New York lawsuit for $20 million against Deltec Bank and Others, reveals a little about the ICO world

By Christine Duhaime | March 11th, 2022

An interesting civil complaint was filed in the US District Court for the Eastern District of New York on March 10, 2022, which gives a rare window of visibility on the initial coin offering (“ICO“) process. Its a world not too many have knowledge of and which many thought was a thing of the past with the prosecution of one ICO project after another in the US.

The complaint was filed by a company in New York called Dreamr Labs Limited against the bank infamous for banking Bitfinex-Tether – Deltec Bank & Trust Limited in Bahamas. The Bitfinex-Tether bank apparently has a company that provides ICO services, similar to the ICO services once offered by Vancouver’s ICO company Vanbex, called Delchain Limited and it is also a defendant.

Other co-defendants are SFH Suisse Finance Holding SA, DeBruno Macchialli and Richard Iamunno. SFH Suisse Finance Holding SA appears to be a payments processor which provides encrypted messaging services, and offers financial services to send money to anyone by linking debit and credit cards.

Macchialli allegedly runs the Deltec Bank’s ICO advisory firm located in Porte Vedra, Florida. Iamunno is an executive of an investment firm called Atlantic Capital LLC also in Florida, according to the complaint. SFH Suisse Finance Holding SA is apparently directed by a foreign lawyer practicing and residing in Florida. All the parties are in or connected to the US, except the Bitfinex-Tether bank, Deltec Bank & Trust. Deltec Bank & Trust is or was run by someone named Gregory Pepin, who is an executive of a public company in Canada called Braingrid, an agriculture company, recently renamed Tony-G Co-Investment Holdings, and now a mixed crypto news and clothing investment company. The principal regulator appears to be the Ontario Securities Commission.

In the filed complaint, Dreamr is seeking US$20 million in damages for alleged fraud, defamation, breach of contract, fraudulent inducement, conversion and tortious interference. 

According to the complaint, Dreamr hired Delchain to work on its ICO, get it listed and to promote the investment to investors. It’s unclear why they needed someone else to do this work except that the complaint alleged that Dreamr was obliged to open an account at the Deltec Bank and did open such account.

The complaint alleges that it was represented to Dreamr that it would earn US$100 million from its ICO if the ICO was promoted because they (it does not say who) could cause or assist the price to be US$1.00 per ICO unit.

Dreamr says it paid US$80,000 in bank fees and service fees to Delchain and Deltec Bank & Trust Limited. 

Dreamr alleges it entered into an agreement with Suisse Finance Holdings SA for the preparation of investment material for investors of the ICO, as well as to act as what is called a finder, introducing investors to invest in the ICO. It’s unclear if they ultimately acted as a finder, charging finder’s fees for locating investors of the securities.  

Dreamr then allegedly entered into another agreement, this time with Atlantic International Capital LLC, for services that the complaint allege involved fast tracking the approval for accounts. It is unclear what this service is – there is no such thing in the banking, crypto or securities world. The only way to fast track an account approval if it involves financial services is to circumvent AML processes.

Dreamr says it paid Bittrex, the digital currency exchange, US$140,000 to have its ICO listed.

Then things got weird when the ICO was ready for launch.

Apparently, when the ICO tokens were created and issued but not yet listed, Dreamr allowed the Deltec people (the bank and its US ICO advisory arm) to hold its property in trust by custodying the ICO units. Why they did that is unclear. There are firms regulated as trust companies by US state financial regulators and insured to custody crypto assets in the US.

When the ICO was listed and was ready to be pumped out to the market by those hired to promote it, Macchialli allegedly caused the Dream ICO to be stopped for alleged due diligence concerns.

Dreamr says it was having concerns in respect of SFH Suisse Finance Holding SA and on September 1, 2021, it allegedly sent a confidential email to Macchialli and Iamunno in respect of SFH Suisse Finance Holding SA. It alleges that they forwarded their client’s confidential email without the knowledge or consent of the client, to SFH Suisse Finance Holding SA. The client, Dreamr, only found out about the breach of confidentiality in February 2022.

Dreamr alleges that although the Dream ICO was listed and was being bought by investors, the crypto assets held in trust for Dreamr in the custody of the Deltec Bank and the Deltec Bank ICO advisory company in Florida, were not being returned to the client – in effect, (the complaint does not use these words) it appears that the bank and its US ICO advisory branch imposed a mareva injunction over the client’s crypto assets, preventing the client access, with no juridical reason if the allegations are true. Considering the firm was US based and the assets were US assets belonging to a US firm, it seems surprising that a bank would mareva without obtaining a mareva injunction from a court of law.

As at November 17, 2021, the Dream ICO was US$0.12 per unit equal to US$21,793,346 million based on the issued and outstanding ICO units. 

Dreamr alleges that during the Deltec-generated mareva injunction period, all the defendants allegedly sold Dream ICO units, and profited thereby. The complaint has some significant gaps and it is unknown whether the complaint is alleging that the defendants transacted in Dream ICO units that were held in trust and liquidated some or part of the client’s property, or whether they were issued ICO units as insiders in consideration for services rendered, which often happens with ICOs, and sold their insider ICO units on the market. It is possible they actually bought some of the ICO units and were selling those.

The concept of issuing tokens to insiders for no consideration and without disclosure, and subsequent insider trading was a topic first raised in 2016, in Canada with the issuance of Ether by Ethereum. It wasn’t resolved then, and as a result, most ICOs then followed the Ether model of issuing substantial portions of the issued and outstanding ICO units to insiders for no consideration, and allowing the insiders to cash out without a hold period. We do not know if this ICO involved any insider issuances.

By November 20, 2021, Dreamr alleges that a new reason was provided by Macchialli at Delchain for the hold (mareva injunction) over the client’s financial assets, which was that they allegedly received a letter from a third party which alleged fraud in connection with the Dream ICO. Delchain and Deltec Bank & Trust Limited allegedly refused to provide the alleged letter that they had allegedly received to their client, asserting that it was “confidential.” 

Eventually, they released the client’s property back to the client but by then Dreamr says the price per ICO had dropped 50%. They also allegedly disclosed to their client that the author of the alleged letter allegedly claiming fraud on the part of Dreamr was the other advisor on the ICO project – SFH Suisse Finance Holding SA, and ergo not even a third party.

The defendants have not filed a response yet.

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