A bank in rural Washington state sought to distance itself from FTX on Tuesday following a report last week detailing its connections to the failed cryptocurrency exchange.
Moonstone Bank, formerly known as Farmington State Bank, said in a statement that FTX founder Sam Bankman-Fried’s Alameda Research trading firm has less than a 10% stake in its parent company, with no board seats and no direct involvement in management.
The New York Times reported Nov. 23 that FBH, the parent company of Farmington State Bank, received $11.5 million in venture capital funding in March from Alameda, the trading firm whose financial struggles have been cited as a key factor in FTX’s demise. The swift collapse of FTX earlier this month sent a contagion through the crypto industry.
“In January this year, as a result of a capital raise effort to support our further development, we received an investment from a company that at the time had a pristine reputation and was a darling of the financial markets,” Moonstone said in a statement Tuesday, referring to Alameda Research.
“Unfortunately,” the statement continued, “the unexpected collapse of this company negatively impacted countless individual investors, investment firms, vendors, counterparties and unfairly affected Farmington State Bank d.b.a Moonstone Bank’s reputation as well.”
Farmington State Bank has its origins in the tiny town of Farmington, Wash., near the Washington-Idaho border. The lender, founded in 1887, previously provided agriculture-focused loans.
It was acquired in 2020 by FBH Corporation, owned by Jean Chalopin, also the chairman of Bahamas-based Deltec Bank. Deltec’s most well-known client is Tether, a crypto company with $65 billion in assets.
Farmington State Bank changed its name just before the FTX investment. Moonstone now describes itself as a “chartered digital bank,” employs several people in the Seattle region and is based in Bellevue, Wash., according to its LinkedIn page.
Before it started raising capital to transform into a tech-focused bank, Farmington had just three staff members and was the 26th-smallest bank in the U.S. out of 4,800, The New York Times reported. Its net worth was $5.7 million, according to the Federal Deposit Insurance Corporation, and it did not offer online banking or credit cards.
The Times reported that in the third quarter this year, the bank’s deposits grew nearly 600% to $84 million. A majority of the increase came from four new accounts, according to the Times.
By acquiring Farmington, Moonstone received a banking charter, a business license required for financial institutions handling deposits and offering other bank-like services. Obtaining a banking charter can be a difficult process for many fintech companies.
Asked why Farmington State Bank specifically was a target for acquisition, Moonstone’s chief digital officer Janvier Chalopin told Startup that Moonstone was looking for a U.S. bank. Farmington had a clean balance sheet and was seeking a buyer, he said.
“It was just a match made in heaven,” he said in an interview Tuesday, speaking from the Bahamas. Janvier Chalopin is the son of Jean Chalopin.
Banking experts interviewed for this story said fintech companies buying up older banks and obtaining charters is uncommon but not unprecedented. Notable examples include Lending Club acquiring Radius Bank and SoFi purchasing then-Golden Pacific Bancorp.
However, bank transactions require a significant amount of due diligence from regulators. Given that Moonstone was partly owned offshore and was involved in crypto, the deal should have raised more regulatory flags, experts said.
“At Alameda Research, we are committed to growing the industry and supporting businesses that are creating real change,” said Ramnik Arora, one of Bankman-Fried’s top lieutenants who resigned last month, in a press release announcing Alameda’s investment in FBH.
As for how Moonstone will be affected by the FTX bankruptcy process, Chalopin said “the bankruptcy court would own the equity now and it would likely go through an auction process for people to bid on.”
Moonstone aims to serve both consumers and businesses with a digital-first banking model. For individuals, its goal is to develop a “one-stop-shop” where consumers can purchase stocks and digital assets from the same place as their checking account, Chalopin said. On the business side, it plans to work with small-to-medium sized businesses that struggle to open bank accounts elsewhere, such as cannabis companies and digital asset startups.
It also plans to offer a “banking-as-a-service” model to financial services companies to allow them to have the “proper banking structure for their accounts,” Chalopin said.
“What we’ve innovated on is the risk and compliance and the tech stack to support the monitoring and the ledgering of those accounts,” he added.
The bank now has 32 employees, including 16 that live in Washington state. The company maintains an “in-person customer interfacing branch,” according to a statement.
Moonstone had a post-money valuation of approximately $115 million at the time of the Alameda investment, according to Chalopin, who said this is a common valuation for a bank with this “kind of business model.”
He said Moonstone is now more analogous to a startup than a centuries-old bank. “It’s a startup because we’re raising capital, we’re hiring a team, and we have big growth plans,” he said. “We’re burning cash to create something new.”
The company is still technically headquartered in Farmington, Wash., Chalopin said, but it is looking for long-term space in Bellevue, just east of Seattle.
Moonstone is led by CEO Gary Rever, who is a director at Vermont State Bank. It was previously led by Ron Oliveira, who departed the CEO position in August.
Moonstone’s chief legal officer is Joseph Vincent, a former adjunct law professor in financial Institutions and fintech at Seattle University. He represented Moonstone as a panelist at the TF6 conference in June, a crypto event hosted by Seattle crypto accelerator TF Labs.
Praful Mainker is the company’s chief compliance officer. He previously worked as an executive director at J.P. Morgan Chase. He is joined by CTO Daniel Ranallo, a former software engineering leader at Ray Dalio’s Principles.
Noah Perlman, who is the COO of major digital-asset exchange Gemini, is a member on Moonstone’s board of directors. Gemini recently announced plans to expand in Seattle.
FTX has a connection to another Seattle-area company: last year, its venture arm participated in a $70 million round in Seattle-based Protego Trust Bank, a crypto bank that was granted a conditional banking charter in February 2021.