Among the many surprising assets uncovered in cryptocurrency exchange FTX’s bankruptcy is a relatively small one that could raise major concerns: a stake in one of the country’s smallest banks.
The bank, Farmington State Bank in Washington State, has a single office and, as of this year, only three employees. It didn’t offer online banking or a credit card.
The tiny bank’s connection to the FTX collapse raises new questions about the exchange and its operations. Among other things: how closely connected is FTX, which was based in the Bahamas, to the broader financial system? What else might regulators have missed? And how is Farmington dragged into multi-billion dollar bankruptcy in the hunt for FTX’s missing assets?
The ties between FTX and Farmington State Bank began in March when Alameda Research, a small trading firm and sister of FTX, invested $11.5 million in the bank’s parent company, FBH.
At the time, Farmington was the country’s 26th-smallest bank of 4,800. According to the Federal Deposit Insurance Corporation, his net worth was $5.7 million.
The aftermath of FTX’s demise
The sudden collapse of the crypto exchange has left the industry stunned.
- A Spectacular Rise and Fall: Who is Sam Bankman-Fried and how did he become the face of crypto? The Daily chronicled the spectacular rise and fall of the man behind FTX.
- A symbiotic relationship: Mister. Bankman-Fried’s built FTX in part to support the trading business of Alameda Research, his first company. The connections between the two units are now being put to the test.
- Missing Assets: Lawyers for FTX said a significant portion of the company’s assets were either stolen or missing, raising doubts about the chances of recovering billions of dollars in crypto that lost customers.
- An Offer for Influence: In just three years, Mr. Bankman-Fried has built a massive operation to enlist politicians, regulators, and nonprofits in support of his crypto goals. Here’s how.
FTX’s investment, which financial regulators said was more than double the bank’s net worth, was led by Ramnik Arora, a top lieutenant to the exchange’s founder, Sam Bankman-Fried. Mister. Arora was responsible for many of the much larger deals FTX signed with Sequoia Capital and other venture capitalists that eventually fell through.
Farmington has more than one crypto connection. FBH bought the bank in 2020. FBH’s chairman is Jean Chalopin who, in addition to being a co-creator of the comic cop Inspector Gadget in the 1980s, was also the chairman of Deltec Bank, which like FTX is based in the Bahamas. Deltec’s best-known client is Tether, a $65 billion crypto company that offers a stablecoin pegged to the dollar.
Tether has long faced concerns about its finances, in part because of its reclusive owners and offshore bank accounts. Through Alameda, FTX has been one of Tether’s largest trading partners, raising concerns that the stablecoin may have undiscovered ties to FTX’s fraudulent operations.
For a decade prior to the acquisition, Farmington’s deposits had held steady at about $10 million. But in the third quarter of this year, the bank’s deposits rose nearly 600 percent to $84 million. Almost the entire increase, $71 million, came from just four new accounts, according to FDIC data.
It’s not clear what FTX’s plan for Farmington was. Farmington now goes online to Moonstone Bank. The name was trademarked a few days before FTX invested. Moonstone’s website says nothing about Bitcoin or any other digital currency. It says Moonstone wants to support “the development of next-generation finance.”
Deltec and Moonstone did not respond to a request for comment.
It’s unclear how FTX was allowed to acquire a stake in a US-licensed bank, which would need federal approval. Banking veterans say it’s hard to believe regulators knowingly allowed FTX to take control of a US bank.
“The fact that an offshore hedge fund, which was essentially a crypto firm, bought a stake in a tiny bank for multiples of its stated book value should have raised massive alarm signals from the FDIC, state regulators and the Federal Reserve,” he said Camden Fine, a banking industry consultant who formerly ran the Independent Community Bankers of America. “It’s just amazing that all of this got approved.”