Executive texts claim Deltec moved customer funds from FTX to Alameda

Deltec Bank and Trust, the Bahamian bank that services the crypto industry, has been accused of knowingly aiding in the diversion of FTX customer deposits to Alameda Research and extending Alameda Research billions of dollars in credit to facilitate its issuance of popular stablecoin Tether. This is according to a motion filed in a class action lawsuit.

The allegations are based on messages and testimony from former Alameda Research chief exec Caroline Ellison who agreed to share these messages and testimony to settle the lawsuit against her. 

Deltec has served for years as one of the known banking partners for Tether, even publicly asserting the value of the stablecoin’s reserves. 

Alameda Research was a trading firm that misappropriated billions in customer assets from FTX, a cryptocurrency exchange with significant overlapping leadership.

The lawsuit specifically alleges that “Deltec…individually identified incoming FTX customer deposits and manually transferred those deposits into Alameda’s Deltec bank account daily and by way of texting one another” and “knew those incoming deposits belonged to FTX customers.”

It also claims that this behavior continued “after Deltec learned of Alameda’s looming insolvency and FTX’s inevitable collapse.” 

Furthermore, it alleges that Deltec failed to uphold its know-your-customer (KYC) and anti-money laundering (AML) regulations. These alleged breaches included sharing “regulatory compliance questions and customer information with FTX in violation of banking regulations and law — essentially, providing to FTX a playbook for evading regulatory scrutiny” — and exempting FTX and Alameda from regulatory mandated KYC and AML requirements wholesale.

It’s also claimed that the bank fabricated documents on behalf of FTX and Alameda to “sidestep those requirements in other ways.”

Additionally, the lawsuit claims that “Moonstone’s membership into the Federal Reserve, a critical entry point for FTX to the US banking system, was obtained by way of deceit and for FTX’s benefit.” Moonstone Bank was purchased by Deltec’s chairman, Jean Chalopin, and Alameda Research was the largest investor in the tiny bank. The lawsuit alleges that FTX had “their sights set on developing a bank owned and operated by FTX Group.”

Read more: The company that created Moonstone Bank is no more

Transfers between FTX and Alameda Research

FTX and Alameda Research’s chief point of contact at Deltec was apparently Gregory Pepin, who at that point was serving as the bank’s deputy CEO. In this role, he went above and beyond to service FTX, and Alameda, even noting to them that sometimes he went “outside the guideline to rush things lol.” Pepin was even willing to “populate invoices” to help manage wires from FTX customers. 

In order to manage incoming wires from FTX customers, Pepin would sometimes declare that it was “MOOONNNEEEYYY TTTIIIIMMMMEEEE” in the Alameda Research Telegram chat to signal that it was time to reconcile FTX customer deposits coming into Alameda bank accounts. This hands-on service differentiated Deltec from its competitors, with Pepin once joking, “What Silvergate don’t work at 10:38 pm and postpone their evening movie to review wire?”

At one point, he even observed, “lol don’t tell me Silvergate is slower than us under hurricane preparation and skeleton team lol.”

In his role, Pepin was at the beck and call of Alameda team members, who would regularly request that funds be transferred internally between FTX and Alameda bank accounts at Deltec

This behavior continued even once funds available started to come up short, with Pepin sometimes needing to encourage Alameda to deposit more cash to prevent problems. At one point, he said, “We need 200k cash lol as you are short 200k for the 400k…confirm when you guys push it as delchain is annoying me with the settlement 🙂 lol.”

At times, this even affected the ability for FTX customers to withdraw, with Pepin messaging, “Hey guys for withdrawal we may need a little bnit [sic] of cahs [sic] for this one.” This was not a one-time occurrence, with repeated requests for additional funds to cover other withdrawals.

Even once Alameda’s insolvency became a matter of public debate, Pepin was still willing to publicly vouch for the firm, at one point stating, “There is people coming to me about alameda insolvency shit. I’m pushing back and say its BS. However seems to grow a bit those FUD. Are you ok if I come ou[t] more publicly (attacking back people on Twitter when I see) and divert [attention] with people ping me?”

Tether scheme

The lawsuit additionally alleges that Deltec held a central role in enabling Alameda to issue billions of dollars worth of Tether. At its most basic Deltec was often responsible for making the transfers between the accounts of Bitfinex, Tether, and Alameda in order to facilitate the issuance and redemption of USDT. 

The lawsuit confirms that Alameda minted “more than $40 billion USDT,” confirming earlier Protos reporting about the scale of Tether issuance.

Alameda traders recognized they were issuing a significant quantity of USDT, with one communicating in the group chat that “You must feel like a dealer sometimes with how eager we are for the tethers I bet,” to which Tether chief financial officer Giancarlo Devasini responded, “I just wish you didn’t wait until you have no more before filing [sic] up again.”

The lawsuit alleges that Alameda was regularly issuing new USDT once it had successfully sold them for a premium, likely through its network of trading desks, including Genesis Block. 

Eventually, Deltec facilitated the more rapid issuance of USDT by allegedly extending a de facto revolving line of credit to Alameda. Pepin allegedly effectively allowed Alameda several days to pay for transfers it made to Tether, a feature Alameda immediately took advantage of, eventually breaking $2 billion borrowed. This arrangement was allegedly undocumented with Pepin asking Alameda to keep the arrangement confidential. 

A completely hypothetical series of transactions could look something like this:

  • Deltec transfers $1 billion to Tether from Alameda’s line of credit
  • Tether transfers 1 billion USDT to Alameda.
  • Alameda sells USDT through exchanges like Bitfinex and over-the-counter trading desks like Genesis Block
  • Alameda transfers proceeds from sales to Deltec, paying back the credit that was extended to them

This pseudo-line of credit helped Alameda Research become the largest issuer of USDT.

Read more: Deltec, SBF-linked billionaire Joe Lewis set for guilty plea to insider trading

June seizure

The lawsuit details how, when “Alameda redeemed USDT or withdrew from Bitfinex, the proceeds would first flow to Deltec Bank’s account at Mitsubishi UFJ Trust and Banking Corporation (MUFG)…from which US authorities seized funds belonging to Deltec Bank, in June 2023.” 

A June affidavit in support of the seizure of Deltec Bank funds held at MUFG related to an investigation into wire fraud, bank fraud, and money laundering alleges that Deltec “misrepresented the purpose and use of the SUBJECT ACCOUNT.”

The account was meant to be a custodial account, however allegedly “Deltec has allowed the account to be used by other third parties, in activity that would not reasonably be anticipated in a custody account and that has allowed individuals to avoid the scrutiny and vetting that international transactions might otherwise receive.”

This affidavit does not explicitly mention FTX, Alameda Research, Bitfinex, or Tether, but does mention cryptocurrency investment scams. 

Broadly, this lawsuit alleges that Deltec Bank and Trust engaged in extraordinary behavior to aid and abet the fraudulent behavior of FTX and Alameda Research by facilitating transfers and extending credit.

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