After the investigative scrutiny by the US DoJ, Silvergate Capital has 72.57% of the stocks shorted in the US market representing extreme bearish sentiment.
Following the collapse of crypto exchange FTX, crypto bank Silvergate Capital has come under regulators’ radar over its previous involvement with the troubled crypto exchange.
Crypto Bank Silvergate Capital’s Stock
As per the Short Interest Reporting, Silvergate Capital (NYSE: SI) is the second-most shorted stock in the United States, with over 72.57% of the stocks shorted. Such heavy shorts position indicates that the investor sentiment for the SI stock is very bearish. short sellers profit from the price decline of security.
The Financial Industry Regulatory Authority (FINRA) collects data and publishes it twice a month short interest positions of all equity securities.
Amid the crypto market crash last year 2022, the SI stock has already faced huge selling. Over the last year, the SI stock is down by more than 85%. The collapse of FTX and Alameda Research further added to the woes of Silvergate Capital.
Last week, the US Department of Justice (DoJ) launched an investigation into Silvergate Capital over its dealing with FTX. The regulators are scrutinizing the hosting of accounts to FTX founder Sam Bankman-Fried. However, this inquiry is quite in its earliest stage and the likelihood of any charges on the crypto bank is very less as of now.
In the current probe, the prosecutors will be looking out for Silvergate’s involvement in the allegedly extended fraud scheme by FTX to defraud investors.
Silvergate Capital Mounting Challenges
Amid the broader market correction followed by the FTX collapse, crypto bank Silvergate Capital continues to face mounting challenges. Last month, the bank reported a $1 billion net loss in its 2022 fourth-quarter results.
As per the report from the US Securities and Exchange Commission (SEC), Silvergate Capital witnessed massive outflows during the fourth quarter. This forced the company to seek wholesale funding and sell debt securities in order to maintain liquidity.
In order to mitigate the effects of a surge in withdrawals, Silvergate Capital reportedly borrowed $3.6 billion from the US Federal Home Loan Banks System.
Crypto bank Silvergate Capital is also facing lawsuits in the US for aiding FTX in fraudulent activities. This includes lending and comingling user’s funds. Some shareholders of Silvergate Capital claim that the crypto bank violated the 1934 Securities Exchange Act.
Reacting to the bank’s situation, Moody’s Investors Service downgraded ratings of Silvergate Capital to “junk”.
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