The Federal Reserve has announced an enforcement action against Farmington State Bank, alleging that it improperly changed its business plan without informing the Fed. The action centers around Farmington’s involvement in designing IT infrastructure to facilitate the issuance of stablecoins.
Allegations of improper business plan changes: A look at the Fed Reserve claims
According to the Federal Reserve’s Thursday filing, Farmington violated its commitments by engaging in a memorandum of understanding to work with a third party to design IT infrastructure for the issuance of stablecoins. The bank was to receive 50 percent of mint and burn fees on certain stablecoins. The Fed asserts that these actions were taken without the required written approval from the Board of Governors, the Reserve Bank, or the Washington State Department of Financial Institutions.
Farmington’s history with stablecoins does not cite a specific commitment. However, a Globe Newswire posting from October 2022 revealed that Fluent announced a partnership with Moonstone (Farmington’s previous name) to issue a US+ Stablecoin.
The Federal Reserve said: “The Board’s action ensures the bank’s operations will wind down in a manner that protects the bank’s depositors and the Deposit Insurance Fund.”
The bank has consented to the Federal Reserve order, and a transaction involving the assumption of deposits and the purchase of assets by Bank of Eastern Oregon of Farmington State Bank is expected to close by August 31, 2023.
Farmington’s ties to crypto: The bank’s history with Sam Bankman-Fried and Alameda
Farmington State Bank’s involvement in the crypto world is not new. In March 2022, the bank adopted the moniker Moonstone Bank, followed by an $11.5 million investment from Alameda. The bank has direct ties to notable figures in the crypto industry, such as Sam Bankman-Fried and Jean Jacques Pierre Chalopin, the principal shareholder of FBH Corporation, the owner of Farmington.
In January, Farmington announced that it would be discontinuing its pursuit of an innovation-driven business model, reflecting the impact of recent events in the crypto assets industry and the changing regulatory environment.
Farmington’s decision to discontinue its innovation-driven business model came after it had committed to both work with and help design IT infrastructure to facilitate the issuance of stablecoins.
The bank’s history with Sam Bankman-Fried and Alameda, and its previous name change to Moonstone Bank, further illustrate its connections to the crypto industry. The enforcement action by the Federal Reserve and the subsequent consent by Farmington State Bank mark significant developments in the regulatory landscape surrounding traditional banks’ involvement with digital assets.
