Feds seize $50 million from Farmington State Bank tied to Bankman-Fried

Federal prosecutors have seized $50 million from the one-branch Farmington State Bank that they allege in court records were deposited there as part of FTX founder Sam Bankman-Fried’s wide-ranging scheme to defraud investors through his massive cryptocurrency exchange business.

Prosecutors unsealed court documents recently that they seized funds on Jan. 4 as part of a multicount indictment.

Federal prosecutors charged Bankman-Fried, who once headed the third-largest cryptocurrency exchange by volume, with several counts, including wire fraud, commodities fraud and fraud against investors.

As part of that investigation, prosecutors alleged that Bankman-Fried deposited several million dollars obtained through those activities at the 26th-smallest bank in America, Farmington State Bank, which has operated in the same one-story building in the small Washington town on the Palouse since 1911.

Investigators seized $49,999,500 from the bank, doing business as Moonstone Bank, in the an account under name of “FTX Digital Markets,” according to court records.

Based on the most recent filings with the Federal Deposit Insurance Corp., the $50 million seizure would equal more than half of the estimated $98.9 million in total assets that were being held in the bank as of September .

Farmington Bank Manager Josey Booth declined to say how the seizure would affect the bank.

“I really can’t talk about that, whether its about our existing customers or the impacts,” he said. “What I can say is the financial information about banks is public.”

Customer deposits at the bank are insured by the FDIC.

Farmington State Bank has dropped the name Moonstone Bank to return to its “original mission as a community bank and is discontinuing its pursuit of an innovation-driven business model to develop banking industry services for industries such as crypto assets or hemp/cannabis,” according to a news release.

Booth is quoted in the news release as saying the bank’s “change in strategy reflects the impacts of recent events in the crypto assets industry and the resultant changing regulatory environment relating to crypto asset businesses.”

The statement also told its customers that they had nothing to worry about regarding the bank’s future.

“The return to its role as a community bank will be seamless for the bank’s local customers in the Farmington community with no change or disruption of services,” the statement said. “The bank … has kept its balance sheet liquid and customer deposits have remained secure and fully accessible.”

Booth, in an interview, said Farmington still has the same number of employees, 32, that it had before the name change.

“We are separating some of the focus and activities between our physical branch and Moonstone, which was more of a virtual branch,” he said. “It’s the same bank, the same legal entity.”

The $50 million seized from Farmington was just part of the more than $226 million that prosecutors took as part of the criminal case into Bankman-Fried.

Prosecutors alleged that Bankman-Fried devised “a scheme and artifice to defraud, and for obtaining money and property by means of false and fraudulent pretenses, representations, and promises.”

Prosecutors also seized about $100 million from “FTX Digital Markets,” which is the same name on the account at Farmington, from four separate branches of Silvergate Bank, which is a California-based bank that deals mostly in cryptocurrency transactions.

Bankman-Fried’s link to the tiny bank in a town of about 150 people south of Spokane comes from his association with Jean Chalopin, who in 2020 bought the state charter for the bank.

Before buying Farmington, Chalopin founded Deltec International Group, which like the former FTX, is located in the Bahamas.

Deltec was established to serve cryptocurrencies, which are used as unsecured units of exchange through computer networks that are not backed by governments or banks.

Deltec’s top client is a company called Tether, which reportedly has $65 billion in assets and is licensed in the British Virgin Islands.

At it’s peak, FTX had more than a million users and was the third-largest trader in digital currency by volume.

But that exchange collapsed Nov. 11 when Bankman-Fried announced he was filing for bankruptcy.

“I’m really sorry, again, that we ended up here,” Bankman-Fried wrote on Twitter. “Hopefully things can find a way to recover. Hopefully this can bring some amount of transparency, trust, and governance to them. Ultimately hopefully it can be better for customers.”

The bankruptcy raised new questions about the $11.5 million investment that Bankman-Fried’s Alameda Research made into Farmington State Bank.

The FDIC filings also reflect the small bank’s growing assets, which appear to reflect both the $11.5 million Alameda investment and Bankman-Fried’s $50 million deposit.

According to FDIC records, Farmington State Bank in 2020 listed two employees and total assets of about $11.3 million.

In 2021, after the charter was purchased by Chalopin, the bank added one more employee and listed total assets of $17 million.

By September , the bank listed 26 employees and $98.9 million in assets.

Chalopin, the bank owner, said in a news release last spring that the Alameda investment “signifies the recognition, by one of the world’s most innovative financial leaders, of the value of what we are aiming to achieve. This marks a new step into building the future of banking.”

Those aspirations have been abandoned as Farmington returns to its roots as a one-branch bank, said Booth, the bank manager.

“We have decided not to continue with the digital Moonstone Bank that we were starting to build up operations for,” Booth said.

He also added that he wasn’t aware of any other accounts, other than the one tied to Bankman-Fried, that had been seized by any government agencies.

“The sensitive nature of the ongoing investigation into FTX, that’s not something I can go into,” he said.