The Tribune

By NEIL HARTNELL

TribuneBusinessEditor

nhartnell@tribunemedia.net

A BAHAMIAN bank has been accused of aiding FTX by allegedly “sidestepping” this country’s banking laws, helping to “siphon off” customer funds and providing an up to $2bn “secret” credit line.

The claims are the latest to be levied against Deltec Bank & Trust and its chairman, Jean Chalopin, in a long-running class action lawsuit by aggrieved FTX customers whose pursuit has been given fresh ammunition from the production of 7000 pages of

Telegram messages - many featuring the Bahamian bank’s executives - by Sam Bankman-Fried’s former girlfriend.

Deltec and Mr Chalopin yesterday reaffirmed their stance that the latest allegations represent more “meritless claims” that will be “vigorously defended”, while suggesting that Caroline Ellison and other former cronies of the FTX founder are motivated by their desire to settle the same class action lawsuit’s claims against them.

“We are aware of the amended complaint filed by plaintiffs’ lawyers in the FTX matter. The new complaint does not cure the defects of the prior complaints and Deltec will continue to vigorously defend against these meritless claims, which do not belong in a US court,” they asserted in a written response to Tribune Business inquiries.

“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. Like the rest of the world, Deltec Bank and Jean Chalopin had no knowledge of FTX’s misconduct until it was made public.”

However, Ms Ellison, who previously pled guilty to US federal charges and became a co-operating witness against Mr Bankman-Fried, alleged in a February 13, 2024, affidavit that Deltec provided Alameda Research, the FTX founder’s private trading vehicle, with an “unofficial” - or secret - line of credit to finance the creation of Tether stablecoins that allowed “a three-day grace period” for repayment.

Asserting that this provided Alameda, which played a key role in FTX’s collapse, access to “hundreds of millions of dollars in value”, Ms Ellison said the behaviour and language of senior executives suggested this “unofficial” credit line “may not have been accurately reflected on Deltec’s books”.

Tribune Business sources last night suggested that the allegations would at least result in a fresh probe and questions from Deltec’s regulator, the Central Bank of The Bahamas. It is understood that the Lyford Cay-based institution is presently restructuring its book of business to reduce its exposure to digital assets, although it is not completely abandoning this sector.

The revised class action lawsuit, which largely appears to be based on Ms Ellison’s testimony and documentary evidence, alleged that the “secret line of credit to Alameda totalled $2bn at times”. Alameda played a key role in FTX’s collapse as this is the entity to which funds belonging to the latter’s customers were transferred without their knowledge to either finance speculative investments or repay debts.

And, pointing to what it alleged was a cosy relationship between the two, Friday’s new legal filings claimed that Deltec invested $1m in FTX’s summer 2021 financing round. “FTX, in turn, was a great friend of Deltec. After an extended failure by Deltec to raise debt capital in New York, Mr Chalopin turned to FTX,” the class action lawsuit claimed.

“In October 2021, Deltec’s parent company, Deltec International Group, received a $50m loan from Norton Hall Ltd, an entity controlled by Ryan Salame, chief executive of FTX’s Bahamian outfit. This is reportedly the same entity through which Alameda ‘loaned’ $55m to Mr Salame, paid for with class member funds.”

Noting that Deltec, at the time of FTX’s collapse, provided 17 accounts and/ or sub-accounts for the crypto exchange, including Alameda, the complaint asserted that the main contact point at the Bahamian bank was Gregory Pepin, then its deputy chief executive, who was assisted by Michel Giacomotti, one of its business development managers.

“Mr Pepin and Mr Giacomotti frequently communicated with Alameda, FTX Trading and FTX Group on various chat groups through the messaging platform Telegram. The group was close-knit, as the Telegram messages show. The Alameda team, Mr Pepin and Mr Giacomotti would joke about buying private islands together,” the class action complaint alleged.

However, it then claimed that Deltec “assisted FTX group with sidestepping, if not outright violating” Bahamian laws and the Central Bank of The Bahamas’ Know Your Customer (KYC) due diligence guidelines for onboarding new customers and accounts.

“Telegram messages between Mr Pepin, Mr Giacomatti and Alameda show that Deltec Bank did in fact collect the foregoing materials and information as required by the guidelines, though Deltec Bank often exempted FTX group from full compliance with those regulations,” the lawsuit claimed. On one occasion, Deltec purportedly offered to certify itself the passport for FTX co-founder, Gary Wang.

“Other times, Mr Pepin would disregard the guidelines in servicing FTX group accounts and he would happily announce the same to the Alameda Telegram,” the complaint alleged. “Deltec Bank was happy to make exceptions to the guidelines’ requirements for its ‘friends’ at FTX group.

