The Federal Reserve Board has issued an enforcement action ordering FTX-linked Farmington State Bank, which operates under the name Moonstone Bank, to wind down its operations after the bank improperly pivoted to a pro-digital assets business plan in 2022 without notifying its supervisors. The joint enforcement action from the Federal Reserve Board and the Washington State Department of Financial Institutions bars the Washington state-based bank from making dividends or capital distributions, dissipating cash assets and engaging in certain activities without its supervisors’ permission.
The bank had previously promised to steer clear of digital bank operations and avoid modifying its business plan in an agreement it signed with the Reserve Bank when it became a bank holding company in 2020. However, the Fed alleged that the bank worked with a third party to design an IT infrastructure to facilitate…the issuance of stablecoins in exchange for 50% of mint and burn fees on certain stablecoins.
The one-branch bank had long operated as a community lender, eschewing digital assets dealings for traditional financial services. However, the bank changed its plan around the time FTX sister company Alameda Research purchased an $11.5 million stake in the institution last year. Earlier this year, federal prosecutors seized $50 million from Farmington, alleging the funds were deposited in the tiny community bank as part of Bankman-Fried’s scheme to defraud crypto investors.