A US bank’s ownership of crypto firm FTX has been questioned

Among the many surprising assets uncovered by the cryptocurrency exchange’s bankruptcy, FTX is a relatively small one that could raise major concerns: a stake in one of the nation’s smallest banks.

Bank, Farmington State Bank Inn Washington State has a single branch and only three employees as of this year. It didn’t offer online banking or even a credit card.

FTX’s collapse is linked to small banks raising new questions about the exchange and its operations. Among them: How closely tied is FTX, which was based in the Bahamas, to the broader financial system? What else could regulators miss? And in search of FTX’s missing assets, how will Farmington pull through a multi-billion dollar bankruptcy?

The relationship between FTX and Farmington State Bank began in March when Alameda Research, a small trading firm and FTX’s sister, invested $11.5 million in FBH, the bank’s parent company.

At the time, Farmington was the nation’s 26th-smallest bank of 4,800. Its total value was $5.7 million, according to the Federal Deposit Insurance Corporation.

FTX’s investment, which financial regulators say is more than double the bank’s net worth, was led by Romanik Arora, a top lieutenant of exchange founder Sam Bankman-Fried. Mr. Arora was responsible for many of the major deals FTX signed with Sequoia Capital and other venture capitalists that ultimately fell through.

Farmington has multiple crypto connections. FBH bought the bank in 2020. FBH’s chairman is Gene Chalopin, who, in addition to co-creating the cartoon cop Inspector Gadget in the 1980s, is chairman of Deltec Bank, which, like FTX, is based in the Bahamas. Deltec’s best-known client is Tether, a crypto company with $65 billion in assets that offers a stablecoin pegged to the dollar.

Tether has long faced concerns about its finances, in part because of its sole proprietorship and offshore bank accounts. Through Alameda, FTX was one of Tether’s largest trading partners, raising concerns that the stablecoin may have a yet-to-be-discovered connection to FTX’s fraudulent activities.

Prior to the acquisition, Farmington’s deposits had been stable at about $10 million for a decade. But in the third quarter of this year, the bank’s deposits jumped nearly 600 percent to $84 million. Almost all of the increase, $71 million, came from just four new accounts, according to FDIC data.

It’s unclear what FTX’s plans were for Farmington. Online, Farmington now goes to Moonstone Bank. The name was trademarked days before FTX’s investment. Moonstone’s website does not say anything about Bitcoin or other digital currencies. It says Moonstone wants to support “the evolution of next-generation finance.”

Deltec and Moonstone did not return a request for comment.

It is unclear how FTX was allowed to buy shares in a US-licensed bank, which must be approved by federal regulators. Banking veterans say it is hard to believe that regulators would have knowingly allowed FTX to gain control of a US bank.

“An offshore hedge fund that was essentially a crypto firm buying a stake in a small bank at multiples of its stated book value should have raised huge red flags for the FDIC, state regulators and the Federal Reserve,” said Camden Fine, a bank industry expert. Consultant who headed the Independent Community Bankers of America. “It’s amazing that all of this has been approved.”