FTX owned an $11.5 million stake in a tiny rural bank in Washington state with just 3 employees, bankruptcy hearing shows

FTX has come under more scrutiny after it emerged that the collapsed crypto giant owned an $11.5 million stake in one of America’s smallest banks – more than double the bank’s previous net worth – the New York Times reported.

Farmington State Bank, which is based in the small town of Farmington in the rural farming region of Whitman County, Washington, was described as “no-frills” by local newspaper The Spokesman-Review in 2010. Its then-president, John Widman, told the newspaper that it had stopped making mortgage loans because the paperwork was too much effort.

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.

FTX’s investment came to light during the crypto firm’s bankruptcy case, and is raising red flags about its financial strategy.

Ties between the farmers’ bank and the crypto exchange began in March this year, when FTX’s sister company, Alameda Research, invested in Farmington’s parent company, FBH. The purchase was led by Ramnik Arora, one of Sam Bankman-Fried‘s inner circle, who was often responsible for much larger deals.

At the time, it was the 26th-smallest bank in America out of 4,800. With a net worth of $5.7 million, FTX’s stake was worth more than double the bank’s value.

The town of Farmington has just 146 residents, and is so small that Google Street View doesn’t cover the whole town.

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.

Online, the bank now appears as “Moonstone Bank,” a name which was trademarked a few days before FTX’s investment. Moonstone doesn’t mention cryptocurrency, but does say it wants to “support the evolution of next generation finance.”

Questions are being asked over how FTX got federal approval to buy its stake in Farmington. Banking veterans told the New York Times that it was hard to believe regulators would have knowingly allowed the crypto firm to do so.

Moonstone and FTX did not immediately reply to a request for comment, sent outside normal US working hours.