The Federal Reserve Board has ordered FTX-linked Farmington State Bank to wind down its operations after the tiny bank secretly engaged in digital assets-related activities, according to a Thursday enforcement action.
Farmington, which operates under its Moonstone Bank name, “improperly” pivoted to a pro-digital assets business plan in 2022 without notifying, and obtaining approval from, its supervisors, the document said. The joint enforcement action from the Federal Reserve Board and the Washington State Department of Financial Institutions bars the Washington state-based bank from “making dividends or capital distributions, dissipating cash assets and engaging in certain activities” without its supervisors’ permission.
Farmington promised to steer clear of “digital bank operations” and avoid modifying its business plan in an agreement it signed with the Reserve Bank when it became a bank holding company in 2020, the Fed said. The bank worked with a third party, however, to design an IT infrastructure to “facilitate…the issuance of stablecoins” in exchange for 50% of mint and burn fees on certain stablecoins, the Fed alleged.
The one-branch bank long operated as a community lender, eschewing digital assets dealings for traditional financial services. However, the bank changed its plan around the time FTX sister company Alameda Research purchased an $11.5 million stake in the institution last year.
Earlier this year, federal prosecutors seized $50 million from Farmington, alleging the funds were deposited in the tiny community bank as part of Bankman-Fried’s scheme to defraud crypto investors.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.