Chain Bridge Bank, N.A.: Froze a $456.9M Mask Wire

Type: National bank; PPP lender
Parent: Chain Bridge Bancorp, Inc. (NYSE: CBNA)
Founded: May 2006, by Peter G. Fitzgerald

Chain Bridge Bank's holding company reported $1.4 billion in total assets at June 30, 2024, just before it went public.¹ Its part in the pandemic record comes down to a few hours on March 26, 2020. That morning the State of California wired $456,888,600 into a new account the bank had opened three days earlier for Blue Flame Medical LLC, a mask broker formed by two political consultants. Bank officers put a hold on the money within 12 minutes of its arrival and returned it that afternoon at the request of California's bank, JPMorgan Chase.² Blue Flame sued; the courts ruled for Chain Bridge on every claim and made JPMorgan cover its costs.³²

The bank

The holding company's 2024 prospectus says Peter G. Fitzgerald, its chairman, founded the company in May 2006; John J. Brough is chief executive and David M. Evinger president. It describes a deposit base built on "political organizations": "we estimate that at least a majority of our deposit balances were sourced from political organizations," and "Our political organization clients are overwhelmingly affiliated with the Republican Party." Fitzgerald, the prospectus says, was elected to the U.S. Senate in 1998. The shares were priced at $22.00 in the October 2024 offering.¹

PPP lending

The SBA's loan file lists Chain Bridge Bank as the originating lender on 875 PPP loans for $133.1 million, 588 of them approved in 2020. Most went to borrowers in Virginia (599), the District of Columbia (115) and Maryland (75).⁴

The Blue Flame wire

Blue Flame's Mike Gula opened the account at the bank's McLean office on March 23, 2020. On March 25 he called the branch manager to say that "the state of California is sending an unbelievably large wire transfer in the amount of $450 million," and the bank's chief financial officer said "we'll do whatever we need to do" to take it, while noting that a deposit that size would affect the bank's balance sheet and capital ratios.²

The wire arrived at 11:55 a.m. on March 26 and was credited to Blue Flame's account. At 12:07 p.m. Evinger ordered a hold. JPMorgan's Rakesh Korpal told Brough and Evinger the "amount seems to be quite high for the supplies that they're purportedly paying for." A California official called to confirm the wire was "legitimate." At 1:34 p.m. Evinger asked whether JPMorgan could recall the wire; Korpal answered that he could, "But I don't think you and I want to get onto the front page of the Wall Street Journal, especially if this is a legitimate transaction." Three minutes later JPMorgan's Tim Coffey called back: "We're going to be recalling those funds, OK?" JPMorgan's Fedwire request came at 2:05 p.m. Chain Bridge sent the money back at 3:21 p.m., "PER YOUR REQUEST," and it was in California's account by 4:02 p.m.²

The Fourth Circuit called the timeline "central to the parties' dispute." It records that California also "requested the funds be recalled," sometime after JPMorgan's request and before the state learned the money had already come back.²

The lawsuit

Blue Flame sued the bank, Brough and Evinger in June 2020, alleging violations of the Uniform Commercial Code's wire-transfer rules and state-law claims including defamation.⁵ Chain Bridge filed a third-party claim against JPMorgan for indemnity. On September 23, 2021 the district court entered judgment for the bank and its officers on every Blue Flame claim, and for Chain Bridge against JPMorgan.³ The district court had found no evidence that the bank's officers said anything false about Blue Flame or its principals, the Fourth Circuit recounted.²

Chain Bridge then asked the court to set its indemnified fees and expenses at $5,935,978.52 through September 30, 2021.⁶ JPMorgan appealed. On February 8, 2022 Chain Bridge withdrew the fee motion "pursuant to a negotiated settlement" with JPMorgan; the filing does not state the amount.⁷ The Fourth Circuit affirmed on March 20, 2023, holding JPMorgan liable "to indemnify Chain Bridge under U.C.C. § 4A-211(f) for its loss and expenses resulting from the cancellation of the payment order."² The Supreme Court denied Blue Flame's petition on October 2, 2023, after Chain Bridge and its officers waived their right to respond.⁸⁹

Chain Bridge Bank, N.A.

The bank

PPP lending

The Blue Flame wire

The lawsuit

Sources

Notes