The Tribune

• ‘Serious sanctions’ if no Supreme Court go-ahead

• And ‘impossible’ to meet 70 requests in 2 weeks

• As ‘small bank’ with under $15m profit, 150 staff

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Deltec Bank & Trust pleaded poverty and violations of Bahamian law in a failed bid to block aggrieved former FTX investors from forcing it to provide evidence.

South Florida federal court files, seen by Tribune Business, reveal the extent of efforts by the Bahamian financial institution to prevent itself and its chairman, Jean Chalopin, from having to speedily provide both documents and testimony after they were named as defendants in a class action lawsuit over the crypto exchange’s collapse.

Besides arguing that they were “bound by Bahamian law” and its “strict confidentiality” mandate, which required Supreme Court permission before they could provide the requested evidence via the Evidence (Proceedings in Other Jurisdictions Act), Deltec and Mr Chalopin also asserted it was “impossible” to comply with over 70 document production requests in two weeks.

They based this on Deltec’s status as “a small Bahamian bank that does not litigate in the US”, with less than 150 full-time staff and net profits of under $15m for 2023. Mr Chalopin and his bank also demanded the very same day that the south Florida district court “quash” the former FTX investors’ attempt to obtain evidence and protect them from further discovery efforts.

However, US magistrate judge Eduardo Sanchez, in a January 19, 2024, verdict dismissed the duo’s efforts to dismiss the discovery action. “Defendants Deltec Bank and Trust Company and Jean Chalopin shall produce to plaintiffs documents evincing Deltec Bank and Trust Company’s banking license and corporate structure,” he ruled, “as well as any contracts and agreements that Deltec Bank and Trust Company, other Deltec entities or Jean Chalopin had with FTX, Alameda, and their related companies.

“In addition, Deltec Bank and Trust Company shall submit to a four-hour zoom deposition by plaintiffs, and Jean Chalopin shall submit to an additional three-hour zoom deposition unless Mr Chalopin serves as the corporate representative for Deltec Bank and Trust Company and the two depositions are consolidated.” However, all other Deltec customers and their details were omitted from the discovery process.

However, the FTX class action group, in legal filings last Friday, alleged that Deltec and Mr Chalopin’s compliance with the January 19, 2024, order had been less than stellar. “On January 26, 2024, Deltec made a woefully insufficient and heavily redacted document production,” it claimed in documents made public on February 16.

“Two business days later, on January 30, 2024, plaintiffs took the deposition of Deltec, at which Mr Chalopin served as the corporate representative. After follow-up communications with counsel for Deltec and Mr Chalopin regarding the deficiencies in Deltec’s document production and corporate testimony, counsel for Deltec produced unredacted versions of six contracts.

“The unredacted documents revealed extremely limited helpful information, the use of which is governed by protective order and, as such, is not quoted, summarised or otherwise referenced in any way, either in the instant motion or the plaintiffs’ proposed amended complaint.”

However, their frustration was soon eased by the co-operation provided by Caroline Ellison, former girlfriend of Sam Bankman-Fried and one of his inner circle, who has already turned witness against the former FTX founder as part of a plea bargain deal with US prosecutors.

The class action group appears to be hoping her production of 7,000 pages featuring Telegram messages between executives at Deltec Bank & Trust, FTX and Alameda Research, the latter being Mr Bankman-Fried’s private trading arm and which played a significant role in the crypto exchange’s collapse, will provide the fresh evidence they need to reinvigorate their claim.

Meanwhile, the documents reviewed by this newspaper provide a trail showing how the dispute has reached this point. The FTX class action group, in legal filings on January 5, 2024, sought an order from the south Florida court that would both “compel” Deltec and Mr Chalopin to comply with previous rulings mandating their co-operation and to speed this up.

This came after the US attorneys representing the Bahamian bank and its chairman, on January 3, 2024, warned their clients would refuse to comply without an order from the Bahamian Supreme Court authorising them to hand over the evidence.

“Deltec Bank and Mr Chalopin object to the discovery requests on multiple grounds, including because Judge Moore’s order permitting jurisdictional discovery did not authorise depositions of either Deltec Bank or Mr Chalopin, and because the Bahamas Evidence (Proceedings in Other Jurisdictions) Act bars Deltec and Mr Chalopin from sitting for a deposition or producing any documents without first obtaining an order from the Supreme Court of The Bahamas that authorises the production of such evidence,” wrote Roshaan Wasim of the Davis, Polk & Wardwell law firm.

