FTX's Hidden Deal for Crypto Profit Exposed in Lawsuit

A lawsuit reported by Bloomberg on February 17 alleges FTX used a secret agreement with Deltec Bank to profit from Tether (USDT). Caroline Ellison, former CEO of Alameda Research, revealed that Alameda could generate USDT on credit and sell it for profit through an unofficial line of credit with Deltec, without immediate payment. The arrangement allowed Alameda to create billions in USDT in 2020 and 2021, selling the cryptocurrency for a profit before settling the costs. This method provided Alameda with significant financial leverage, allowing transactions with funds it hadn't yet paid for, described as a short-term credit line.

The lawsuit claims Deltec facilitated the misappropriation of funds between FTX and Alameda and transferred FTX customer deposits to Alameda, violating standard practices. It also suggests Deltec gave preferential treatment to Alameda's transactions, especially during cryptocurrency market downturns. Deltec and FTX's connections extend to Moonstone Bank, which received substantial funds from Alameda and an FTX associate. After scrutiny from the Federal Reserve in August 2023, Moonstone Bank ceased operations in February.

Deltec representatives, including lawyer Desiree Moore, stated the bank and its chairman were unaware of any misconduct. They argued that the allegations rely on unverified claims from individuals looking to settle lawsuits. These allegations add to the legal challenges surrounding FTX, separate from its bankruptcy case and the criminal case against its former CEO, Sam Bankman-Fried. The intricate web of financial transactions raises questions about oversight in the cryptocurrency industry.