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The Federal Reserve Board has taken enforcement action against Farmington State Bank, a small bank linked to now-defunct crypto exchange FTX, for engaging in undisclosed digital asset activities.
According to a Thursday press release, the Federal Reserve Board, in collaboration with the Washington State Department of Financial Institutions, has directed Farmington State Bank, known as Moonstone Bank, to wind down its operations.
The Fed claimed that Farmington undertook digital assets-related activities without the knowledge and approval of its supervisors.
It noted that the bank made a sudden transition to a pro-digital assets business plan in 2022.
“In 2022, Farmington improperly changed its business plan without notifying the bank’s supervisors and obtaining prior approval for those changes,” the announcement read.
The Fed and the Washington State Department of Financial Institutions have now restricted the bank from making dividends or capital distributions, dissipating cash assets, and engaging in specific activities without prior approval from their supervisors.
Farmington State Bank had previously vowed to abstain from digital banking operations and refrain from altering its business plan, as part of an agreement signed with the Reserve Bank in 2020, per the announcement.
Despite this commitment, the bank collaborated with a third party to establish an IT infrastructure designed to facilitate the issuance of stablecoins.
In return, the bank allegedly received 50% of the mint and burn fees associated with certain stablecoins.
Historically, Farmington State Bank operated as a community lender, focusing on traditional financial services rather than digital assets dealings.
However, the bank’s course changed when Alameda Research, a sister company to FTX, acquired an $11.5 million stake in the institution last year.
Earlier this year, federal prosecutors seized $50 million from Farmington State Bank, claiming that the funds were part of a fraudulent scheme orchestrated by FTX’s founder, Sam Bankman-Fried, to deceive crypto investors.
Bankman-Fried Faces New Charges After Being Jailed
The disgraced founder of FTX is facing new allegations from the Department of Justice (DOJ), including the embezzlement of customer funds.
According to an indictment filed on Monday, Bankman-Fried is accused of misappropriating and embezzling customer deposits from FTX, using the stolen funds to make over $100 million in political campaign contributions ahead of the 2022 US midterm elections.
The indictment says that while Bankman-Fried was well aware of FTX’s financial shortfall, he continued to use the embezzled money for his personal investments, acquisitions, and campaign contributions.
The new charges against Bankman-Fried came after US District Judge Lewis Kaplan sent the disgraced crypto boss back to jail last week over alleged witness tampering.
The judge said that there is probable cause to believe that the defendant attempted to tamper with witnesses on at least two occasions.