| Fed Denies
Custodia Bank After FTX Wreck As FOIAed on
Moonstone Bank by Inner City Press
By Matthew
Russell Lee, Patreon
SDNY COURTHOUSE,
Jan 27 – Amid the
prosecution of Samuel
Bankman-Fried on wire fraud,
money laundering and campaign
finance violation charges, the
role of the Federal Reserve is
coming to the fore. Now
it seeks to step back from its
brink by denying the
application of Custodia, with
order still withheld. See
below.
Inner City
Press was unsurprised to learn
of Fed laxity as Alameda
invested in Farmington State
Bank, renamed Moonstone Bank.
Inner City Press
submitted to the Federal
Reserve a Freedom of
Information Act request
including: "This is a FOIA
request for all record
regarding the FRS' approval
for the application / request
for membership in the Federal
Reserve System by Farmington
State Bank (giving rise to
FRBSF president Daly's
approval on a delegated basis
in 2021), and the subsequent
renaming of the bank to
Mooonstone and taking of a
stake by FTX/Alameda.
Also, for Silvergate with its
FTX connections, record
reflecting any review by the
FRS of Silvergate's (and
Provident Bancorp Inc.,
Metropolitan Commercial Bank,
Signature Bank, Customers
Bancorp Inc.) of the banks'
connections with
crypto-currency firms... This
is a request for expedited
treatment, in light of the
indictment of FTX / Alameda's
Sam Bankman-Fried and Caroline
Ellison (cooperating), and an
upcoming January 3, 2023
hearing."
The Federal
Reserve acknowledged
receipt: "Your request has
been assigned number
FOIA-2023-00178. Please
reference this number in all
future
correspondence.
Request description:
This is a FOIA request for all
record regarding the FRS'
approval for the application /
request for membership in the
Federal Reserve System by
Farmington State Bank [also]
any review by the FRS of
Silvergate's (and Provident
Bancorp Inc., Metropolitan
Commercial Bank, Signature
Bank, Customers Bancorp Inc.)
of the banks' connections with
crypto-currency firms."
On January 27,
still withholding documents,
the Fed "announced its denial
of the application by Custodia
Bank, Inc., Cheyenne, Wyoming,
to become a member of the
Federal Reserve System. The
Board has concluded that the
firm's application as
submitted is inconsistent with
the required factors under the
law. Custodia is a
special purpose depository
institution, chartered by the
state of Wyoming, which does
not have federal deposit
insurance. The firm proposed
to engage in novel and
untested crypto activities
that include issuing a crypto
asset on open, public and/or
decentralized networks.
The firm's novel business
model and proposed focus on
crypto-assets presented
significant safety and
soundness risks. The Board has
previously made clear that
such crypto activities are
highly likely to be
inconsistent with safe and
sound banking practices. The
Board also found that
Custodia's risk management
framework was insufficient to
address concerns regarding the
heightened risks associated
with its proposed crypto
activities, including its
ability to mitigate money
laundering and terrorism
financing risks. In
light of these and other
concerns, the firm's
application as submitted was
inconsistent with the factors
the Board is required to
evaluate by law. The Board's
order will be released
following a review for
confidential information."
And when will
that be? And when the FOIA
response on the promised
expedited timeline?
There is also a
lawsuit in Federal court in
California asserting
that
"Silvergate,
a publicly traded and
federally regulated bank
catering to cryptocurrency
customers, maintained both FTX
and Alameda accounts. It
directly aided and abetted
FTX’s fraud and breaches of
fiduciary duty via first-hand
participation in the
commingling of funds, improper
transfers, and lending out of
customer money. Silvergate
processed billions in
transfers from FTX’s client
account at Silvergate to the
Alameda accounts. Silvergate
also accepted deposits from
FTX investors—intended to be
stored, traded, or cashed
out—that at Bankman-Fried’s
direction were wired straight
to Alameda bank accounts and
misused."
So both
banks are with the Fed? Which
is rubberstamping mergers by
redliners?
Samuel
Bankman-Fried case(s), we will
have more on this
***
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