Why did an FTX affiliated business park millions in a microscopically small rural bank?
It’s emerged that an FTX-affiliated business is involved in the explosive growth of what was the 26th smallest bank in America, located in a tiny town in rural Washington state. So, what the heck is going on in tiny Farmington (population 145)?
Farmington, settled in 1871, officially founded in 1878, and incorporated in 1888, is located in the southeastern corner of Washington state. Its population peaked at just under 500 people in the first third of the 20th century. Starting with the Great Depression (a name that may soon be applied to the economy that awaits 2022 America), the population dwindled, settling at its current number of roughly 145 people, justifying its place as the county’s second smallest town.
The town is known for…lentils. According to the town website, J.J. Wagner planted the first lentil crop in 1916. Today, thanks to a privately owned processing plant, Farmington ships lentils worldwide. The town also grows wheat and barley.
Everything we know about the town makes it logical that its bank would be tiny. According to a tweet, the town boasted one bank: Farmington State Bank, which has a tiny cinderblock building and three employees:
The FTX story just gets wilder.— Trung Phan (@TrungTPhan) November 25, 2022
Earlier this year, SBF invested $11.5m in Farmington State Bank in Washington St. (nearly double the bank’s value).
It’s the 26th smallest bank in the US. It serves a town of 146 people. Has only 3 employees. And looks like my parent’s garage. pic.twitter.com/G1HiUwcTQy
However, this tiny, out-of-the-way bank has recently had a very interesting history according to a detailed article in Protos, which I’ll summarize here if you don’t want to read the whole thing.
In 1994, a British citizen named Archie Chan purchased the bank, apparently to turn it into an international banking hub. (Banks are a great place to park offshore money. As long as you capitalize it sufficiently, you just kind of sit there, taking in deposits.) Indeed, in 2010, the bank’s president, a hobby farmer, said the bank had more deposits than loans and didn’t offer credit cards. It wasn’t even part of the Federal Reserve. In other words, all reward, no risk.
Things changed in 2020 when FBH bought the bank. FBH’s chairman is Jean Chalopin, a Frenchman who helped create Inspector Gadget, the 1980s cartoon. He’s moved on from that, though. He now lives in the Bahamas (where Sam Bankman-Fried is headquartered), and is the largest shareholder in Deltec Bank and Trust, as well as Bitfinex, a cryptocurrency exchange, and its subsidiary, Tether, an “asset-backed cryptocurrency stablecoin.” Deltec is the main bank for these companies…as well as for Alameda Research, which Sam Bankman-Fried founded as a “quantitative trading firm” specializing in cryptocurrencies.
A quick interjection about cryptocurrencies. They were billed as a new currency shared amongst a vast network of interlinked computers (blockchain). This system protected the money from government control or interference. However, I view it as a post-modernist dream, one that saw wealth created from nothing.
One needs real money to buy into crypto coin buyers are left with bytes while the real money (that is, government-backed currency tied to a country's wealth) goes to people like…Sam Bankman-Fried. Crypto’s value was tied to investor enthusiasm. Think: Tulipmania in Holland in the 1630s, or land in Florida in the 1920s.
Back to Chalopin’s purchase. Suddenly, Farmington State Bank was dealing with cryptocurrency and international money. It finally sought and got Federal Reserve approval. Then, in March 2022, Farmington trademarked a new name: Moonstone Bank. Three days later, Bankman-Fried’s Alameda Research invested $11.5 million in the bank, more than doubling the bank’s previous total average deposits of $10 million. By the third quarter of 2022, four new accounts added another $71 million. Tiny Farmington was now a banking hub, with around $84 million in investments.
And that’s what we know. There is currently no evidence of wrongdoing, but one must ask, is this money laundering? What is going on here? Is other people’s money at risk? The whole thing is weird, and it will be very interesting to see more facts as the story develops.