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FTX Allegedly Exploited Deltec Bank to Profit from Tether, Lawsuit Claims

FTX's secret deal with Deltec Bank

A recent lawsuit has brought to light allegations against FTX and its sister firm, Alameda Research, accusing them of profiting through a clandestine arrangement with Deltec Bank. According to Bloomberg's coverage on February 17, the lawsuit cites Caroline Ellison, former CEO of Alameda Research, revealing how Alameda could 

"create USDT on credit through the unofficial Deltec Line of Credit and sell that USDT for a gain before having to fund the purchase by depositing US Dollars in Tether’s Deltec account." 

This operation allowed Alameda to generate and sell billions of dollars in Tether (USDT) in 2020 and 2021, capitalizing on a significant profit margin before actual monetary settlement was required.

The arrangement described as a short-term line of credit, complete with a "three-day grace period," was reportedly not extended to other customers of Deltec Bank, underlining its exclusivity and secrecy. This revelation has stirred concerns over the ethical and regulatory implications of such financial maneuvers, emphasizing the intricate ties between cryptocurrency entities and banking institutions.

The allegations: profiting from Tether

The lawsuit further alleges a systemic misappropriation of funds facilitated by Deltec Bank's involvement with FTX and Alameda Research. It claims that Deltec not only enabled the creation of billions in USDT by Alameda but also played a critical role in the intricate web of financial transactions that blurred the lines between legitimate business practices and potential regulatory evasion. 

This alleged scheme saw FTX customer deposits being transferred to Alameda through Deltec, with the bank reportedly exempting Alameda from certain regulatory and operational norms, particularly favoring Alameda's withdrawal requests during periods of market instability.

Additionally, the legal documents highlight connections between FTX and Moonstone Bank (formerly known as Farmington State Bank), revealing financial flows that further complicate the narrative. Moonstone Bank, associated with Deltec chairman Jean Chalopin, reportedly received substantial funds from Alameda and entities linked to FTX associate Ryan Salame, totaling $61.5 million. 

Deltec denies wrongdoing amidst legal scrutiny

In response to the swirling allegations, Deltec Bank has staunchly denied any misconduct. Representatives for the bank, including Desiree Moore, a lawyer for Deltec, have dismissed the claims as based on "unsubstantiated statements by individuals" purportedly seeking to settle their lawsuits by providing such information. The bank and its chairman, Jean Chalopin, assert their lack of awareness regarding the alleged misuse of banking channels for profiting from Tether creation and sale.

The controversy extends beyond the specific lawsuit filed in a Florida federal court on February 16, encompassing a broader range of legal challenges facing both FTX and its associated entities. Despite Deltec's denial, the allegations have cast a shadow over the bank's operations and its relationship with the crypto industry, particularly in the wake of FTX's high-profile bankruptcy and ongoing criminal proceedings against Sam Bankman-Fried.