Silvergate Agrees to Pay 50 Million Fine After SEC Allegations
The crypto-friendly Silvergate Bank, operated by Silvergate Capital Corporation, is facing a lawsuit from the United States Securities and Exchange Commission (SEC). The SEC alleges that Silvergate, along with its former CEO Alan Lane and former Chief Risk Officer Kathleen Fraher, deceived investors regarding its compliance program for the Bank Secrecy Act/Anti-Money Laundering and the monitoring of clients such as FTX.
The SEC’s enforcement director, Gurbir Grewal, stated in the filing that Silvergate failed to identify “$9 billion in suspicious transfers between FTX and its related entities.” He further claimed that the bank and its executives continued to mislead investors even after FTX collapsed, resulting in significant losses for investors.
In response to FTX’s bankruptcy filing, Silvergate voluntarily decided to liquidate in March 2023. This decision was prompted by several of the bank’s clients, including Coinbase and Gemini, severing ties due to Silvergate’s affiliation with FTX. U.S. senators Elizabeth Warren, Roger Marshall, and John Kennedy also sent a letter to Silvergate, alleging that FTX directed customers to transfer money to Alameda’s account with Silvergate in exchange for assets on FTX. Former FTX CEO Sam Bankman-Fried later admitted that FTX did not have an account with Silvergate and that funds were improperly transferred to Alameda’s bank accounts.
As the lawsuit progresses, it has been reported that Silvergate has agreed to pay a $50 million civil penalty, although the bank has not admitted or denied the allegations against it. Alan Lane settled for a $1 million fine, and Kathleen Fraher agreed to pay $250,000. These settlements are pending court approval.
The SEC has also charged Silvergate’s Chief Financial Officer, Antonio Martino, for misleading investors about the firm’s losses from expected securities sales following FTX’s collapse. He is accused of violating antifraud and books-and-records provisions of federal securities laws, as well as aiding Silvergate in some of its violations. However, Martino has not settled with the SEC and plans to take legal action to defend his innocence.
In related news, the US Federal Reserve has announced plans to cease the activity of Silvergate Capital and its associated bank.
