- Silvergate has agreed to pay $63 million to settle state and federal investigations
- The lender went into liquidation in March 2023 following the collapse of FTX four months previously
- The bank has also settled with the SEC for $50 million
On Monday, Silvergate, the California-based lender impacted by the collapse of FTX, agreed to pay $63 million to settle state and federal investigations. Silvergate went into liquidation in March 2023, having been deeply affected by the collapse of FTX and then hit by allegations of impropriety surrounding the activities of the exchange and its hedge fund, Alameda Research. The agreement aims to resolve the probes and facilitate the orderly wind-down of Silvergate’s operations, allowing the once crypto-friendly bank to emerge without admitting any charges.
Silvergate Accused of Involvement in FTX Transgressions
In February 2023, it was reported the Justice Department had initiated a criminal investigation into Silvergate’s dealings with FTX and its former CEO, Sam Bankman-Fried. The current status of this investigation remains unknown, but law enforcement officials previously indicated that Silvergate was also a victim of the extensive fraud carried out by FTX and Bankman-Fried.
Silvergate, one of the few traditional banks that embraced the digital asset industry, operated a payment system enabling investors and digital asset companies to convert US dollar deposits into digital assets. This positioned Silvergate as a critical infrastructure provider for digital asset exchanges. However, the collapse of FTX in November 2022 triggered a liquidity crisis, leading investors and clients to cut ties with the lender.
On The Brink
In early March 2023, the bank revealed that it was on the brink of collapse following the implosion of FTX and the investigation into its practices. This admission which came on the back of a filing with the Securities and Exchange Commission (SEC) in which it told the agency that it would not be able to file its annual report on time because of a further weakening in its capital position since last month’s dismal fourth-quarter earnings.
This has resulted in not just a 50% collapse in the price of Silvergate shares but also a quickfire $2,000 drop in the price of Bitcoin, which happened at the same time as the news broke.
The bank fell into liquidation just a week later, but the investigations continued, only ceasing with the settlement announced yesterday. The Federal Reserve announced the penalties comprise $43 million from itself and the remaining $20 million from the California Department of Financial Protection and Innovation. The SEC has reached a separate settlement with the bank for $50 million,
Separate Settlement With SEC
Silvergate neither admitted nor denied the regulators’ allegations. In a statement, the company noted, “The settlements announced today, which will facilitate the surrender of Silvergate’s bank charter, are part of the bank’s continued orderly wind-down and successfully conclude investigations by the Federal Reserve, DFPI, and SEC.”
The bank also highlighted its responsible decision to voluntarily liquidate in 2023 without government assistance and confirmed that all deposits had been repaid to customers.
The SEC specified that Silvergate would pay $50 million to settle claims of negligence-based fraud for misleading investors about its compliance practices, although this amount may be offset by other penalties. Gurbir Grewal, head of the SEC’s enforcement unit, stated that Silvergate “allegedly failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities,” which is the principle reason why the settlement is so large.
The SEC also settled with former Silvergate CEO Alan J. Lane and former COO, Kathleen Fraher, for $1 million and $250,000, respectively. Furthermore, the SEC’s complaint accused former CFO Antonio Martino of understating losses and misrepresenting the bank’s capital status at the end of 2022. Martino denied these claims, asserting he acted in good faith and intends to challenge the SEC’s allegations in court.
