Crypto Firm FTX’s Ownership of US Bank Raises Questions

Among the many surprising assets uncovered in the bankruptcy of cryptocurrency exchange FTX, there is one relatively small one that could raise big concerns: a stake in one of the smallest banks in the country.

The bank, Farmington State Bank at Washington State has only one branch and, until this year, only three employees. It didn’t offer online banking or even a credit card.

The connection between the small bank and the collapse of FTX raises new questions about the exchange and its operations. Among them: how closely is FTX, which was based in the Bahamas, connected to the broader financial system? What else could regulators have missed? And in the hunt for missing FTX assets, how will Farmington be dragged into multi-billion dollar bankruptcy?

The ties between FTX and Farmington State Bank began in March when Alameda Research, a junior trading company and sister company to FTX, invested $11.5 million in the bank’s parent company, FBH.

At the time, Farmington was the 26th smallest bank in the nation out of 4,800. His net worth was $5.7 million, according to the Federal Deposit Insurance Corporation.

The FTX investment, which financial regulators said was more than double the bank’s net worth, was led by Ramnik Arora, a top aide to exchange founder Sam Bankman-Fried. Mr. Arora was responsible for many of the much larger deals that FTX signed with Sequoia Capital and other venture capital firms that ultimately failed.

Farmington has more than one crypto connection. FBH bought the bank in 2020. The chairman of FBH is Jean Chalopin, who, in addition to being co-creator of the cartoon cop Inspector Gadget in the 1980s, is the chairman of Deltec Bank, which, like FTX, is based in the Bahamas. . Deltec’s best-known client is Tether, a crypto company with $65 billion in assets offering a dollar-pegged stablecoin.

Tether has long been preoccupied with its finances, in part due to its reclusive owners and offshore bank accounts. Through Alameda, FTX was one of Tether’s main trading partners, raising concerns that the stablecoin may have as yet unknown ties to FTX’s fraudulent operations.

Prior to the acquisition, Farmington’s deposits had held steady at around $10 million for a decade. But in the third quarter of this year, the bank’s deposits jumped nearly 600% to $84 million. Almost all of that increase, $71 million, came from just four new accounts, according to FDIC data.

It’s unclear what FTX’s plan for Farmington was. Online, Farmington now goes through Moonstone Bank. The name was filed days before FTX’s investment. The Moonstone website says nothing about Bitcoin or other digital currencies. He says Moonstone wants to support “the evolution of next-gen finance.”

Deltec and Moonstone did not return a request for comment.

It is unclear how FTX was allowed to buy a stake in a US-licensed bank, which is expected to be approved by federal regulators. Banking industry veterans say it’s hard to believe regulators would knowingly allow FTX to take control of a US bank.

“Having an offshore hedge fund that was essentially a crypto firm buy a stake in a small bank for multiples of its reported book value should have raised massive red flags for the FDIC, state regulators and the Reserve. federal,” Camden Fine said. , a banking industry consultant who ran the Independent Community Bankers of America. “It’s just amazing that it all got approved.”

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