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Federal Action Targets Farmington State Bank, Linked to FTX

Aug 20, 2023 at 10:58 am

The Federal Reserve has taken decisive steps against Farmington State Bank, a solitary branch establishment intertwined with FTX, on account of its engagement in digital asset-related pursuits that blatantly contravened a preexisting agreement.

In an official proclamation, the Federal Reserve Board has directed Farmington State Bank, which maintains close affiliations with FTX, to suspend its operations. This regulatory maneuver, unveiled on Thursday, has its origins in Farmington's veiled participation in activities linked to digital assets.

Operating under the banner of Moonstone Bank, Farmington State Bank undertook an audacious shift toward a business strategy heavily hinged on digital assets in the year 2022. This strategic pivot occurred without the requisite notification or the acquisition of necessary endorsements from the relevant regulatory bodies. The synergistic enforcement initiative undertaken jointly by the Federal Reserve Board and the Washington State Department of Financial Institutions has imposed a series of constraints on the bank's operational scope within the confines of Washington state. These constraints span a spectrum from the prohibition of dividend disbursement to the judicious utilization of cash assets. Furthermore, specific actions are now subject to scrutiny and must secure the prior approval of supervisory authorities before implementation.

In concurrence with the Federal Reserve's vantage point, Farmington had previously solemnized a commitment to abstain from engaging in "digital bank operations" and to effectuate changes in its business blueprint, in strict adherence to an agreement solidified with the Reserve Bank during Farmington's transition into a bank holding company back in the year 2020. Regrettably, allegations proffered by the Federal Reserve challenge this commitment. They contend that Farmington illicitly colluded with a third-party entity to fashion an intricate IT infrastructure tailored to expedite the issuance of stablecoins. In return for its participation, Farmington received a substantial share amounting to 50% of the fees associated with the critical processes of minting and extinguishing specific stablecoins.

During its nascent phases of operation, Farmington State Bank prided itself as a community-centric lending institution. Its core focus was dedicated to the provisioning of conventional financial services, eschewing the nascent realm of digital assets. However, the tides shifted notably around the juncture when Alameda Research, a sibling enterprise of FTX, procured a substantial stake worth a noteworthy $11.5 million in the bank during the preceding year.

Somewhat earlier in the current year, the legal intervention of federal prosecutors yielded the confiscation of a substantial sum $50 million from the coffers of Farmington State Bank. The prosecutors' contention posited that these funds had been surreptitiously channeled into the modest enclave of the community bank. This alleged maneuver was a facet of a more elaborate scheme orchestrated by Bankman-Fried, designed to ensnare and deceive investors within the intricate domain of cryptocurrencies.

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