The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FTX’s new US chief yesterday confirmed he is probing a “highly irregular” transaction with Bahamas links where Sam Bankman-Fried’s hedge fund paid an “off the charts” sum to buy into a small American bank.

John Ray, testifying before the House of Representatives financial services committee on the crypto currency exchange’s implosion, said Alameda Research’s $11.5m investment in the 26th smallest US bank was “certainly getting our attention” as his team works to recover assets for FTX’s estimated one million creditors.

Tribune Business previously reported how the institution involved, the now-Moonstone Bank which was formerly known as Farmington State Bank, is headed by Jean Chalopin, also chairman of Lyford Cay-based Deltec Bank & Trust. Mr Ray yesterday said the deal’s Bahamas ties are one aspect he is investigating.

He was responding after Blaine Luetkemeyer, a Republican committee member from Missouri, questioned why Mr Bankman-Fried’s Alameda Research had “dropped $11.5m” into a tiny, rural Washington state bank that specialised in loans to farmers and only had a net worth of $5.7m.

After Mr Ray confirmed this investment netted Alameda Research around just a 10 percent equity stake, Mr Luetkemeyer said it had paid an “off the charts” sum equivalent to 20 times’ Farmington/Moonstone’s book value. The US congressman said this “should have been a red flag”, especially after some $71m was deposited into just four separate accounts linked to FTX and Alameda Research after the investment.

“We are looking at it,” Mr Ray replied. “It’s certainly one of the things that’s getting our attention. We’re looking at what the dollars were that went from the FTX group to that bank and looking at the connections of that bank to The Bahamas. There’s a lot more questions than answers. It’s certainly highly irregular and has got our attention.”

Such scrutiny is unlikely to be unwelcome for both Mr Chalopin and Deltec, even though there is no suggestion they have done anything wrong in relation to FTX and its collapse. A Deltec Bank & Trust spokesperson previously denied to Tribune Business that the Bahamian institution has any links or ties to Moonstone or the $11.5m investment by Mr Bankman-Fried’s Alameda Research.

“Deltec Bank has no business or banking relationships with Farmington State Bank (doing business as Moonstone Bank),” they said. “The only reason Deltec Bank has been mentioned in recent media is due to common shareholdings through businessman Jean Chalopin.”

This newspaper previously reported that FTX and entities controlled by Mr Bankman-Fried held no fewer than 17 accounts with Deltec Bank & Trust. While FTX held just one account at Deltec, a further nine were said to be in the name of Alameda Research.

The remaining seven Deltec accounts were in the name of West Realm Shires Services, a Delaware-based entity also majority-controlled by Mr Bankman-Fried together with fellow FTX co-founder, Gary Wang, and the crypto exchange’s engineering head, Nishad Singh. The 17 Deltec accounts were held in a variety of currencies, including US dollars, euros, Swiss francs, Canadian and Australian dollars, and the UK pound sterling.

Mr Chalopin, who initially made his fortune as the creator of the Inspector Gadget cartoons, also enabled the Albany project in south-west New Providence by selling a key estate parcel to its developers that was often referred to as the property behind ‘the long pink wall’. He was among the speakers at the Crypto Bahamas conference that was staged by Mr Bankman-Fried and FTX earlier this year.

Deltec, which has aggressively embraced the digital assets evolution by setting up its Delchain subsidiary to target this area, has fought hard to distance itself from FTX and Mr Bankman-Fried since the crypto currency exchange imploded. It has vigorously denied that its purchase of Ansbacher (Bahamas), which closed at end-March 2022, was funded at least in part with financing from FTX.

The bank then doubled down on this position with a November 14, 2022, statement that remains posted to its website. “FTX did not provide any services to or hold any assets for the bank,” it reiterated. “Deltec Bank does not hold or trade any digital assets for its own account or on behalf of its clients. Therefore, there is no credit or asset exposure by the bank to FTX.”

Meanwhile, Robert Adams KC, the Delaney Partners attorney representing the Securities Commission, warned Mr Ray in a December 7, 2022, letter not to “impede” or “interfere” with the Bahamian regulator’s own FTX probe while at the same time offering to co-operate by arranging a three-way meeting also involving the local joint provisional liquidators.

“The Commission appreciates that, as a fiduciary for certain affiliates of FTX Digital Markets in the Chapter 11 proceedings, your clients have certain duties and rights prescribed by the US Bankruptcy Code. The Commission respects your clients’ responsibilities and recognises the important work ahead in all civil proceedings in The Bahamas, the US and possibly other jurisdictions,” Mr Adams wrote.

“Respectfully, however, those duties and rights of your clients do not include the right to impede the Commission’s due exercise of its regulatory powers, actions and investigation. Given the confidentiality of the Commission’s investigation, it declines to provide certain information your clients seek as to the regulatory actions taken to date.”

He continued: “To the extent the Commission is able to assist in the efficient and mutually respectful conduct of the several pending proceedings without impairing the conduct or confidentiality of its ongoing regulatory investigation, including by participating in a meeting with your clients, the joint provisional liquidators and/or their respective counsel, they are prepared to do so.

“An appropriate and necessary part of any arrangement reached during such meeting, would be your clients’ assurance that they will take no further action to interfere with the Commission’s investigation and other regulatory measures.”