FTX, Tether’s Bahamas banker linked to questionable US bank purchase

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The hidden ties between the FTX digital asset exchange and the Tether stablecoin may be coming into sharper focus, thanks to a questionable investment in an obscure U.S. bank.

FTX had its initial U.S. Bankruptcy Court hearing in Delaware this week, and online attendees were treated to several memorable factoids, including lawyers appointed to oversee the collapsed exchange saying the firm was “effectively run as a personal fiefdom of [CEO/founder] Sam Bankman-Fried (SBF).” SBF has been accused of using billions’ worth of FTX customers’ deposits to bail out FTX’s affiliated market-maker Alameda Research in a vain effort to keep his incestuous Ponzi scheme going.

Here’s the letter from SF Fed prez Mary Daly approving Fed Reserve System membership (SWIFT and wires) for the bank that SBF bought.

That’s Deltec Chairman Jean Chalopin on the Board, as is Gemini Chief Compliance/Operating Officer Noah Perlman.

Burn. It. The. Fuck. Down. https://t.co/abdn8D33vE pic.twitter.com/XWSDAwKVOl

— Ben Hunt (@EpsilonTheory) November 24, 2022

SBF’s insistence on controlling all things FTX/Alameda is posing problems for the attorneys and bankruptcy experts tasked with assessing which assets listed on the balance sheets actually exist outside SBF’s imagination. With creditors owed billions, FTX attorney James Bromley told the court that it is “essential that we first maximize the value of the assets we have, whether that means selling assets, selling businesses, or restructuring businesses.”

Among the tangible items listed on Alameda’s asset ‘silo’ is an $11.5 million stake in FBH Corp, the parent company of the Washington State-based Farmington State Bank. In March, FBH announced the Bahamas-based Alameda Research Ventures’ investment into FBH, which promptly rechristened its fully owned Farmington subsidiary as Moonstone Bank.

The New York Times reported that, prior to Alameda’s investment, Farmington was a pretty sleepy endeavor, with just three employees and deposits averaging around $10 million. Within months of Alameda coming on board, Federal Deposit Insurance Corporation (FDIC) data shows Moonstone’s deposits soaring to $84 million, of which $71 million was held in just four new accounts.

Farmington previously offered no credit card services nor any online banking, but FBH’s announcement of the Alameda deal called Moonstone “a robust financial platform to empower fast-growing innovative and disruptive sectors.” Farmington’s makeshift website was subsequently amended to claim that, under its new Moonstone identity, its goal was to support “the evolution of next-generation finance.”

Questions are now mounting as to how Alameda, given its involvement in a financial sector the U.S. government views with overt hostility, was able to acquire an ownership stake in a U.S. bank (regardless of its size) without any regulatory pushback. The fact that Alameda’s stake valued the bank well beyond its actual worth should have set off alarms in both Washington State and Washington, D.C. (or maybe SBF’s original strategy of adding ‘Research’ to Alameda’s name actually achieved its goal of deflecting regulatory scrutiny).

There’s also the fact that Farmington’s parent company FBH was run by the same Bahamas-based individual who served as principal bankers for both FTX/Alameda and Tether.

I'm going to say it again.

SBF/Alameda/FTX was a money laundering front for Bitfinex/Tether, with a trade fraud/market manipulation arm.

I told you all in 2021 about Alameda/FTX, before they blew up.

From NY Times: https://t.co/qb5VulgRa1 pic.twitter.com/v4TMtN80S3

— Bitfinex'ed 🔥🐧 Κασσάνδρα 🏺 (@Bitfinexed) November 24, 2022

Go Go Gadget Fraudulator!

FBH, which acquired Farmington in 2020, is chaired by Jean Chalopin, who also serves as chairman of the Bahamas-based Deltec Bank & Trust. (Trivia note: Chalopin is a co-creator of the Inspector Gadget animated TV series, so you’d assume he could easily afford a barber whose toolkit contains more than a salad bowl and a pair of hedge trimmers, but he’s French, so what do we know.)

Flush with Gadget cash, Chalopin began investing in Deltec in the 1980s, to the point that he eventually owned the joint outright and became chairman. Chalopin claimed to have met Giancarlo Devasini, co-founder of both the Bitfinex exchange and Tether, in 2017. The following year, Deltec took Bitfinex/Tether on as clients, and Chalopin signed a statement vouching for the assets supposedly backing Tether’s USDT coin (these reserves have famously never been audited).

One year after Chalopin’s FBH acquired Farmington, the Federal Reserve Bank of San Francisco approved the bank’s application for membership in the Federal Reserve System. That approval allows access to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system, allowing for cross-border transactions through correspondent banking accounts, as well as the Fedwire Funds Services, which facilitates “large-value, time-critical payments.”

