A Tiny Washington Bank’s Crypto Entanglements Add to FTX Mystery

As has often been the story at FTX, nothing really adds up.

Given the lack of clarity surrounding the events that led to the cryptocurrency exchange’s contagious collapse, it is likely no surprise that tabloid-style speculation around the company and its leadership is running rampant.

The political donations of the exchange’s disgraced founder, Sam Bankman-Fried (SBF), have been much reported on and even fueled conspiracy theories across the internet’s darkest corners. There are wild stories of drug use, parties and polyamory. While titillating, these tales are admittedly fit for the grocery checkout and have also all been denied by SBF — for whatever that’s worth.

Moonstone Bank

Still, as reported by PYMNTS, one of the more surprising assets to come to light during FTX’s bankruptcy is a small ownership stake, through Alameda Research — the sister trading arm of FTX — in a tiny, 135-year-old bank with three employees and a single branch in rural Washington state that was, pre-acquisition, once called Farmington State Bank.

Now, the bank goes by the moniker “Moonstone Bank” and conducts business meant to “usher in the new era of technology banking.” That’s a far cry from its historical focus on agricultural loans.

In 2020, a company called FBH Corporation acquired Farmington State Bank and began to embrace an innovative startup business model, with the goal to serve new customers in “underserved industries, such as digital assets and hemp/cannabis.”

In January, Alameda Research, through its venture arm, invested $11.5 million for a noncontrolling minority interest in the bank as part of a fundraise led by FBH. This investment was more than double the bank’s worth of $5.7 million, as reported by The New York Times, and would value the bank proportionately at around $115 million, given the size of the investment and the ownership stake received.

Regulatory approval is not required for ownership stakes below 10%.

The name changed to “Moonstone” shortly after Alameda’s investment.

Moonstone’s owner, FBH Corporation, is in turn owned by French national Jean Chalopin — better known as the creator of the animated television series following a crime-solving handyman, Inspector Gadget.

Chalopin has since left cartoons behind and turned his attention to the banking world, moving to the Bahamas, where he became the largest shareholder and chairman of Nassau-based Deltec Bank and Trust.

Unique Advantages

Why would an offshore crypto firm masquerading as a hedge fund buy a stake in a tiny U.S. bank way above the verifiable book value? Why would the Chairman of a Bahamas-based bank like Deltec purchase what was at the time America’s 26th smallest financial institution?

The most obvious reason is that acquiring a banking charter for FinTech companies, much less cryptocurrency exchanges, can be an arduous and difficult process. The U.S. banking system generally prefers to keep these organizations at an arm’s length, although that approach has not worked out so well for U.S. consumers.

By acquiring an entire bank instead, companies can fold in that existing bank’s charter, business license to their operations, and both provide and gain access to bank-service benefits.

When it was acquired, Farmington State Bank was not a member of the Federal Reserve System, the central banking system of the United States. Under its new ownership, Moonstone quickly applied and was approved to become a member of the Federal Reserve Bank of San Francisco in the summer of 2021, barely a year after changing hands.

Should this have raised red flags for the Federal Deposit Insurance Corporation (FDIC)? As of Friday evening (Dec. 2), a representative has not replied to a PYMNTS request for comment.

Federal Reserve Bank members gain access to the SWIFT payment system, are allowed to send money across borders via correspondent banking accounts and are also provided cheaper access to loans. Those are all very attractive benefits for previously unbanked organizations.

Strange Ties

Chalopin’s other bank, the one in the Bahamas, Deltec, is the main banking partner for the widely used cryptocurrency stablecoin Tether.

Alameda Research accounted for nearly a third of all Tether minted and was one of the company’s largest trading partners.

Ryan Pinder, now the attorney general for the Bahamas, previously worked as head of wealth management at Deltec. He enjoyed a close relationship with SBF and FTX, and he has defended his nation’s regulatory oversight and handling of the scandal.

It is likely the confluence of these entangled relationships that led to Alameda investing in Moonstone. After all, the spend-happy FTX enterprise deployed a $2 billion venture capital fund that made investments across 179 portfolio companies.

The most pressing relationship that remains to be seen is whether FTX’s creditors will be able to claw back the $11.5 million ownership stake in Moonstone and what that clawback might mean for the future of the fledgling Federal Reserve Bank member.

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