The Federal Reserve Board has taken decisive action against Farmington State Bank, which is linked to FTX, a prominent cryptocurrency platform. The enforcement action, issued on Thursday, mandates the winding down of operations for the bank due to undisclosed digital asset-related activities.
Farmington State Bank, operating under the name Moonstone Bank, made a substantial shift towards digital assets in 2022, a move that the Federal Reserve Board and the Washington State Department of Financial Institutions found to be in violation of regulatory protocols. The bank’s failure to seek prior approval from its supervisors before transitioning to a pro-digital assets business plan has resulted in the joint enforcement action.
The Federal Reserve Board, in conjunction with the Washington State Department of Financial Institutions (WSDFI), has imposed restrictions on Farmington State Bank’s operations. The bank, based in Washington state, is now barred from engaging in specific activities, including making dividends or capital distributions, depleting cash assets, and undertaking certain operations, without explicit permission from its supervisory authorities.
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“Whereas, in the most recent examination of the Bank, the Reserve Bank and the WSDFI found that Farmington violated the Bank Commitments by engaging in activities which changed the Bank’s business plan and general character without receiving prior written approval from the Board of Governors, the Reserve Bank, or the WSDFI,” the document read.
During the recent examination, both the Reserve Bank and WSDFI discovered Farmington’s violations, including altering the bank’s business plan and character without obtaining prior written approval. One instance was the bank’s involvement in a non-binding memorandum of understanding with a third party, outlining plans to create IT infrastructure for the issuance of stablecoins, with the bank receiving 50% of associated fees.
The bank has since ceased these digital asset-related activities and has submitted an amended business plan, dated January 25, 2023, which aligns with its previous community banking business model.
Interestingly, the bank had previously committed to abstain from digital banking operations and altering its business plan. This commitment was made in an agreement with the Reserve Bank when Farmington became a bank holding company in 2020.
Farmington State Bank, traditionally known for its community lending services, departed from its conventional financial operations. This shift coincided with FTX’s sister company, Alameda Research, acquiring an $11.5 million stake in the bank last year.
In a separate legal matter earlier this year, federal prosecutors seized $50 million from Farmington State Bank, linking the funds to a scheme aimed at defrauding cryptocurrency investors. This development raised additional concerns about the bank’s activities.
The enforcement action has also impacted FBH Corp., Farmington’s holding company. Both entities have been directed to initiate voluntary liquidation proceedings. Additionally, the bank is required to take immediate steps to preserve all records, whether in physical or electronic format, and halt any processes that could lead to the destruction or modification of relevant documents and data.
Farmington had previously communicated its intent to sell its loans and deposits to the Bank of Eastern Oregon in a voluntary manner. In line with its decision to cease operations and undergo voluntary liquidation, the Bank engaged in a purchase and assumption agreement dated May 12, 2023.
Information for this briefing was found via Federal Reserve, Axios, CoinDesk, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
