(Reuters) - The Securities Commission of The Bahamas said it had seized digital assets of FTX's Bahamas unit, an action that the collapsed crypto exchange's U.S.-based leadership initially believed to be a "hack."
The regulator said on Thursday it had ordered the transfer of all assets of FTX Digital Markets Ltd to a digital wallet it controlled for safekeeping.
"Urgent interim regulatory action was necessary to protect the interests of clients and creditors of FDM," the commission said in a statement.
The commission did not immediately respond to a request for comment, nor did a spokesperson for FTX.
FTX filed for bankruptcy last week in Delaware in one of the highest-profile crypto blow-ups, after traders rushed to withdraw $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.
Bahamas securities regulators had revoked FTX Digital's license and began involuntary liquidation proceedings the day before the U.S. bankruptcy case kicked off. The people appointed to oversee that process have challenged the validity of the U.S. proceedings.
FTX's new CEO John Ray who took over from FTX founder Sam Bankman-Fried when the company filed for Chapter 11, said in a Thursday court filing that the asset seizure "flaunted" U.S. bankruptcy law, which stops creditors from seizing assets from bankrupt companies.
FTX was caught off-guard when assets were transferred on November 13 and initially believed that it had been hacked, according to its court filing.
While investigating the hack, FTX learned that Bankman-Fried and FTX co-founder Gary Wang made "unauthorized" transfers at the direction of the Bahamian government while "effectively in the custody of Bahamas authorities," according to the filing.
FTX accused Bankman-Fried of working with the Bahamas liquidators to "undermine" the U.S. bankruptcy case and shift assets overseas.
Bankman-Fried has said that he regrets filing for Chapter 11 in the U.S. and wants to "win a jurisdictional fight" to move the bankruptcy proceedings out of Delaware.
Bahamas regulators said Thursday that FTX Digital is being liquidated in the Bahamas and is not a part of the U.S. bankruptcy proceeding that includes parent company FTX Trading and more than 100 affiliated companies.
FTX's U.S. restructuring team will square off against the Bahamas liquidators in U.S. court on Tuesday, with both sides seeking clarity on which courts should control FTX's bankruptcy.