“Often banks from which FTX customer funds were wired into Alameda’s Deltec accounts would ask for KYC information relating to the transfers. Mr Pepin would request this information directly from Alameda in the Telegram chat. If Alameda could not, or would not, so provide, Mr Pepin conjured up cover for the missing information.

“For example, in a Telegram message, Mr Pepin messaged an Alameda group, including Caroline Ellison and Ryan Salame, seeking KYC information requested by an FTX customer wiring money from Citibank.”

The lawsuit claimed that Mr Pepin ultimately copied and pasted the KYC questions from Citibank into the Telegram chat to Alameda knew what it had to do to meet Citibank’s requirements. “Such invitation of the fox into the henhouse is obviously impermissible under the guidelines and contrary to any best anti-money laundering practice,” it was alleged.

“Deltec Bank knew that it should not be sharing sensitive compliance information with the very clients that it is required to monitor, evidenced by the fact that, at times, Mr Pepin would take these discussions offline.

“Other times, Deltec Bank assisted Alameda in papering over FTX group’s compliance failures and suspicious activity. The Telegram messages reveal that, often, the originating banks from which FTX customer funds were wired into FTX group’s Deltec accounts required an invoice or legal agreement evidencing the purpose of the transaction.

“For some time, Deltec Bank alerted FTX Group that such evidence was requested and asked that FTX Group paper the

transaction ad hoc.” The lawsuit also claimed that Deltec helped Alameda “track its siphoning of FTX customer funds” through the accounts the latter held with the Bahamian bank, with incoming and outgoing wires totalling between $200m and $1bn on a regular basis.

“Not once did Deltec Bank stop, much less question, the massive outflows of FTX customer funds from FTX group accounts at Deltec Bank,” it alleged. “Deltec Bank instead routed those funds to Alameda’s accounts at other banks beyond the FTX customers’ reach, and it did so even after initial reports of Alameda’s insolvency that ultimately lead to FTX group’s collapse.

“On November 4, 2022, Mr Pepin expressly acknowledged Deltec bank’s awareness of Alameda’s insolvency in a direct message through Telegram to Caroline Ellison, stating: ‘I told Ryan [Salame] ... there is people coming to me about Alameda insolvency s*.

“‘I’m pushing back and say its BS. However, seems to grow a bit those FUD.AreyouOKifI come ou[t] more publicly (attacking back people on Twitter when I see) and divert [attention] with people ping me?’

“Notwithstanding Deltec Bank’s knowledge that Alameda was insolvent, and that billions of dollars in FTX customer funds were likely forever gone, on November 8, 2022, four days after he messaged Caroline Ellison, Mr Pepin messaged the Alameda Telegram chat to offer” to move $180m from FTX’s accounts to Alameda.

Ms Ellison, meanwhile, alleged that the “unofficial” or “secret” line of credit provided to Alameda by Deltec ultimately enabled the former to “mint” some $40bn in Tether stablecoins - a figure that amounted to almost half the amount in circulation at that time.

“Another service offered by Deltec to Alameda was that Deltec allowed Alameda a three-day grace period to transfer US dollars to settle Alameda’s creation of [Tether stablecoins],” Ms Ellison alleged in her affidavit.

“Alameda regularly used the unofficial Deltec line of credit as a de facto revolving line of credit that provided Alameda access to, at times, hundreds of millions of dollars in value.

I do not recall specifically when Deltec began to offer Alameda the unofficial Deltec line of credit, but my best recollection is that Deltec allowed Alameda to access the unofficial Deltec line of Credit in 2020 and 2021.

“I do not know if any similar service was offered to Deltec’s other clients. I recall that Mr Pepin repeatedly asked that Alameda keep the arrangement secret. I am not aware of any documentation or terms under which the unofficial Deltec line of credit was offered. I suspected from Mr Pepin’s statements and conduct that the unofficial Deltec line of credit may not have been accurately reflected on Deltec’s books,” she added.

“For instance, Mr Pepin would not permit Alameda to maintain a balance through the unofficial Deltec line of credit over the end of a month. Mr Pepin would also occasionally shorten the settlement time for the unofficial Deltec line of credit from three to two days or less.

“Mr Pepin would also occasionally restrict Alameda’s use of the unofficial Deltec line of credit. Eventually, Mr Pepin eliminated Alameda’s access to the unofficial Deltec line of credit. This unofficial Deltec line of credit was helpful for Alameda’s operations and trading, because it served as an additional source of capital,” Ms Ellison said.

“Because [Tether stablecoins] often traded at a premium to the US dollar during this time period, Alameda could create [Tether] on credit through the unofficial Deltec line of credit and sell that [Tether] for a gain before having to fund the purchase by depositing US dollars in Tether’s Deltec account. These transactions generated proceeds for Alameda.”