Federal Reserve shuts down Farmington Bank over unapproved stablecoin project

The Federal Reserve took action against Farmington State Bank on Aug. 17, asserting the bank took on a stablecoin strategy without notifying supervisors or gaining approval.

The U.S. government agency said that it approved Farmington’s application to become a bank holding company in 2020, at which time it imposed certain conditions on the bank and its main shareholder, Jean Chalopin. Those conditions prevented the bank from changing its business plan and taking certain actions without approval.

Farmington allegedly violated those conditions in 2022 when it began to work with a third party on IT infrastructure for a public stablecoin. The bank would have received 50% of mint and burn fees on certain stablecoins.

The third-party and stablecoin in question were not identified within the Federal Reserve’s report. However, past announcements suggest that Farmington, operating as Moonstone Bank at the time, partnered with Fluent Finance on its US+ stablecoin in 2022.

US+ appears to be a fairly minor stablecoin, as its reserve data suggests that it has just $194,286 of backing. The same amount is presumably in circulation.

Farmington says it will shut down

Farmington State Bank said on Aug. 17 that it will wind down operations, adding that it has consented to the Federal Reserve’s latest order.

The bank said it would liquidate and wind down operations. It also said that the Bank of Eastern Oregon would purchase its assets, assume its deposits in a transaction and that regulatory filings have been received. Farmington said that the transaction is planned to close on Aug. 31, while the Federal Reserve’s own notice states that Farmington entered a purchase agreement on May 12.

Farmington previously attracted attention in January. At that time, it discontinued its cryptocurrency services and returned to its current role as a community bank. That change also saw the bank rebrand from Moonstone Bank to Farmington State Bank.

Reports on Jan. 24 highlighted the bank’s connections to FTX founder Sam Bankman-Fried, whose assets were seized through the bank earlier that month. Those asset seizures were not acknowledged in the Federal Reserve’s latest action.

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