Farmington State Bank, a tiny U.S. institution established in 1887, and with just three current employees, first caught the U.S. financial authorities' attention last December after the FTX collapse.
The bank had been acquired in 2020 by a Bahamas-based fund, FBH Corporation, with the stated intention of supporting the burgeoning legal cannabis industry.
Then in 2022, Alameda Research, a trading firm connected to FTX, invested $11.5 million into the bank. Following this, deposits mysteriously grew by nearly 600%.
It was unclear how federal regulators initially allowed an offshore hedge fund that was basically a crypto firm to acquire a stake in a U.S.-licensed bank. Some experts suggested that this should not have been allowed to happen.
Farmington, which has also operated online subsidiary Moonstone Bank in Washington State since being acquired, tried to downplay its ties to Alameda Research and announced plans to transform into a digital-first business.
In January 2023 the bank stated that it was returning “to its original mission as a community bank and is discontinuing its pursuit of an innovation-driven business model to develop banking services for industries such as crypto assets or hemp/cannabis.”
The Bank ceased engaging in activities related to digital assets and submitted an amended business and action plan. To reflect the return to its roots, the bank stopped using the Moonstone name.
Just a few days after this announcement federal prosecutors seized $50 million from Farmington that was allegedly deposited there as part of Sam Bankman-Fried’s fraudulent activity.
Then, last week on August 17 the Federal Reserve Board issued a 'cease and desist' order to Farmington State Bank, and its holding company, FBH Corporation.
The formal reason mentioned in the order is the violation of the bank's commitments imposed by the Federal Reserve Bank when it approved FBH’s application to become a bank holding company.
Such violations included “improperly changing its business plan without notifying the bank's supervisors and obtaining prior approval for those changes", and intentions "to design a necessary IT infrastructure to facilitate a third party’s issuance of stablecoins in exchange for receipt of 50 percent of mint and burn fees” (the third party was not mentioned).
The owner of FBH Corporation is Jean Chalopin. The animation producer and entrepreneur of French origin has become known recently for his banking activities in the Bahamas. He is the owner of Bahamas-based Deltec Bank, which is an active player in the crypto industry and was one of the early partners of Tether.
The order by the Fed requires that FBH and the bank shall not engage in any activities except those necessary and appropriate to accomplish the voluntary liquidation of Farmington in an expeditious manner. It also prohibits the bank and FBH from making dividends or capital distributions, dissipating cash assets, and engaging in certain activities without approval from its supervisors.
In its official statement, Farmington Bank consented to the Federal Reserve order and informed clients that its deposited assets would be assumed by the Bank of Eastern Oregon. It also mentioned that the bank looks forward to working with the Federal Reserve and the Washington Department of Financial Institutions on the orderly liquidation and wind down of the bank.