Cryptocurrency firm FTX’s ownership of an American bank raises questions

Among the many surprising assets exposed in the cryptocurrency exchange’s bankruptcy, FTX is relatively small and could raise a major concern: a stake in one of the country’s smallest banks.

Bank, Farmington State Bank in Washington state, it has one branch and, as of this year, only three employees. Didn’t offer online banking or even a credit card.

The small bank’s connection to the FTX collapse raises new questions about the exchange and its operations. Among them: How connected is FTX, which was based in the Bahamas, to the broader financial system? What else might the organizers have missed? And in the hunt for FTX’s lost assets, how will Farmington be dragged into billion-dollar bankruptcy?

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

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

The FTX investment, which according to financial regulators was more than double the bank’s net worth, was led by Ramnik Arora, senior lieutenant to the exchange’s founder, Sam Bankman-Fred. Mr. Arora was responsible for many of the much larger deals FTX signed with Sequoia Capital and other venture capitalists that ultimately failed.

Farmington has more than one crypto connection. FBH bought the bank in 2020. The chairman of FBH’s board of directors is Jean Chalopin, who, besides being a co-founder of the 1980s police cartoon Inspector Gadget, is the president of Deltec Bank, which, like FTX, is headquartered in the Bahamas. Deltec’s most famous client is Tether, a cryptocurrency company with $65 billion in assets that offers a dollar-pegged stablecoin.

Tether has long had concerns about its finances, in part due to its isolated owners and offshore bank accounts. Through Alameda, FTX has been one of Tether’s largest trading partners, raising concerns that the stablecoin may have yet-to-be-discovered links to FTX’s scams.

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

It’s not clear what FTX’s plan for Farmington is. Online, Farmington now goes to Moonstone Bank. The name was trademarked a few days before the FTX investment. Moonstone’s website does not say anything about Bitcoin or other digital currencies. She says Moonstone wants to support “the evolution of next-generation finance.”

Deltec and Moonstone did not respond to a request for comment.

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

“The fact that an offshore hedge fund that was essentially a crypto company was buying a stake in a small bank for multiples of its stated book value should have raised huge red flags for the FDIC, state regulators and the Federal Reserve,” said Camden Fine, the banking industry advisor who was He heads the Independent Community Bankers of America.”It’s amazing that all of this has been approved.”


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