have to get by on whatever canned food, water purification tablets, and ammunition you’ve managed to stockpile in your house until the world re-stabilizes into whatever cyberpunk dystopia comes after the collapse of the United States.
Historically that limit has always been waived during bank collapses, although my inability to remember a specific historical counterexample does not disprove its existence.
edited to add the limit still exists on the books for marketing purposes, in a weird turn of events unregulated non-banks liked to market that they're "as trustworthy as a bank" because they bought a bond policy for the FDIC limit so feel free to write them a check for less than the FDIC limit because they're bonded. The unregulated industries would get REALLY mad if the FDIC limit were doubled legally because then they'd have to pay about twice as much to get their bond. Then the FTC got real mad and I don't recall the outcome of that story although I don't see many references to the FDIC anymore in marketing material from unregulated companies, so that must not have gone well. This all went down in, like, the 80s not like last week or whatever.
Bahamas gov needs time to identify who owns what. They seized the assets for safekeeping and surely will collaborate with US Courts too.
Who would you rather have keeping your money? SBF with a warrant on his head and cash to disappear forever, or a national govermebt you can eventually sue if needed?
I don't think the idea is that the Bahamas will keep the crypto. It took it because it's a safe holder of it. It can get it back at some rate once the lawsuits go through.
Certainly, I would feel more confident getting my money back from a reasonable government than SBF.
The alternative isn't SBF keeping the funds. It's the funds going through the US bankruptcy proceedings alongside the rest of FTX's assets.
SBF chose to operate out of the Bahamas because of their lax legal structure. The fact that he claimed for days this was a hack makes this look like a failed attempt at buying his freedom. I have much more faith in the integrity of the US bankruptcy process than whatever nonsense is going to happen in the Bahamas...
The seizure is supposedly about the assets of FTX Digital Markets, which is incorporated in the Bahamas, so no foreign actor here from the Bahamian government's POV. Of course which one of that maze of shell companies is actually owning the assets on probably a question will have to be decided by the courts.
You could just read the bill, its pretty plain language. For the LOLs I'll read it for you. The DARE act boils down to crypto is completely socialized in the Bahamas UNLESS the business is being operated under pretty typical accounting principles. Or rephrased, hands off anarcho if you're not a crook, but if you're a crook then what amounts to "The SEC for the Bahamas" is your new CEO. This is not exactly the way banks are run in the USA, but its close enough to echo. It seems a reasonable way to regulate criminality in an industry. Its very easy to follow the common sense laws to avoid, essentially having your company nationalized by the regulator.
Who is "they":
Under Part V Section 41. Co-operative Power paragraph 2, as what boils down to "the SEC for the Bahamas" they will cooperate with other nations equivalent of the SEC "other domestic regulatory authority". So if the US SEC or US bankruptcy court asked them nicely, they can at their discretion (see paragraph 4) cooperate. My point above is the "they" deciding to do this is kind of unclear. Certainly gaining control of assets would kind of be the job of the bankruptcy court so if they asked the Bahamas Commission to help out, could, and in my opinion, probably did.
Based on my opinion of what I've read about what happened, SBF violated the entirety, not just one or two paragraphs, but the entire section, of Part III section 17 "Adequate systems and controls for digital token exchanges", subs a thru e inclusive, so they could be operating entirely on their own.
They could be doing all of this on their own or as a favor to the USA SEC, I donno. But no one seems to have considered Sec 41 in their rush to decide to "they" are whom are deciding things.
Anyway, regardless who decided to act:
Under Part II Section 5 paragraph 2 sub h, "do all things, and take all action, which may be necessary or expedient or are incidental to the discharge of any function or power given to the Commission".
The power they're probably invoking is Part II Section 4 paragraph 2 sub b, for the purposes of ensuring the "... development and maintenance of investor protection standards with respect to digital asset business..." So their legal purpose is to stop crooks from embezzling investors money. Combined with the paragraph above they likely think the leaving the investor assets in the control of SBF would be a little unwise as everyone seems to think he's already stolen billions of dollars worth of them, so what little is left should be preserved or at least removed from his opportunity to continue to pilfer.
Under Part III section 19 para 1 sub e, when they declared bankruptcy the registration to operate is auto-revoked and then para 4 hits "Where the Commission has suspended the registration of a digital asset business, the Commission may impose such conditions upon or give such directions to the registrant, including timeline for compliance, with which conditions or directions the registrant must comply."
So I have not seen the paperwork served on SBF in a leak or whatever, but it probably resembles the above.
how quickly should the bahamas have announced about the asset seizure? is it common in other countries to not comment about (seizures in) ongoing investigations?