Gurbir Grewal, SEC’s Enforcement Director, said Silvergate failed to detect nearly $9 billion in suspicious transfers between FTX and its affiliates. Silvergate neglected its anti-money laundering duties and potentially allowed illegal activity.
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.
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