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FTX investors target Bahamas bank in suit

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FTX founder Sam Bankman-Fried leaves Manhattan federal court in New York, last week. (AP Photo/John Minchillo)

• Deltec and chairman among class action defendants

• Both pledge to ‘vigorously defend’ $8bn fraud case

• Brand accusations against them as ‘frivolous claims’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian bank and its chairman yesterday pledged to “vigorously defend” themselves against a class action lawsuit’s accusations that they helped “perpetuate” an $8bn fraud by FTX’s founder.

Deltec Bank & Trust and Jean Chalopin, in a statement issued to Tribune Business, blasted the allegations against them as “frivolous claims” after it was asserted that they and multiple other financial institutions knowingly provided a platform that allowed Sam Bankman-Fried to “loot” client funds from the now-collapsed crypto exchange. 

“Deltec and Jean Chalopin are among multiple banks, venture capital firms, accountants and others named in the class action complaint. Deltec and Jean plan to vigorously defend against the frivolous claims against them in the complaint,” the Lyford Cay-based institution told this newspaper.

The class action complaint, filed in the southern Florida federal court on Wednesday, claimed that Deltec, Mr Chalopin and the other defendants had “full view” of Mr Bankman-Fried’s activities but “did not care” that he was misusing and misappropriating FTX customer funds without their permission. However, the action, filed in the name of FTX client, Connor O’Keefe, provided no specific evidence that either Deltec or Mr Chalopin were aware a fraud was being perpetrated.

Also named as defendant was Moonstone Bank, the 26th smallest financial institution in the US, which is also headed by Mr Chalopin. “Defendants Deltec, Moonstone and Jean Chalopin primarily assisted Sam Bankman-Fried in trafficking class member funds across the US border,” the lawsuit alleged. 

“Defendant Deltec, at Mr Chalopin’s direction, provided one-of-a-kind digital asset banking services to FTX and, upon information and belief, served as a primary vehicle through which Sam Bankman-Fried routed class member funds offshore beyond the reach of US regulators and law enforcement.

“Defendant Moonstone, also at the direction of Mr Chalopin, provided complementary services, assisting Sam Bankman-Fried in funnelling more than $50m in class member funds to entities he separately owned through accounts at the bank.”

Describing Mr Chalopin as a crypto industry veteran, the class action lawsuit continued: “As the chief executive of Deltec, he spent years assisting the Bahamian government in ‘transform[ing] the country into a sandbox for digital asset start-ups’. Through these efforts, Mr Chalopin developed close ties to FTX.

“With FTX, Deltec co-hosted a crypto summit in The Bahamas, at which Mr Chalopin touted that ‘Deltec has been a long-time friend of FTX, and it is our pleasure to support them’. FTX, in turn, was a great friend of Deltec. 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.

“From its long-standing, close ties with FTX, Deltec gained an awareness of FTX’s fraud. Nevertheless, Deltec, at Mr Chalopin’s direction, assisted FTX in moving class member funds offshore,” the lawsuit continued. “These funds included, upon information and belief, not only class members’ US dollar deposits, but also class members’ cryptocurrencies, as Deltec is one of few banks that offer the services necessary to do that, including banking and taking custody of cryptocurrencies, as well as trading, lending and borrowing digital assets.”

Class action lawsuits or often difficult to sustain, and sometimes hard to stand up in court. But, while Deltec and Mr Chalopin are vigorously contesting and denying the allegations against them, the action’s filing represents a blow to their efforts to put as much distance as possible between themselves, Mr Bankman-Fried and FTX’s collapse.

The Lyford Cay-based institution, which has aggressively embraced the digital assets evolution by setting up its Delchain subsidiary to target this area, previously denied that its purchase of Ansbacher (Bahamas), which closed at end-March 2022, was funded at least in part with financing from FTX.

It then doubled down on this position with a November 14, 2022, statement 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.”

However, Wednesday’s class action lawsuit reproduced a purported social media exchange that took place between Mr Bankman-Fried and an FTX client on January 13, 2021, where the latter was inquiring about the crypto exchange’s relationship with Deltec.

“OK... so you are not wiring money to Deltec,” the client wrote. “Then how are you funding your account at Deltec if you are not wiring money to Deltec?” To this, Mr Bankman-Fried cryptically replied: “Correspondent banks.” The class action lawsuit then focused on Mr Chalopin’s efforts to obtain funding from FTX for his US bank, Moonstone.

“Janvier Chalopin, Moonstone’s chief digital officer and Mr Chalopin’s son, reports that they ‘pitched [Alameda Research] the whole road map’ to invest in Moonstone, which he claimed would fill ‘the massive gap in banking in the US for digital assets businesses’,” the lawsuit said, referring to Mr Bankman-Fried’s trading vehicle. “The Chalopins succeeded. In January 2022, Alameda invested $11.5m in Moonstone - nearly double the bank’s net worth at the time.

