Farmington State Bank had 3 staff and was the 26th-smallest bank in America out of a total 4,800.Then FTX bought an $11.5 million stake in the bank, it has emerged during FTX’s bankruptcy case.
Farmington State Bank, which is based in the small town of Farmington in the rural farming region of Whitman County, Washington, was described as “no-frills” by local newspaper The Spokesman-Review in 2010. Its then-president, John Widman, said that it had stopped making mortgage loans because the paperwork was too much effort.
Its single branch had three employees until this year, and didn’t offer online banking or even credit cards. It instead specialised in agricultural loans to farmers. FTX’s investment came to light during the crypto firm’s bankruptcy case, and is raising red flags about its financial strategy.
Probe in Bank’s ties with FTX
“The fact that an offshore hedge fund that was basically a crypto firm was buying a stake in a tiny bank for multiples of its stated book value should have raised massive red flags for the FDIC [Federal Deposit Insurance Corporation], state regulators and the Federal Reserve,” Calvert Advisors President and CEO Camden Fine, a bank industry consultant had said in the report. “It’s just astonishing that all of this got approved.”
Federal regulators would have needed to approve FTX buying a stake in a U.S.-licensed bank, and experts said it’s unlikely that they would have knowingly done so, according to a report. Farmington State Bank has one branch and $84 million in deposits, $71 million of which is in four accounts. Before the acquisition, the bank’s deposits had been around $10 million for a decade, the report said.
The report comes a day after FTX’s first day in court in which James Bromley, co-head of law firm Sullivan & Cromwell’s Global Finance and Restructuring practice, who is acting counsel to FTX’s newly installed leadership team, called the crypto exchange’s bankruptcy case “unprecedented” in his opening remarks. “We have probably witnessed one of the most abrupt and difficult corporate collapses in the history of corporate America,” he went on to say.
For a decade, Farmington’s bank held around $10 million in deposits. In the third quarter this year, deposits jumped to $84 million – 85% of which came from just four accounts, according to FDIC data.
Online, the bank now appears as “Moonstone Bank,” a name which was trademarked a few days before FTX’s investment. Moonstone doesn’t mention cryptocurrency, but does say it wants to “support the evolution of next generation finance.” Questions are being asked over how FTX got federal approval to buy its stake in Farmington. Banking veterans told the New York Times that it was hard to believe regulators would have knowingly allowed the crypto firm to do so.
