Silvergate Bank, formerly known for its crypto-friendly stance, has reached a $63 million settlement to resolve numerous federal and state investigations. This agreement represents a pivotal moment as the bank continues to scale back operations in the aftermath of the FTX crypto exchange collapse.
Inside Silvergate’s investigations: Lapses lead to major fines
The settlement covers allegations from the Federal Reserve, SEC, and California DFPI against Silvergate for misleading investors about its compliance programs and financial stability.
The Federal Reserve fined Silvergate $43 million, the California DFPI imposed a $20 million penalty, and the SEC settled for $50 million. Payments to other regulators helped offset some of these penalties.
The SEC filed charges against Silvergate, its former CEO Alan Lane, and former COO Kathleen Fraher for allegedly misleading investors about the bank’s compliance programs and financial health. Additionally, the SEC accused Silvergate and its former CFO, Antonio Martino, of underreporting losses and misrepresenting its capital status at the end of 2022.
The Federal Reserve, SEC, and DFPI conducted extensive investigations into Silvergate, revealing significant deficiencies in the bank’s anti-money laundering (AML) and know-your-customer (KYC) protocols.
The Federal Reserve found that Silvergate’s compliance program was inadequate for managing risks associated with its crypto clients. The bank’s automated monitoring system, Silvergate Exchange Network (SEN), failed to flag suspicious transfers.
“After the collapse of FTX, one of Silvergate’s major clients, instead of disclosing serious deficiencies in its compliance programs, Silvergate allegedly misled investors about their effectiveness,” said Gurbir Grewal, Director of the SEC’s Division of Enforcement. “Due to these shortcomings, Silvergate purportedly missed nearly $9 billion in suspicious transfers among FTX and its affiliates. This led to a drastic decline in Silvergate’s stock, causing significant losses for investors.”
Former executives Alan Lane and Kathleen Fraher settled SEC charges without admitting guilt. They agreed to pay fines of $1 million and $250,000, respectively, and will face five-year bans from serving as officers or directors.
Antonio Martino plans to contest the SEC’s allegations in court. His attorney, Adam Lurie of Linklaters, asserts Martino acted reasonably and in good faith during his tenure at Silvergate.
Silvergate Bank, based in La Jolla, California, once played a vital role in the crypto market by offering essential financial services to digital asset firms. However, following FTX’s collapse, investigations into Silvergate’s practices and its relationship with FTX ensued.
In February 2023, BeInCrypto reported that the Department of Justice (DOJ) launched an investigation into Silvergate for its transactions involving FTX and Alameda Research, FTX’s affiliated company. By March 2023, the situation intensified, leading to the voluntary liquidation of Silvergate Bank by its holding company.
To facilitate this process effectively, the DFPI and the Federal Reserve Board issued a joint cease-and-desist order in May 2023. This action was part of a broader strategy to oversee the orderly dissolution of Silvergate Bank. As part of the mandate, the bank was required to maintain all financial activity records for a period of seven years.