The FTX class action group fired back: “Defendants refuse, wholesale, to produce any discovery, and have manifested their intent to flout this court’s order by hiding behind a Bahamian statute they claim ‘bars’ application of the Federal Rules and enforcement of the District Court’s order. But the statute is neither mandatory nor applicable here, and in no way excuses defendants’ non-compliance with this court’s order.

“Defendants are parties to this litigation. They have appeared in this court, and they have availed themselves of the Federal Rules and this court’s authority in filing motions to dismiss. They cannot now argue that the Federal Rules do not apply because it suits their position. Plaintiffs move this court to compel defendants’ production as ordered by the District Court.”

They argued that there was no provision in the Evidence (Proceedings in Other Jurisdictions) Act that “prohibits a Bahamian resident from disclosing documents and testimony in compliance with an order from this court.

“To the contrary, according to Bahamian practitioners, ‘[a] citizen residing in The Bahamas may volunteer to submit to the jurisdiction of a foreign court and give evidence in foreign proceedings’ under the Act,” the FTX class action group alleged.

Deltec and Mr Chalopin immediately pushed back against this in legal filings on January 12, 2024. Describing the allegations against themselves as “paper thin”, they added that, “as Bahamian residents and citizens, they are bound by Bahamian law, which subjects Bahamian banking institutions and their directors to strict confidentiality requirements regarding the type of client information sought by the” lawsuit.

“Counsel further informed plaintiffs that they may obtain discovery by following the procedure set out in the Bahamas Evidence (Proceedings in Other Jurisdictions) Act,” Deltec and Mr Chalopin countered, asserting that they faced exposure to a $25,000 fine and two-year prison sentence for the unauthorised disclosure of client information.

“Unless plaintiffs follow [the Act’s] procedure, which allows a Bahamian court to authorise the disclosure of documents and/or testimony that is otherwise prohibited from disclosure under Bahamian law, Deltec and Mr Chalopin risk serious sanctions under Bahamian law if they produce information in response to the requests.

“Plaintiffs’ claim that Deltec and Mr Chalopin are seeking to ‘flout [Judge Moore’s] order by hiding behind a Bahamian statute’ is wrong. Deltec and Mr Chalopin cannot violate Bahamian law simply because plaintiffs would have them do so,” the Bahamian duo continued.

“Plaintiffs, having made the decision to sue foreign nationals in the US, cannot feign indignance at the fact that those foreign nationals are bound by the laws of their home jurisdiction. Rather than ‘hiding behind a Bahamian statute’, Deltec and Mr Chalopin have shown plaintiffs an avenue through which they can obtain the requested discovery.....

“The Bahamas has a strong national interest in upholding its laws, and Deltec and Mr Chalopin should not be required to undercut that interest.”

As for the speed at which this evidence is to be produced, Deltec and Mr Chalopin added: “Plaintiffs’ request to expedite the discovery they are seeking is detached from the realities of discovery and the extraordinarily overreaching scope of the requests.

“Plaintiffs’ requests, which include 70 requests for production, including sub-parts, to Deltec; a deposition notice to Deltec that effectively seeks testimony on 77 topics; 19 requests for production to Mr Chalopin; and a deposition notice to Mr Chalopin that is not limited to testimony regarding jurisdictional topics—are vastly overbroad, unduly burdensome and largely irrelevant to jurisdictional issues.

“It would be effectively impossible for any party to comply with such expansive discovery requests in approximately two weeks. That difficulty is even more acute for Deltec, a small Bahamian bank that does not litigate in the US, has fewer than 150 full-time employees and had under $15m in net income in 2023 based on the bank’s unaudited financial statements for 2023.”

This, though, appears to have made little impression on Judge Sanchez, who largely granted what the FTX class action group was seeking.

Deltec and Mr Chalopin have already reaffirmed their stance that the latest allegations represent more “meritless claims” that will be “vigorously defended”, while suggesting that Ms Ellison and other former cronies of Mr Bankman-Fried 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.”