Farmington State Bank finds itself entangled in regulatory scrutiny as it grapples with a cease and desist order issued by the U.S. Federal Reserve. This order, signed on July 18, 2023, has brought the bank’s activities under the spotlight, especially in light of an $11.5 million investment from Sam Bankman-Fried’s Alameda Research in January 2022
Farmington State Bank, also known as Moonstone Bank, has agreed to abide by the directives outlined in the cease and desist order. This move comes after the Federal Reserve Board and the Washington State Department of Financial Institutions (WDFI) jointly issued the order against Farmington State Bank in Farmington, Washington, and its holding company, FBH Corporation of Baltimore, Maryland.
The regulatory authorities’ investigation revealed that Farmington had breached commitments to regulators by venturing into digital asset activities, including issuing stablecoins, without securing the necessary approvals. The bank reportedly arranged to develop the infrastructure for third-party stablecoin issuance in exchange for fees. Subsequently, Farmington altered its business model and commenced implementation without securing the required regulatory endorsements.
The cease and desist order outlines stringent mandates for Farmington. These include the cessation of unauthorized activities, the suspension of dividends, the preservation of assets, and refraining from further actions without written regulatory consent. The bank has also committed to divesting all loans and deposits and winding down its operations in alignment with the Federal Reserve and WDFI order.
In its press release dated August 17, Farmington State Bank confirmed its unwavering commitment to adhere to the directives of the regulatory authorities. The connection between the bank and Alameda Research’s investment is noteworthy, with Alameda’s $11.5 million investment described as a “passive investor.”
The saga deepened earlier this year with the revelation that federal prosecutors had seized assets totaling $697 million from Bankman-Fried, with a substantial portion stemming from Farmington, also known as Moonstone Bank. This seizure of funds was linked to the alleged misallocation of FTX customer assets.
Farmington’s predicament adds to a growing list of banks compelled to cease operations in the current year. Interestingly, these institutions have varying degrees of association with FTX, Alameda Research, and Bankman-Fried, underscoring the intricate web of interconnections in the financial landscape. As Farmington State Bank navigates these regulatory headwinds, its journey serves as a reminder of the ever-present need for meticulous adherence to regulatory frameworks and compliance standards in an evolving financial ecosystem.