Silvergate Stock Drops 7% after Lawsuit Accuses Bank of Participation in FTX Fraud

UTC by Steve Muchoki · 3 min read
Silvergate Stock Drops 7% after Lawsuit Accuses Bank of Participation in FTX Fraud
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Morgan Stanley’s analysts downgraded Silvergate stock from “equal weight” to “underweight” last week.

Silvergate Capital Corporation (NYSE: SI) stock closed Monday trading at $17.61, down 7.59 percent from the day’s opening price. The dip extended during the after-hours trading session following a lawsuit filed against Silvergate’s role in the FTX collapse. Filed in the US District Court for the Southern District of California, the lawsuit claims Silvergate had “plain sight” of crimes being committed because of the numerous accounts it held for FTX Ltd, FTX US, and Alameda.

What Influences Silvergate Stock

The federally regulated banking institution is under regulatory scrutiny to identify how deeply it was involved in the FTX and Alameda’s collapse.

“FTX/Alameda was one of Silvergate’s most important customers, and their business operations and interests were tightly entwined. Silvergate profited from deposits by digital-asset customers, which grew exponentially as FTX’s own business Expanded,” the lawsuit noted.

Consequently, Morgan Stanley’s analysts downgraded Silvergate stock from “equal weight” to “underweight” last week.

As a regulated bank, US Sen. Elizabeth Warren sent a letter to Silvergate CEO Alan Lane, requesting to disclose information about the bank’s relationship with FTX and the Bankman-Fried entities. The bank will likely be charged with negligence in protecting customers by allowing FTX and Alameda to access the liquidity of their FTT token, which went to zero value after the rug pull.

Silvergate Bank Defends Its Crypto Action

Having been in the crypto banking sector for years, particularly in several bear markets, Silvergate has gained experience in handling the industry. Nonetheless, the FTX and Alameda implosion seems to have surprised the company. Furthermore, the bank, through a recent announcement, noted that the relationship with FTX was limited to deposits only.

“….As of September 30, 2022, Silvergate’s total deposits from all digital asset customers totalled $11.9 billion, of which FTX represented less than 10%. Silvergate has no outstanding loans to nor investments in FTX, and FTX is not a custodian for Silvergate’s bitcoin-collateralized SEN Leverage loans.…..,” Lane previously noted.

As of November 15, 2022, Silvergate reported an average quarter-to-date digital asset customer deposits of approximately $9.8 billion. Reportedly, the Silvergate Exchange Network, SEN, has been fully operational with an average daily volume of approximately $1.9 billion quarter-to-date, compared to the average daily volume of $1.2 billion in the third quarter of 2022.

According to the company, it was built to support cryptocurrency customers during volatile and transformational markets. As such, the company is confident the cryptocurrency market will rebound from the current bear market as mainstream adoption gets global.

Meanwhile, SI shares have dropped approximately 88 percent YTD and currently have a market capitalization of about $587.9 million, according to aggregate data from MarketWatch.

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Steve Muchoki

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