Collapse of cryptocurrency company putting Bahamas on the back foot

Durrant Pate/Contributor

The Bahamas is scrambling to protect customers and creditors of FTX, a crypto exchange headquartered in its territory, which collapsed earlier this month, creating a rippling effect on crypto markets across the globe.

The Securities Commission of The Bahamas, which regulates the local financial market including the cryptocurrency market, has ordered FTX to keep all of its digital assets in a government held digital wallet. The commission is claiming to have frozen the assets of FTX but the authorities didn’t make it clear which assets are under its control.

“The regulatory actions were necessary to protect the interests of customers and creditors,” the Securities Commission of The Bahamas said in a press release.

The Bahamian Supreme Court recently permitted the securities commission the right of indemnity and the right of reimbursement to expenses linked to any regulatory action taken to protect the assets of FTX Digital Markets.

The order basically mandates that FTX bears any reasonable costs the commission incurs for works in the wake of the collapse.

Seeking to guard the country’s reputation

In addition, the commission is seeking to guard the country’s reputation, pushing back against mounting criticisms about its cryptocurrency oversight record. The collapse has left thousands of investors around the world like NFL legend, Tom Brady in financial turmoil, going under in the wake of poor management, lax internal oversight systems and financial inbreeding.

The collapse of FTX comes amid accusations that it has cheated its investors out of billions of dollars. The Bahamas was the first country in the Caribbean to regulate crypto trading, a move which paid off more than expected.

FTX moved its global headquarters to the island in September 2021, and an increasing number of its citizens began buying into cryptocurrencies. What was considered an accomplishment a year ago has now turned into a headache for the government, leaving the Bahamian regulator with the Herculean task of explaining to US courts the operations of FTX, whose founder, Sam Bankman-Fried, is on the run.

FTX had announced it committed US$60 million to build its headquarters, but the construction, which included a flashy groundbreaking ceremony, stopped soon.

Bahamian Opposition Leader Michael Pintard recently held a press conference demanding an investigation into whether the government accepted donations or bribes from the crypto exchange.