The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The bid by FTX’s Bahamian liquidators to take control of $143m held in US bank accounts was rendered “moot” - at least temporarily - after the assets were seized by the US federal authorities.

Documents seen by Tribune Business reveal that Brian Simms KC, the Lennox Paton senior partner, and PricewaterhouseCoopers (PwC) accounting duo, Kevin Cambridge and Peter Greaves, just two days before Christmas sought the Delaware Bankruptcy Court’s approval to transfer funds held in the name of FTX Digital Markets to more “creditworthy” financial institutions.

The Bahamian subsidiary was said to have more than $93m on deposit with Silvergate Bank, an institution well-known for providing services to the crypto and digital assets industries, with the remaining near-$50m balance held at the 26th smallest bank in the US, Moonstone Bank.

The latter, as previously reported by Tribune Business, is headed by Jean Chalopin, also chairman of Lyford Cay-based Deltec Bank & Trust. The latter has repeatedly denied any ties to Moonstone, asserting that the only connection is the common shareholdings of Mr Chalopin, but the Bahamian institution’s links to FTX and its indicted co-founder, Sam Bankman-Fried, continue to attract scrutiny both in this nation and abroad.

Deltec yesterday reasserted that it “remains financially unaffected” by FTX’s implosion, and that of Mr Bankman-Fried’s hedge fund/trading vehicle, Alameda Research, while confirming media reports that its Cayman-based parent received a $50m loan from an entity linked to the crypto exchange and its former Bahamas chief, Ryan Salame (see later in article).

Meanwhile, legal filings obtained by this newspaper revealed that the seven bank accounts which FTX Digital Markets’ liquidators had hoped to take control of were all seized by the US Justice Department on December 30, 2022. They will now have to negotiate with the federal authorities for the $143m to be released to them, and prove they belong to the Bahamian subsidiary and/or its creditors, and potentially participate in further US court proceedings.

The Bahamian trio, in their December 23 filings, said they were merely seeking “to safeguard certain of the estate’s funds currently on deposit in banks located in the United States” even though they had yet to obtain recognition from the same Delaware Bankruptcy Court as a “main foreign proceeding” under Chapter 15 laws.

“Despite the limited information currently available to the foreign representatives, they have identified that the Chapter 15 debtor (FTX Digital Markets) maintains at least seven bank accounts located in the US,” the Bahamian provisional liquidators said.

“These accounts are maintained at Farmington State Bank, doing business as Moonstone Bank, and Silvergate Bank. As of the commencement of this Chapter 15 case, the combined balance of the FTX Digital US accounts was approximately $143m.

“The foreign representatives believe that the FTX Digital funds are at risk of loss or depletion which would be to the detriment of the Chapter 15 Debtor’s creditors.” The trio, adding that they were fulfilling their Bahamian Supreme Court mandate “to ensure the safety of the FTX Digital funds”, added: “To safeguard these funds, they must be moved out of the small fintech (financial technology) banks where they are being held.....

“It appears that the Chapter 15 debtor is Moonstone’s largest customer, comprising most of the bank’s total deposits. Further, although Silvergate has a significantly larger customer base than Moonstone, the foreign representatives are troubled by the fact that Silvergate is the defendant in at least four class-action lawsuits brought by FTX creditors and Silvergate shareholders since the collapse of the FTX enterprise in November.”

Mr Simms and his two PwC colleagues said they were seeking the Delaware court’s permission “to minimise the potential for a diminution in the value of funds available to the creditors” of FTX Digital Markets by having the $143m transferred to institutions that were better capitalised and had less exposure to the crypto exchange’s collapse. They added that both Moonstone and Silvergate had refused to release the assets each was holding without a court order.

“Importantly, while the foreign representatives anticipate seeking authority to transfer these funds to The Bahamas at some point in the future, this motion does not seek that relief. Rather, the foreign representatives will hold the FTX Digital Funds inside the US until further order of this court,” the trio pledged, arguing that the Bahamian subsidiary’s ownership of the accounts is “undisputed”.

“The Chapter 15 debtor has two accounts at Moonstone with approximately $49.999m in funds on deposit. In addition, the Chapter 15 debtor has approximately $93.222m in funds on deposit at Silvergate, spread among five US dollar and Euro-denominated accounts,” the Bahamian provisional liquidators added.

US media reports said Moonstone’s customer deposits had jumped nearly 600 percent to $84m during the 2022 third quarter, having remained at $10m for the previous decade, with $71m of the $74m increase coming from just four accounts. “As such, it appears that the Chapter 15 debtor is by far Moonstone’s largest customer, comprising the vast majority of the funds on deposit at the bank,” the Bahamian provisional liquidators asserted.

However, the US Justice Department pounced before the Delaware Bankruptcy Court could even consider their request. Silvergate Bank, in its own court filing on January 4, 2023, said bluntly: “The motion is now moot. The accounts were seized on December 30, 2022, by a warrant issued from the US District Court for the southern district of New York as a part of a civil forfeiture process related to criminal proceedings in that court.”

Meanwhile, Deltec Bank & Trust yesterday defended the $50m loan that its Cayman parent, Deltec International Group, received in October 2021 from Norton Hall Ltd, an entity alleged to be controlled by FTX Digital Markets chief, Ryan Salame, that is not included in any of the crypto exchange’s worldwide bankruptcy or liquidation proceedings.

“In the ordinary course of business, the parent company of Deltec Bank, Deltec International Group, received a short-term loan to fund strategic growth initiatives from Norton Hall Ltd, an entity affiliated with FTX,” the Lyford Cay-based institution said in a statement.

“While the terms of the loan extend until March 2023, Deltec International Group has been attempting to repay the loan in full since December 2022. Deltec International Group is currently awaiting information as to the proper instructions on how to repay the loan.” The “strategic growth initiatives” and loan terms were not disclosed.

Deltec then reiterated that it has “no credit or asset exposure” to FTX, while touting its year-end 2021 financial statements for showing that it is well-capitalised and has no debt. It also hailed its “unparalleled risk management”, along with “good corporate governance practices” and “regulatory compliance”, reassuring investors “there is no threat to the bank’s sustainability, safety and soundness”.

However, sources spoken to yesterday by Tribune Business queried why an institution with no debt, $1.446bn in total assets and over $119m in net equity at end-2021 would need a relatively small loan amount worth $50m. They pointed out that, with banks, the capital flow typically tends to go the other way with credit advanced and not borrowed.

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.

However, this newspaper previously reported that FTX and entities controlled by Mr Bankman-Fried held no fewer than 17 accounts with Deltec Bank & Trust. Documents produced by John Ray, the chief executive for FTX US, disclosed that the latter entity held just one account at Deltec.

A further nine were said to be in the name of Alameda Research, the trading/hedge fund entity controlled by Mr Bankman-Fried, and which is thought to have played a central role in the crypto exchange’s week-long implosion. 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 exchange’s engineering head, Nishad Singh.

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.