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Key Takeaways
- Regulators such as the SEC and Federal Reserve fined Silvergate Capital for misleading investors and breaking anti-money laundering rules.
- The company allegedly misled investors about the strength of its anti-money laundering program, which missed nearly $9 billion in suspicious transfers between FTX and its affiliated companies.
- After a bank run caused customers to withdraw $8.1 billion in digital deposits, the SEC said Silvergate misled investors about its liquidity in the aftermath of FTX’s collapse.
A bank that failed early last year amid the regional banking crisis is now facing penalties from the fallout of FTX’s collapse.
San Diego-based crypto-bank Silvergate Capital and several of the company’s former executives were ordered to pay up millions in penalties levied by regulators including the Securities and Exchange Commission (SEC) and the Federal Reserve (Fed). The allegations stemmed from the company’s involvement with the now-defunct crypto-exchange FTX.
What Does Silvergate Have To Do With FTX?
The SEC claims the bank misled investors about its anti-money laundering program after public speculation that FTX had used accounts at the institution to facilitate misconduct. Regulators found Silvergate’s monitoring system failed to detect almost $9 billion in “suspicious transfers” between FTX and its related companies.
“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 enforcement division.
In the wake of FTX’s failure, the SEC alleges the company and its former Chief Financial Officer Antonio Martino misled investors about Silvergate’s financial condition. The bank run that ensued following FTX’s collapse caused a liquidity crisis at Silvergate after customers withdrew $8.1 billion in digital deposits. About two months later, the company announced it was planning to shut down.
The bank and all of its executives, except Martino, agreed to settle the charges with fines including a $50 million civil penalty for the bank, the SEC said. The Federal Reserve fined the company a $63 million for similar charges, while a California state regulator assessed nearly $20 million in penalties Monday afternoon. All settlements need to be approved by a federal court, and the bank’s penalties determined by the SEC may be offset against the ones it pays to the Fed.
The Fed says the company has now paid back all deposits back to its customers.