FTX owned an $11.5M stake in a tiny rural bank in Washington state
businessinsider.com
businessinsider.com
> Its single branch had three employees until this year, and didn't offer online banking or even credit cards. It instead specialised in agricultural loans to farmers.
> For a decade, Farmington's bank held around $10 million in deposits. In the third quarter this year, deposits jumped to $84 million – 85% of which came from just four accounts, according to FDIC data cited by the Times.
> The town of Farmington has just 146 residents, and is so small that Google Street View doesn't cover the whole town.
I mean, it definitely looks like they were looking for a tiny, out-of-the-way place to do shady stuff. That said (and this is a rookie question for you financial crime geeks out there):
Why buy a bank?
If you’re a criminal and your goal is to launder money, what does owning a bank do that owning a (for example) car wash or funeral home or laser tag venue doesn’t? Is it purely a scale thing? Given all the regulatory hoops you’d have to jump through in order to buy a bank, I’d think there would be other ways to achieve the same scale with less oversight.
Also, if you’re going to buy a bank, I get why you’d want to buy a small one (smaller purchase price and fewer headlines). But wouldn’t a sudden order-of-magnitude increase in assets or loans made (or whatever) set off a ton of red flags at the SEC, FDIC, and various other federal and state agencies?
Apparently, not. So then we should be asking, why not? Why did the SEC, FDIC, etc. look the other way?
I dunno, maybe we could ask the victims of the 80s/80s Savings & Loan collapse and the 2008 financial crisis?
Same song, 3rd verse.
It might be easier to just buy one if you want to do bank things.
Applying for a banking license is time-consuming. Buying a local bank is a comparatively quick way to end-run around that process. In and of itself it's not a sign of anything shady - buying a bank is a pretty common part of the business plan for fintech startups that don't want to sit around for years waiting for government approval.
That being said, SoFi bought the entirety of Golden Pacific Bank for $23 million, and they were 20x the size of this bank (as well as having actual mortgage infrastructure and a wide variety of products). Buying 10% of a bank with only $10 million in assets for $12 million is very weird, at the very least it’s a horrible deal
Yes, they're criminals who belong in jail but only for the way they managed their balance sheet. They were also great builders who had awesome products and wanted to do all the great things they said they wanted to do.
Buying a bank is something probably every crypto exchange has considered doing, so they can have access to the financial system and not have to pay massive amounts of money and have huge headaches processing payments for their customers. I'm surprised Coinbase doesn't own one by now - or perhaps they do.
I think SBF was VERY informed, especially looking at his background. It's simple greed for power (not even the money).
Banking is weird. Like, how did they find this bank? What makes it better than other random local banks across the country? Is there a marketplace for these banking partnership opportunities?
Why it would be easier to buy a bank than to get a license I never got an answer to. Surely the authorities would not leave a loophole? But I don't know.
An analogy might be the old taxi medallion regulation in New York that had limiting the number of taxis as a goal in addition to qualifying cab owners and drivers.
It’s a frustrating situation because an organization unworthy of a license like FTX can just buy one anywhere in the country, but a worthy organization working locally can’t start a new bank, because they’d likely have to buy one too far away. Anyone who believes there should be more small banks is just out of luck.
My guess is that it's because it's very, very difficult for Bitcoin/crypto companies to maintain bank accounts due to overly strict AML compliance departments.
Even Tether, which controls billions of dollars and is one of the largest crypto companies, was unbanked for some of its existence. I assume that FTX wanted to avoid that.
Same reason you do a reverse merger
All three of those are very much focusing on _cash_ transactions. It would be difficult for any of those to hide wire fraud.
As all of those are references to TV shows revolving around drugs. Drug sales are usually done in cash. If you have over tens of thousands in illicit cash, you need a cash business to mix those transactions in. Clean cash + dirty cash = plausibly clean money. Did your laser tag place really take in 50k in cash a week? That is a harder question to prove than you don't work, where are you getting 25k a week from? You'll need good book keeping.
However crypto investments don't have any cash transactions. You need to make and recieve wire transactions. These transitions are likely legal but still questionable, and most banks will terminate you if you have questionable transactions. Owning the bank means you don't need to answer a lot of these questions like "where did this money come from?"
Generally shady FTX shit aside, couldn't they have waited <24 hours to see if they would respond within business-hours? Where did journalistic integrity go?
I don’t think there is much of any to worry about.
Like if they would write:
> The above source was never verified, but we swear we talked with a real person
And then call it a day. What kind of journalism is that?
I don’t think they are going to respond.
Or like Musk, when asked for comment on the horse for hand job scandal, came out as a republican to try and get ahead of it somehow.
> and is so small that Google Street View doesn't cover the whole town.
...which is a weird way to emphasize a town's smallness. Is the idea that the driver of the Google maps car got halfway through and said, you know, this town is so small, I'm not even going to drive the rest of the way down the street! Or they were so overcome with small-town charm they just stopped the car and bought a house there or what
https://www.google.com/maps/place/Farmington+State+Bank/@47....
If you go to these towns, and I have done thousands of miles of driving around the West, far from the Interstates, these side roads turn often turn out to be barely-defined dirt, or maybe gravel, turnoffs. Often they just go a few blocks and end. An urban dweller might not even recognize them as side roads, because they blend seamlessly with the lots around the few buildings, and often you'll see cars, farm equipment, or other miscellaneous items strewn haphazardly.
The other thing you'll find way out in those parts of Washington, Idaho, and Oregon are right-wing anti-government militia types. People who listen to Fox News and think it's too liberal. QAnon types who follow Alex Jones and watch OANN. Could that be the connection?
[1]: https://protos.com/exclusive-moonstone-bank-explains-ties-wi...
https://lh6.googleusercontent.com/U9Wf3gWF25o0P8HMie7Zdpwkc-...
FTX seems to have taken a different approach acting like nothing they did was illegal. They are acting like what they did was no different than what other startups or banks do, they just made a mistake calculating their reserves.
A finance startup buying a small bank is pretty normal. We’ll find out more in time.
I’ve some exposure to rural banks due to some family in that business, and I’ve never heard of one that small…
They didn’t set up in the Caribbean for the weather, but to ensure they were largely free from US regulation. As desired by most crypto enthusiasts!
None of this is quick but as true as before, “The wheels of Justice turn slowly but grind exceedingly fine.”
It’s a lot easier to do a second murder than a second FTX.
In complicated murder cases it can take decades to get an arrest, too. For example, a murder in 1963 and a conviction in 2001: https://www.nytimes.com/2020/06/26/us/thomas-blanton-dead.ht...
Evidence seems to be pointing towards SBF being incompetent, not a criminal.
https://www.coindesk.com/layer2/2022/11/30/ftxs-collapse-was...