As of late 2021, Alameda was the second-largest recipient of all USDT (Tether) issued to date, with nearly all of that USDT ending up on FTX. In order to buy USDT, one must (allegedly) send Tether actual U.S. dollars, which would require the assistance of a U.S.-based bank.

As others have pointed out, U.S.-based individuals/entities that believed they were wiring money to FTX’s international site often discovered (after the fact) that their money had actually been sent to Alameda or one of its offshoots.

This was recorded in the summer of 2021. Afterwards, we were berated on Twitter by @AlamedaTrabucco and @SBF_FTX for this interview. Another person to do that to me, @christinenews and @emilydparker was @stablekwon. https://t.co/3TCEqBSdlP

— Lawrence Lewitinn, CFA ▪️ (@lvlewitinn) November 20, 2022

Alameda’s former CEO Sam Trabucco, who abruptly quit this summer claiming that he wanted to spend more time on his boat, was visibly unnerved in an August 2021 interview when asked whether Alameda used U.S. banks to buy USDT and if so, what banks they used. After awkwardly pretending not to hear/understand the question, Trabucco eventually stammered that he wasn’t about to disclose any banking details, later tweeting that he wasn’t expecting to be “interrogated” about banking.

Nearly two years ago, SBF acknowledged using correspondent banks to wire money to FTX’s Deltec accounts to create/redeem USDT with/for U.S. dollars. Clearly, having a friend like Chalopin at both ends of this equation would dramatically simplify/streamline this process, not to mention eliminate any queasiness a less connected banker might feel.

A Winklevoss and a nod

Also raising eyebrows on the Fed’s approval of Farmington’s application was the appearance of Noah Perlman on the bank’s list of directors. Assuming it’s the same person, Perlman is chief operating officer at Gemini, the Winklevii-founded exchange and digital asset lending platform that warned this week that its customers could be out hundreds of millions of dollars after the Genesis Global Capital lending business suspended redemptions and started exploring possible bankruptcy proceedings.

Incredibly, Perlman began his Gemini tenure in 2019 as its chief compliance officer and previously served as an Assistant U.S. Attorney (Criminal Division) for the U.S. Attorney’s Office for the Eastern District of New York.

So now we know that the Winklevii, @tyler and @cameron, were up to their eyeballs in this crap with SBF, as was Tether through Deltec.

FinTwit uncovers in hours what MSM uncovers in months and the Feds uncover never.https://t.co/iiSAKssQBC

— Ben Hunt (@EpsilonTheory) November 24, 2022

All-in with a 2-7 off-suit

As detailed on this site recently, there are a number of common threads linking the FTX debacle to the 2011 ‘Black Friday’ online poker indictments. Here’s another: among the individuals named in the indictments was one John Campos, vice-chair/part-owner of the SunFirst Bank in Utah.

In 2009, Campos agreed to a $10 million investment from a sketchy payment processing firm, making this firm the single largest shareholder in SunFirst. In exchange, Campos agreed to miscode online poker payments as transactions less likely to catch the eye of federal watchdogs.

SunFirst earned fees totaling $1.6 million in just over a year for processing $200 million worth of illegal poker payments until the FDIC caught wind of what was going on. The bank was shut down, and Campos was sentenced to three months in prison (he originally faced up to 45 years) and was permanently barred from working in the banking profession.

The Black Friday indictments got a major assist from Daniel Tzvetkoff, who headed up defunct Australian payment processor Intabill. One year before the indictments, Tzvetkoff was dumb enough to travel to Las Vegas, where he was arrested on similar gambling payment charges. But in exchange for a slap on the wrist, Tzvetkoff spilled his guts and went back to living the high life, reportedly with money he’d stolen from the poker companies before his arrest. Which brings us to…

Stablecoin

Unlike other major exchanges, FTX never launched an in-house stablecoin, somehow preferring USDT over all the obvious advantages that a proprietary stablecoin could offer.

When FTX launched operations in May 2019, USDT’s market cap was around $3 billion. By late 2021, by which point data showed Alameda had been drinking deeper at the Tether trough than almost everyone else, USDT’s market cap was around $68 billion.

There’s no shortage of blockchain veterans—our own Kurt Wuckert Jr. among them—who suspect that FTX was established by the same individuals behind Bitfinex/Tether in order to have a supposedly unaffiliated exchange to pump full of USDT and wash-trade tokens to the moon. But the smoking gun that would conclusively prove those ties has so far remained elusive.

So, the question becomes: who among the FTX/Alameda rogues’ gallery is going to be the ‘Crypto Tveztkoff’ and spill their guts on the real story behind the Tether fraud? Doing so might allow them to avoid prison and go back to enjoying the rest of their life with the ill-gotten gains they’ve undoubtedly stashed away. But best act quick, folks, before one of the other rats on this sinking ship beats you to it.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.