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How a Small Bank in a Farming Town in Washington Become entangled with FTX
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How a Small Bank in a Farming Town in Washington Become entangled with FTX

How a Small Bank in a Farming Town in Washington Become entangled with FTX

By CoinUnited

difficulty dotIntermediate
days icon31 Jan 2023clock3m

Nearly three years ago, when Jean Chalopin was applying to acquire a small bank in Washington state, he made modest pledges to bring not-so-new technology like ATM cards to a region with few local banking alternatives.

Mr. Chalopin, a former TV and film producer and co-creator of the “Inspector Gadget” cartoon, promised federal authorities, according to papers seen by The Wall Street Journal, that Farmington State Bank’s business strategy would not change.

It didn’t take long, though, for the bank to rebrand as Moonstone and begin courting customers in the high-risk cryptocurrency and cannabis businesses. A crypto trading business owned by Sam Bankman-Fried, Alameda Research LLC, joined the company as a stakeholder.

At a valuation of about $115 million, Alameda paid $11.5 million for a stake in Moonstone, or 37 times what Mr. Chalopin first paid for the bank 18 months prior ($3.1 million). According to those in the know, FTX, Mr. Bankman-crypto Fried’s exchange, discussed with the bank the possibility of opening crypto interest-bearing accounts and lending out depositors’ digital assets.

In November, Mr. Bankman-crypto Fried’s empire imploded, bringing the obscure financial institution into the limelight. Two Democratic senators pointed out in a letter to banking authorities last month that Mr. Chalopin is the chairman of Deltec International Group, a Bahamian bank that is supportive to cryptocurrencies and has links to FTX.

About 77% of the total deposits Moonstone claimed having at the end of 2022 were confiscated by the Justice Department in early January from an FTX business.

Farmington native and former public works director Todd Lobdell remarked, “It’s still the same bank, it just has a cloud over it.”

Lending money to farmers in a region where lentils are a cash crop accounted for a substantial portion of its $8.4 million in assets at the time. Tanya Thygeson, who served as president of the bank, was a native and lifetime inhabitant of the city that shares its name.

When Mr. Chalopin decided to leave the entertainment industry, he found success in the banking industry. The purchase application submitted to the Federal Reserve states that he is originally from France but now resides in the Bahamas and has accumulated a 47% stake in Deltec. In early 2020, Deltec has become one of the most prominent banking partners for crypto businesses including Tether Holdings Ltd., the issuer of the tether stablecoin.

In the application he filed with the Fed in April 2020, his attorney responded “not applicable” to the question of “any major expected changes in services or goods” that would emerge from the transaction.

The applicant “does not aim to change the business model of the Bank,” the attorney stated.

Moonstone would subsequently claim that, following its takeover in 2020, it had adopted a “new startup business strategy” to cater to the crypto and cannabis industries. A source close to Moonstone stated that the application does not reflect secret conversations the purchasers had with authorities or changes to its business plan following the acquisition.

According to those in the know, Dan Friedberg, the chief regulatory officer of FTX, acted as a go-between for the two businesses. Mr. Friedberg is a lawyer in Seattle, Washington, who formerly worked for regional financial institutions before making the switch to blockchain technology and becoming an early advisor to Mr. Bankman-Fried.

People with knowledge of the situation say that Alameda was drawn to a Moonstone idea to establish a payments network that would allow crypto firms to transmit money between Moonstone accounts. It should be noted that Silvergate Capital Corp. and other crypto-friendly institutions previously supplied such infrastructures.

However, according to those in the know, Alameda’s major rationale for investing in Moonstone was the belief that FTX might provide crypto-yield programs in a manner that would avoid Securities and Exchange Commission laws. Borrowers, often high-end trading businesses, are given access to the pooled assets and utilize the crypto to fund their own trading plans.

It has been reported that top FTX executives have been discussing the best method to organize a crypto-yield program that Moonstone may legally provide because to this loophole. Millions of depositors have no idea if they would ever see their money again because no such scheme ever went live and other firms advertising similar crypto-yield programs have failed in recent months.

Moonstone expanded rapidly after receiving funding from Alameda. According to regulatory documents, FTX was a major contributor to the increase of deposits from $12 million at the end of 2021 to $84 million as of September 30. Over that same time frame, asset assets increased from $18 million to $99 million.

Moonstone’s financial statements were cautious despite the high-risk nature of the client’s clientele. In spite of this, Moonstone recorded a net loss of $3.7 million for the quarter, which was much higher than the $537,000 loss reported in the same period the year before.

After the failure of FTX and Alameda, Mr. Lobdell claimed, Moonstone reassured its local consumers that their funds were secure.