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The United States Federal Reserve has indicted Farmington State Bank, a former banking ally of the now-bankrupt FTX Derivatives Exchange. The enforcement action was levied against the one-branch lender for violating a previously arranged agreement by engaging in crypto-related activities.
Farmington State Bank to Wind Down Operations
As part of the enforcement action, Farmington State Bank has been asked to suspend its operations immediately.
This is a joint enforcement action from the Federal Reserve Board and the Washington State Department of Financial Institutions. Hence, Farmington is barred from “making dividends or capital distributions, dissipating cash assets and engaging in certain activities” without seeking the permission of its supervisors.
According to the published statement, Farmington which operates under its Moonstone Bank name improperly changed its business plans last year without informing the bank’s supervisor, nor did it receive approval from the appropriate quarters. Instead, the Washington state-based bank adopted a pro-digital assets business plan.
Precisely, Farmington State Bank collaborated with a third party to launch an IT infrastructure that supports the issuance of stablecoins. Per a statement from the Federal Reserve, the FTX-linked bank engaged in this venture in exchange for 50% of mint and burn fees on some stablecoins.
This move was not in sync with the agreement that Farmington signed with the Reserve Bank in 2020 when it commenced operations as a bank holding company. The bank had earlier agreed to keep its distance from digital banking operations and avoid altering its business plan.
Alameda Research Owns Stake in Farmington State Bank
It is worth noting that the change in business plan happened around the same time when FTX’s sister trading firm Alameda Research acquired an $11.5 million stake in the firm last year. This investment gave Alameda a 10% stake in the institution.
The table turned earlier this year when federal prosecutors seized $50 million from Farmington citing that the funds were deposited in the financial institution as part of Sam Bankman-Fried‘s scheme to defraud customers.
This forced the FTX-linked bank to give up on crypto at the beginning of 2023 and return to its “roots”.
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