“Moonstone was not always flush with such large inflows of capital. Until recently, Moonstone was the 26th smallest of 4,800 banks in the US with a single branch in Farmington, Washington, a town of only 150 residents. In 2010, the bank’s president bragged that it did not offer credit cards and held more deposits than loans outstanding.

“That changed in 2020 when Mr Chalopin purchased Moonstone, purportedly to support the ‘underserved cannabis industry’, and now serves as its chairman and chief executive. Upon Alameda’s investment in Moonstone, Moonstone promptly applied, and was approved, to become a member of the Federal Reserve,” the complaint continued.

“With that, FTX gained access to a third point of entry to the US banking system, and FTX promptly took advantage of these services, depositing $50m in class member funds across two accounts. At the time of the fraud’s collapse, FTX was Moonstone’s largest customer, and Moonstone, for its part, benefited tremendously from this quid pro quo.

“With FTX’s accounts, Moonstone’s deposits jumped to $71m in the third quarter of 2020, a 600 percent increase from Moonstone’s historical average. In pursuit of continued growth and unprecedented profits, Moonstone, at the direction of Mr Chalopin, gladly took action in furtherance of Sam Bankman-Fried’s fraud.”

The Bahamian provisional liquidators for FTX Digital Markets, the crypto exchange’s local subsidiary, are presently seeking to recover the $50m deposited with Moonstone after the funds were seized by the US Justice Department. They are presently negotiating with the latter for the funds’ return after recently obtaining Chapter 15 legal status and recognition from the Delaware Bankruptcy Court.

The class action lawsuit, meanwhile, alleged that the close ties between Mr Bankman-Fried, and Deltec and Mr Chalopin, meant the latter knew “FTX was misappropriating class member funds by funnelling them through accounts under Sam Bankman-Fried’s control at Deltec and Moonstone.

“Nevertheless, Deltec and Moonstone took overt acts in furtherance of the FTX fraud, with Moonstone providing FTX access to the US banking system, and effecting transfers of class member funds into accounts under Sam Bankman-Fried’s control, and Deltec, in turn, helping Sam Bankman-Fried fence class member funds, including those held in accounts at Silvergate, Signature and Moonstone, across the US border and beyond the reach of US law enforcement.

“Sam Bankman-Fried could not have perpetuated the fraud without these services.” Mr O’Keefe and other former FTX clients behind the lawsuit are demanding that the matter go to a jury trial. 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 FTX Trading chief, disclosed that the latter entity held just one account at Deltec.

However, 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 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 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 last year.

Comments

TalRussell 1 year, 4 months ago

The first of lawsuits arrive at the colony's doorsteps. ---- They should've known to commence searching to lawyer up. ---- Yes?

ThisIsOurs 1 year, 4 months ago

Who knew is one question.

But is is beyond belief that nobody knew about the massive amount of funds leaving the country's jurisdiction. Nobody asked for evidence client funds in the millions were segregated. Nobody asked for continuous monitoring of client funds... one of the long stream of dereliction of duty or co-conspirator law suits to come will eventually succeed

TalRussell 1 year, 4 months ago

It will take serious 'outside the colony' threats lawful actions against those 'had've been observing and listening-in' on the thieving Sam Bankman-Fried and co-conspirators' ----- Before they start squealing on their 'higher-ups.' ---- Yes?

ExposedU2C 1 year, 4 months ago

The Lyford Cay-based institution, which has aggressively embraced the digital assets evolution by setting up its Delchain subsidiary to target this area, previously denied that its purchase of Ansbacher (Bahamas), which closed at end-March 2022, was funded at least in part with financing from FTX.

The Bahamian provisional liquidators are likely to find "pay dirt" by following the cash in the AFH/Colina group's sale of Ansbacher. Many suspect Anthony Ferguson and his Greek master were big time beneficiaries in that transaction of funds Deltec received from FTX/Alameda that SBF and his gang had stolen from their crypto/digital customers. Just follow the cash.

ThisIsOurs 1 year, 4 months ago

Hmmm... that would be interesting if they could make the claim that the purchase could not have happened without the loan of 50m. Then the question who's responsible? Deltec got the loan....

I think people in the know knew something was wrong when Bankman started going around to local banks in Nov 2021, offering 12% for cash. That detail would go over the average consumer's (like me) head when they heard it back in 2021 when all was good, but these guys who live and die by interest rate adjustments would have immediately started speculating. Why would anyone pay 12% for cash in 2021 when retail banks are offering 0% on cash deposits? especially a company whos foundational principle is cash is so passe? Somebodies with power knew, or speculated, and Im betting were having discussions privately amongst themselves

Emilio26 1 year, 4 months ago

It seems like the chickens are coming home to roast and I guess it won't be long before big bankers and even politicians names are called in this FTX scandal.

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