Cryptocurrency trading platform FTX used Bahamas-based lender Deltec Bank & Trust Ltd. to secretly create and sell Tether (USDT) stablecoin as part of a profit-making scam, according to a new lawsuit reported by Bloomberg.
FTX’s sister company, Alameda Research, was also named in the lawsuit filed Friday in a Florida court.
Caroline Ellison, former CEO of Alameda Research, is quoted in the filing explaining how the scheme worked.
Alameda created Tether (USDT) in credit through the unofficial Deltec Line of Credit.
The company profited by selling USDT under the direction of then-FTX CEO Sam Bankman-Fried. Before I could fund my purchase, I had to deposit US dollars into my Deltec account on Tether.
The lawsuit also alleges that Deltec helped Bankman-Fried misappropriate customer funds by facilitating transfers between FTX and Alameda Research’s accounts.
Attorneys for Bankman-Fried’s victims filed the complaint in Florida federal court on Friday, February 16.
Venable LLP, the law firm representing Deltec, claims the bank was unaware of any wrongdoing on FTX’s part.
USDT issuer Tether grew as a result of this scheme but was not named as a defendant in the case.
Lawyers for victims of Bankman-Fried’s fraud worked with Ellison, Bankman-Fried’s ex-lover, to submit more than 7,000 pages of Telegram chats as evidence.
After the FTX collapse
When FTX went bankrupt, Alameda Research issued a statement saying that the collapse did not pose a risk to Tether as it had always paid for its tokens in US dollars.
But Friday’s lawsuit alleges that Deltec took deposits from FTX customers and improperly transferred them to Alameda, knowing the funds belonged to the customers.
Deltec exempted Alameda’s withdrawals from certain regulations and reportedly prioritized Alameda’s withdrawals over other customers during the 2022 cryptocurrency market crash.
A subsequent investigation into FTX’s practices resulted in its 31-year-old founder, Bankman-Fried, being found guilty on fraud and conspiracy charges. His sentencing is scheduled for next month.
Sam Bankman-Fried’s legal troubles
Bankman-Fried is embroiled in several legal disputes, including a $1 billion lawsuit filed by FTX against him and three other former executives.
FTX also filed a lawsuit against Binance, the world’s largest cryptocurrency exchange, for breach of contractual obligations and unfair competition.
Additionally, the SEC and CFTC filed lawsuits against Bankman-Fried and Alameda Research, alleging fraudulent and manipulative practices in offering interest on their products.
Last December, a federal judge denied Bankman-Fried’s plea to extend sentencing proceedings and delay her pre-sentence interview with the U.S. Probation and Pretrial Services System.
Despite the attorney’s request for an extension, the judge denied it, noting that a second trial on additional charges is scheduled for March 11. The judge emphasized that the defense raised no objections when his hearing was initially set for March 28.
The judge also noted that the sentencing process could potentially be delayed if the Justice Department chooses a second trial. These legal proceedings have significant implications for the cryptocurrency industry as regulators aim to establish a clear regulatory framework.