The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Silvergate Capital Corporation, the entity behind Silvergate Bank, known for its crypto-friendly stance. According to a filing dated July 1, the SEC alleges that Silvergate, along with its former CEO Alan Lane and former Chief Risk Officer Kathleen Fraher, deceived investors regarding its compliance with the Bank Secrecy Act/Anti-Money Laundering regulations and the supervision of clients such as FTX.
SEC’s enforcement director, Gurbir Grewal, stated in the filing that Silvergate failed to detect suspicious transfers totaling $9 billion among FTX and its affiliates. He further accused the bank and its executives of exacerbating the deception even after FTX collapsed, resulting in substantial investor losses.
Following FTX’s bankruptcy filing, Silvergate voluntarily entered into liquidation in March 2023. This decision came after several of the bank’s clients, including Coinbase and Gemini, severed ties due to Silvergate’s associations with FTX.
During this period, U.S. Senators Elizabeth Warren, Roger Marshall, and John Kennedy asserted in a letter to Silvergate that FTX had directed customers to transfer funds to Alameda’s account at Silvergate in exchange for assets. Former FTX CEO Sam Bankman-Fried also admitted that FTX did not maintain an account with Silvergate, and funds were improperly redirected to Alameda’s bank accounts.
In related developments, Silvergate has agreed to pay a $50 million civil penalty as per the filing. However, the bank has not admitted to the allegations. Alan Lane settled for a $1 million fine, and Kathleen Fraher agreed to a $250,000 settlement, pending court approval.
The SEC has additionally charged Silvergate’s Chief Financial Officer, Antonio Martino, for misleading investors about expected securities sales losses following FTX’s collapse. He faces allegations of violating federal securities laws’ antifraud and books-and-records provisions, as well as aiding Silvergate in its violations. Martino, however, disputes the SEC’s claims, describing them as baseless and plans to contest them legally.
For further details, the U.S. Federal Reserve has announced the cessation of Silvergate Capital and Bank operations.