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Crypto-friendly bank Silvergate Capital, which closed its operations last year due to the collapse of FTX, failed to monitor over $1 trillion in crypto transactions, according to a complaint filed by the SEC. Silvergate Capital has agreed to pay $63 million to settle accusations of internal management failings and the disclosure of false information to investors by U.S. and California regulators.
The U.S. Securities and Exchange Commission (SEC), the Federal Reserve Board (FRB), and the California Department of Financial Protection and Innovation (DFPI) have taken action against Silvergate Capital Corp., the holding company for Silvergate Bank, and its former executives. This action was taken due to misleading investors and the failure to monitor significant transactions. The lawsuit alleged that Silvergate defrauded its investors by providing false information about its anti-money laundering controls and misrepresenting the impact of the FTX collapse on the company.
“Rather than coming clean to investors about serious deficiencies in its compliance programs in the wake of the collapse of FTX, one of Silvergate’s largest banking customers, they doubled down in a way that misled investors about the soundness of the programs,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
“In fact, because of those deficiencies, Silvergate allegedly failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities,” Grewal added. According to the SEC’s complaint, Silvergate’s stock eventually plummeted, wiping out billions in market value for investors.
Silvergate has agreed to the charges without admitting or denying the allegations. Chief Executive Officer Alan Lane and Chief Risk Officer Kathleen Fraher settled for $1 million and $250,000, respectively. The settlements are part of Silvergate’s ongoing wind-down efforts, a spokesperson told CoinDesk.
In late 2022, FTX declared bankruptcy, which had a ripple effect on various crypto companies, including Silvergate. Silvergate, which served the crypto industry for the past 10 years, ceased its operations in March 2023, leading to the closure of other banks such as Signature Bank and Silicon Valley Bank.