Was $11.5M Stake in 3-Employee Bank to Bypass License?

Did FTX Have $11.5M Stake in 3-Employee Bank to Bypass Banking License?

Reports have emerged that Alameda Research, a sister company to FTX, had an $11.5 million stake in a small U.S. bank. Some wonder if it was intended to bypass the banking license process.

FTX and Alameda Research are facing increased scrutiny as more information about their financial dealings comes to light. Alameda, a sister company to FTX, had an $11.5 million stake in a small rural bank in the U.S. The bank is called the Farmington State Bank (FSB) in Washington State and has only three employees.

The dealing is being scrutinized for multiple reasons. For one, analysts are examining how broadly FTX dipped its fingers into the financial ecosystem. Secondly, and perhaps more importantly, they worry that the exchange could have used the stake to bypass banking license laws.

The FSB is one of the smallest banks in the U.S., and the stake was more than double its net worth. It specialized in agricultural loans to farmers. The New York Times reported that 85% of the $84 million in deposits came from four accounts alone. 

Attention will turn to how FTX managed to get the approval to buy the stake in the bank. The NYT stated that “Banking veterans say it’s hard to believe that regulators would have knowingly allowed FTX to gain control of a U.S. bank.” 

Workaround tactics nothing new for FTX

In the past, FTX has used workarounds to bypass license processes. It acquired an Australian company that already held a license called IFS Markets. This allowed it to bypass the regular process for obtaining a financial services license.

The Australian Securities and Investments Commission has since suspended the license for the exchange in Australia. About 30,000 Australians are reportedly creditors of the exchange. 

FTX had also tried to obtain a license in crypto-friendly Switzerland, but the Finma regulator rejected the application. The reasons why it was denied were not made public.

Dubai regulator revokes FTX license

FTX is also facing issues in other crypto-friendly regions. Dubai’s Virtual Assets Regulatory Authority (VARA) suspended FTX’s license as the exchange was collapsing. It cited bankruptcy as the primary reason behind the revocation.

Turkish authorities are also investigating former CEO Sam Bankman-Fried for fraud and have reportedly seized his assets. United States authorities are reportedly going after Bankman-Fried as well.

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