Shady FTX business: Did the Exchange Exploit U.S. FRS Loopholes?

The bankruptcy of the FTX cryptocurrency exchange has caused backlash within the crypto community and beyond. 

It also shed light on some of its potentially unethical practices that have become the focus of the latest New York Times article.

In it, the newspaper says that the Farmington State Bank located in the state of Washington, now renamed to Moonstone which “supports the evolution of next-generation finance”, received investments from FTX via its now bankrupt sister company Alameda.  

In March 2022, Alameda allegedly made an investment of $11.5 million in the bank at a time when it was the 26th smallest bank in the U.S. valued at $5.7 million. So insignificant was the bank that in 2010, it was described as “no-frills” by the local newspaper The Spokesman-Review. Its then-president, John Widman, even told the newspaper that it had stopped making mortgage loans because the paperwork was too demanding.

Such a high level of investment in a small bank in the middle of nowhere sparked questions as to why Alameda and FTX did it. One of the hypotheses is that it was a way of circumventing the requirements to receive a banking license in the US, a problematic task as some claim.

Accordingly, the main question right now is whether FTX received federal approval to buy a stake in Farmington. The New York Times says that this is unlikely the case as regulators would not allow the crypto firm to make such a move.

The collapse of FTX has caused a massive crypto market downfall that is still felt throughout.

Previously, The Coinomist reported about a Canadian teachers who suffered huge losses in their core pension fund due to the collapse of FTX.