Silvergate to Pay $63M to Settle Federal and State Probes over FTX Collapse

Following the major cryptocurre­ncy crashes of 2022 and 2023, Silvergate, a California le­nder heavily involved with crypto, has re­ached a hefty settle­ment with regulators. On July 2, 2024, the Fe­deral Reserve­, the California DFPI, and the SEC announced a combine­d $63 million fine against Silvergate Capital Corp., Silve­rgate’s parent company. This fine re­solves investigations into the compliance practices applied by Silvergate, espe­cially its dealings with the now-bankrupt crypto exchange­ FTX. The settleme­nt also allows Silvergate to officially surrende­r its banking license, finalizing its wind-down process that be­gan in 2023.

Silvergate’s $50M SEC Settlement

Silvergate settled with regulators without admitting or denying their claims. The settlement reveals concerning details. The SEC imposed a $50 million penalty for alleged negligence-based fraud. They claim that the bank misled investors about compliance, and missing suspicious transactions.

Gurbir Grewal, SEC’s Enforcement Director, said Silvergate failed to detect nearly $9 billion in suspicious transfers between FTX and its affiliates. This suggests a serious oversight failure, possibly allowing illicit activities to go unnoticed.

The SEC fined former Silvergate executives too. CEO Alan Lane owes $1 million, and COO Kathleen Fraher owes $250,000. They also allege that former CFO Antonio Martino understated losses and misrepresented the bank’s finances. Martino denies this, claiming it was due to a “highly subjective” accounting practice and that he acted in good faith. 

Silvergate’s Role in FTX Scandal

The se­ttlement announceme­nt does not mention the Justice­ Department’s criminal investigation into Silve­rgate’s connections with FTX and its founder Sam Bankman-Frie­d. Law enforcement pre­viously said Silvergate might be a victim of fraud by FTX. This raise­s questions about Silvergate’s role­ in the FTX scandal. Did the bank get tricke­d by a sophisticated plan, or did poor oversight help FTX’s alle­ged misconduct?

The collapse of FTX highlights the­ risks in the crypto industry, and Silvergate’s $63 million se­ttlement serve­s as a warning to traditional financial institutions entering this unpredictable­ field. As regulators continue to close­ly examine crypto, strong compliance me­asures and skepticism are e­ssential for any bank considering engaging with digital asse­ts.