FTX secretly used Deltec Bank to create and sell Tether for profit, lawsuit alleges

FTX companies created and profited from Tether through an arrangement with a partner bank, according to a court case described by Bloomberg on Feb. 17.

The case quoted Caroline Ellison, former CEO of Alameda Research, as stating:

“Alameda could create USDT on credit through the unofficial Deltec Line of Credit and sell that USDT for a gain before having to fund the purchase by depositing US Dollars in Tether’s Deltec account.”

Alameda Research was a sister firm of FTX. Supposedly, Alameda transferred money to its Deltec accounts in order to fund the creation of billions of dollars in Tether (USDT) in 2020 and 2021. Alameda received those USDT tokens days before it paid for them. It then sold those assets for profit.

Bloomberg described this arrangement as a short-term line of credit and a “three-day grace period.” Deltec allegedly did not offer the arrangement, which was kept secret, to other customers.

The lawsuit further alleges that Deltec aided the broader misappropriation of funds between FTX and Alameda even though it had sufficient reason to be suspicious of those transfers. Allegedly, Deltec received FTX customer deposits and transferred those funds to Alameda. Furthermore, Deltec exempted Alameda from some rules and favored Alameda’s withdrawals during a crypto crash.

Previous developments revealed connections between FTX and Moonstone Bank (aka Farmington State Bank), a firm headed by Deltec chairman Jean Chalopin. Moonstone received $11.5 million from Alameda and $50 million from a firm linked to FTX associate Ryan Salame. Moonstone shut down this February following termination actions from the Federal Reserve in August 2023.

Deltec denies any wrongdoing

Representatives of Deltec told Bloomberg that the bank and its chairman, Jean Chalopin, had no knowledge of the wrongdoing. Desiree Moore, a lawyer for Deltec, said:

“The new allegations rely heavily on unsubstantiated statements by individuals who we understand are settling their lawsuits with plaintiffs in exchange for providing the information.”

Bloomberg did not identify the case in question but said that the allegations were filed in a Florida federal court on Friday, Feb. 16. A class action suit aimed at the FTX-linked law firm Sullivan and Cromwell was filed in Florida on that day but does not seem to contain the relevant allegations.

An earlier lawsuit filed in Florida in February 2023 named Deltec Bank as a defendant, but public dockets do not contain updates to that case later than June 2023. As such, it is unclear whether this is the case in question. Another lawsuit from the same plaintiff, Connor O’Keefe, began in Washington in July 2023. Deltec Bank similarly denied any allegations at that time.

All of the above cases are separate from FTX’s ongoing bankruptcy case and the criminal case that convicted former FTX CEO Sam Bankman-Fried.

Tether has not been sued in the current case, according to Bloomberg.

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