A rural Washington bank tried to distance itself from FTX on Tuesday after a report last week detailing a failed relationship with a cryptocurrency exchange.
The New York Times reported last week that FBH, the parent company of Farmington State Bank, received $11.5 million in venture capital funding in March from Alameda Research, the trading firm founded by FTX founder Sam Bankman-Fried. I was.
Farmington State Bank is based in the small town of Farmington, Washington, near the Washington-Idaho border. Founded in 1887, the lender previously provided loans focused on agriculture.
In 2020, it was acquired by FBH Corporation, owned by Jean Chalopin, also chairman of Bahamas-based Deltec Bank. Deltec’s most famous client is Tether, a cryptocurrency company with $65 billion in assets.
Farmington State Bank changed its name to Moonstone Bank shortly before its investment in FTX, according to its LinkedIn page.
Moonstone said Tuesday that Alameda owns less than 10% of the company and has no board seats or “management involvement.”
“In January of this year, as a result of our fundraising efforts to support our further development, we received an investment from a company with a pristine reputation and a darling of the financial markets at the time,” Moonstone said. said at the conference. The release was shared with GeekWire by him on Tuesday. “Unfortunately, the company’s unexpected bankruptcy has adversely affected countless individual investors, investment firms, vendors and counterparties, and has also disproportionately affected the reputation of Farmington State Bank and Moonstone Bank. I did.”
The rapid collapse of FTX earlier this month sent contagion across the cryptocurrency industry. Their connection to Alameda was the main reason they both fell apart.
The New York Times reported that Farmington had just three employees and was the 26th smallest of 4,800 banks nationwide before it started raising capital to transform itself into a tech-centric bank. was. According to the Federal Deposit Insurance Corporation, he had a net worth of $5.7 million and did not offer online banking or credit cards.
The Times reported that bank deposits rose nearly 600% to $84 million in the third quarter of this year. He attributed most of the increase to four new accounts, according to the Times.
By acquiring Farmington, Moonstone obtained a banking license, a business license required for any financial institution to process deposits and provide other bank-like services. Obtaining a banking license can be a daunting process for many fintech companies.
When asked why Farmington State Bank was specifically targeted for acquisition, Janvier Chalopin, Moonstone’s chief digital officer, told GeekWire that Moonstone was looking for a US bank. Farmington had a clean balance sheet and was looking for a buyer, he said.
“It was just a match made in heaven,” he said from the Bahamas in an interview on Tuesday.
Banking experts interviewed for this article said that while it is rare for fintech companies to acquire and license older banks, it is not unprecedented. Notable examples include Lending Club’s acquisition of Radius Bank and SoFi’s acquisition of then-Golden Pacific Bancorp.
However, banking transactions require considerable due diligence by regulators. Given that part of Moonstone is owned offshore and was involved in cryptocurrencies, the deal should have been flagged with more regulatory flags, experts say.
“At Alameda Research, we are committed to helping businesses grow their industries and create real change,” said Bankman-Fried, who resigned last month, in a press release announcing Alameda’s investment in FBH. Ramnik Arora, one of the executives said.
As for how Moonstone will be affected by FTX’s bankruptcy process, Chalopin said, “The bankruptcy court now owns the shares, and it’s likely going through an auction process for people to bid.” increase.
Moonstone aims to serve both consumers and businesses with a digital-first banking model. For individuals, the goal is to develop a “one-stop-shop” where consumers can buy stocks and digital assets from the same place as their checking account, Chalopin said. On the business side, we plan to work with small businesses that struggle to open bank accounts elsewhere, such as cannabis companies and digital asset start-ups.
It also plans to offer a “banking-as-a-service” model to financial services firms, giving them “the right banking structure for their accounts,” Chalopin said.
“What we innovated is risk and compliance and the tech stack that supports the monitoring and ledger of these accounts,” he added.
The bank currently has 32 employees, 16 of whom live in Washington State. The company is maintaining a “face-to-face customer interface division,” according to a statement.
Chalopin said Moonstone was valued at about $115 million at the time of its investment in Alameda. It said it was a typical valuation for a bank with such a “business model”.
He said Moonstone now resembles a start-up rather than a centuries-old bank. “This is a startup because it’s raising capital, hiring a team, and making big growth plans,” he said. “We’re burning cash to build something new.”
The company is technically still headquartered in Farmington, Washington, but Chalopin said it’s looking for a long-term space in Bellevue, just east of Seattle.
Moonstone is led by CEO Gary River, a former director of the State Bank of Vermont. Prior to that, it was led by Ron Oliveira, who stepped down as CEO in August.
Moonstone’s Chief Legal Officer is Joseph Vincent, a former Adjunct Law Professor of Financial Institutions and Fintech at Seattle University. He represented Moonstone as a panelist at his TF6 conference in June, a crypto event hosted by Seattle-based crypto accelerator TF Labs.
Praful Mainker is the company’s chief compliance officer. Previously, JP MorganHe was the executive director of Chase. He is joined by his CTO, Daniel Ranallo, a former software engineering lead at Ray Dalio’s Principles.
Noah Perlman, COO of leading digital asset exchange Gemini, is a member of Moonstone’s board of directors. Gemini recently announced expansion plans in Seattle.
FTX has ties to another Seattle-area company. Last year, its venture arm participated in his $70 million round of Protego Trust Bank, a Seattle-based crypto bank that was granted a conditional banking license in February 2021.