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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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