Home Business US bank’s ownership of crypto firm FTX raises questions

US bank’s ownership of crypto firm FTX raises questions

by SuperiorInvest

Among the many surprising assets revealed in the bankruptcy of cryptocurrency exchange FTX is a relatively small asset that could raise major concerns: a stake in one of the nation’s smallest banks.

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

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

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

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

FTX’s investment, which financial regulators say represented more than double the bank’s net worth, was led by Ramnik Arora, a senior lieutenant at the exchange’s founder, Sam Bankman-Fried. Mr. Arora was responsible for many of the much larger deals that 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 is Jean Chalopin, who, in addition to co-creating the animated 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 $65 billion-asset crypto company that offers a stablecoin pegged to the dollar.

Tether has long faced concerns about its finances, in part because of its closed owners and offshore bank accounts. Through Alameda, FTX was one of Tether’s largest trading partners, raising concerns that the stablecoin may have as yet undiscovered links to FTX’s fraudulent operations.

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

It is unclear what FTX’s plan was for Farmington. Online Farmington is now powered by Moonstone Bank. Name was a trademark a few days before the FTX investment. The Moonstone website does not say anything about Bitcoin or other digital currencies. Moonstone is said to want to support the “evolution of next-generation 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 that would have to be approved by federal regulators. Banking veterans say it is hard to believe that regulators would knowingly allow FTX to gain control of a US bank.

“The fact that an offshore hedge fund that was essentially a crypto firm was buying 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 Federal Reserve,” Camden Fine said. , a banking consultant who led the Independent Community Bankers of America. “It’s amazing that it all got approved.

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