Cryptocurrency trading platform FTX used a Bahamas-based bank, Deltec Bank & Trust Ltd., to secretly create and sell Tether (USDT) stablecoins as part of a profit-making scam, according to a new lawsuit reported by Bloomberg.
Alameda Research, FTX's sister company, was also named in the lawsuit, which was filed Friday, in a Florida court.
Carolyn Ellison, former CEO of Alameda Research, is quoted in the filing explaining how the scheme works.
Alameda created Tether, or USDT, on credit through its informal Deltec line of credit.
The company, under then-FTX CEO Sam Bankman-Fried, sold USDT for a profit – all before having to fund the purchase by depositing US dollars into Tether's Deltec account.
The lawsuit also asserts that Deltec helped Bankman-Fried embezzle client funds by facilitating transfers between FTX and Alameda Research accounts.
Attorneys for the victims of the Bankman-Fried case filed the complaint on Friday, February 16, in federal court in Florida.
Venable LLP, the law firm representing Deltec, maintains that the bank was not aware of any wrongdoing by FTX.
Tether, the USDT issuer, grew as a result of the stunt but was not named as a defendant in the case.
Lawyers for victims of the Bankman-Fried scam worked with Ellison, Bankman-Fried's ex-husband, who turned over more than 7,000 pages of Telegram chats as evidence.
After the collapse of FTX
When FTX went bankrupt, it issued a statement stressing that the collapse did not pose any risk to Tether, as Alameda Research had always paid for its tokens in US dollars.
But the lawsuit filed Friday alleges that Deltec received deposits from FTX customers and, despite knowing those funds belonged to the customers, improperly transferred them to Alameda.
Deltec allegedly granted Alameda exemptions from some regulations, and during the 2022 cryptocurrency market crash, prioritized Alameda's withdrawals over those of other clients.
A subsequent investigation into FTX's practices led to the conviction of its founder, Bankman-Fried, 31, on seven counts of fraud and conspiracy. He is scheduled to be sentenced 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 has also filed lawsuits against Binance, the world's largest cryptocurrency exchange, alleging breach of contractual obligations and unfair competition.
Furthermore, the SEC and CFTC filed lawsuits against Bankman-Fried and Alameda Research, accusing them of fraudulent and manipulative practices in commodity interest offerings.
In December, a federal judge denied a request to prolong Bankman-Fried's sentencing process and postpone a pre-sentencing interview with the U.S. Probation and Pretrial Services system.
Although his lawyers requested an extension, citing a possible second trial on additional charges scheduled for March 11, the judge denied that request. The judge stressed that the defense did not raise any objections when the hearing was scheduled for March 28.
Additionally, the judge noted that if the Department of Justice chose to hold a second trial, it would likely delay the sentencing proceedings. These legal actions carry significant implications for the cryptocurrency industry, as regulatory authorities aim to create clear regulatory frameworks.
