By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian bank and trust company, and its chairman, are coming under increasing scrutiny by US senators over their links to FTX and other entities owned by the collapsed crypto currency exchange’s founder, Sam Bankman-Fried.

Senators Elizabeth Warren and Tina Smith, in December 7, 2022, letters to US financial services regulators including Federal Reserve chairman, Jerome Powell, have raised multiple questions about the level of oversight applied to an $11.5m investment by Mr Bankman-Fried’s trading firm, Alameda Research, in the country’s 26th smallest bank.

That bank, Farmington State Bank, which was subsequently renamed Moonstone Bank, is headed by Jean Chalopin, also chairman of Lyford Cay-based Deltec Bank & Trust. While there is nothing to suggest they have done anything wrong, senators Warren and Smith told Mr Powell that Moonstone and Deltec are just two financial institutions to come under scrutiny over their ties to crypto currencies and digital assets following FTX’s implosion last month.

The duo, voicing concern about growing ties between the traditional banking and crypto currency industries, focused on the $11.5m investment made by Alameda Research in Moonstone Bank, located in Washington state in the north-west US, in March this year.

Pointing out that this investment was “more than double the bank’s worth at the time”, the US senators quoted a former president of the Independent Community Bankers of America as saying: “The fact that an offshore hedge fund, that was basically a crypto firm, was buying a stake in a tiny bank for multiples of its stated book value should have raised massive red flags for the FDIC., state regulators and the Federal Reserve...It’s just astonishing that all of this got approved.”

Ms Warren and Ms Smith added: “FTX is not Moonstone Bank’s only crypto connection. In fact, Moonstone’s parent company, FBH Corp, is headed by the chair of Bahamas-based Deltec Bank, a bank service provider to Tether, a stablecoin issuer and one of FTX’s largest trading partners.

“According to CoinTelegraph: ‘After buying the [nearly 100-year-old] bank in 2020, FBH [a vehicle headed by Mr Chalopin] applied for Federal Reserve approval ... to facilitate cryptocurrency-related transactions. The bank got federal approval in June 2021, and nine months later, FTX invested in the rural bank, now equipped with Federal Reserve approval’.

“Moonstone and Deltec are just two of several banks to have their crypto ties come under scrutiny in the FTX fallout,” the two US senators added. “Banks’ relationships with crypto firms raise questions about the safety and soundness of our banking system, and highlight potential loopholes that crypto firms may try to exploit to gain further access to banks.

“In the case of Moonstone, FTX’s investment could be ‘seen as a move to bypass the requirements of owning a banking license in the US’. We now know that FTX also had ‘accessed regulated banks otherwise out of reach to the crypto exchange’ by receiving customer deposits through Alameda’s bank accounts.”

A Deltec Bank & Trust spokesperson previously denied to Tribune Business that the Bahamian institution has any links or ties to Moonstone or the $11.5m investment by Mr Bankman-Fried’s Alameda Research. “Deltec Bank has no business or banking relationships with Farmington State Bank (doing business as Moonstone Bank),” they said.

“The only reason Deltec Bank has been mentioned in recent media is due to common shareholdings through businessman Jean Chalopin.” However, the growing scrutiny by US senators will be an unwelcome development for both Deltec and Mr Chalopin who have been trying feverishly to distance themselves from FTX’s collapse and Mr Bankman-Fried.

However, this newspaper previously reported that FTX and entities controlled by Mr Bankman-Fried held no fewer than 17 accounts with Deltec Bank & Trust. Documents produced by John Ray, the newly-appointed chief executive for FTX Trading, disclosed that the latter entity held just one account at Deltec.

However, a further nine were said to be in the name of Alameda Research, the trading/hedge fund entity controlled by Mr Bankman-Fried, and which is thought to have played a central role in the crypto exchange’s week-long implosion.

The remaining seven Deltec accounts were in the name of West Realm Shires Services, a Delaware-based entity also majority-controlled by Mr Bankman-Fried together with fellow FTX co-founder, Gary Wang, and the crypto exchange’s engineering head, Nishad Singh. The 17 Deltec accounts were held in a variety of currencies, including US dollars, euros, Swiss francs, Canadian and Australian dollars, and the UK pound sterling.

Mr Chalopin, who initially made his fortune as the creator of the Inspector Gadget cartoons, also enabled the Albany project in south-west New Providence by selling a key estate parcel to its developers that was often referred to as the property behind ‘the long pink wall’. He was among the speakers at the Crypto Bahamas conference that was staged by Mr Bankman-Fried and FTX earlier this year.

Deltec, which has aggressively embraced the digital assets evolution by setting up its Delchain subsidiary to target this area, has fought hard to distance itself from FTX and Mr Bankman-Fried since the crypto currency exchange imploded. It has vigorously denied that its purchase of Ansbacher (Bahamas), which closed at end-March 2022, was funded at least in part with financing from FTX.

The bank then doubled down on this position with a November 14, 2022, statement that remains posted to its website. “FTX did not provide any services to or hold any assets for the bank,” it reiterated. “Deltec Bank does not hold or trade any digital assets for its own account or on behalf of its clients. Therefore, there is no credit or asset exposure by the bank to FTX.”

However, the US senator duo asked Mr Powell whether Alameda Research’s investment in Moonstone meant it now ‘controlled’ the bank under US banking laws, and if it had made the necessary application for Federal Reserve approval.

They also questioned the nature of FTX and Alameda Research’s business relationship with both Moonstone and FBH Corp, the entity headed by Mr Chalopin, as well as the source of the $11.5m invested. Further queries were raised over how much of Moonstone’s business was coming from FTX and Alameda Research.