Silvergate, the bank brought down by FTX's bankruptcy, settles with Federal Reserve, SEC for $63 million in fines

1. The U.S. Securities and Exchange Commission (SEC) sued Silvergate Capital, the parent company of failed crypto-friendly bank Silvergate Bank, accusing it of misleading investors that the bank had an effective Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance regulations plan.

2. Silvergate executives, including former chief executive Alan Lane, former chief operating officer Kathleen Fraher and former chief financial officer Antonio Martino, are also among the defendants. The Federal Reserve (Fed) and the California Department of Financial Protection and Innovation (DFPI) also filed charges against Silvergate Bank.
3. In today’s statement, the SEC alleged that Silvergate’s automated transaction monitoring system failed to monitor more than $1 trillion in customer transactions on the bank’s Silvergate Exchange Network (SEN).
4. “After the collapse of one of Silvergate’s largest banking clients, FTX, instead of being honest with investors about the serious flaws in their compliance program, they doubled down on their [crypto business] and misled investors about the soundness of their program. In fact. , due to these flaws, Silvergate failed to detect nearly $9 billion in suspicious transfers between FTX and its related entities. Silvergate’s stock ultimately plummeted, costing investors billions of dollars in market value.”
5. Silvergate agreed to pay $6,300. $10,000 Penalty Settlement
6. The SEC said Silvergate, Lane and Fraher agreed to a settlement. They neither admitted nor denied the SEC's charges. Silvergate also reached a settlement with the Federal Reserve and DFPI.
7. Silvergate’s fines include a $43 million fine from the Federal Reserve and a $20 million fine from California regulator DEPI. The SEC also imposed a $50 million fine, but the total fine is expected to remain at $63 million, as the SEC stated in a statement China said any fines Silvergate pays to banking regulators may be offset by the SEC's fines. The settlement agreement still must be approved by the court.
8. Lane and Fraher also agreed to pay fines of $1 million and $250,000, respectively, in exchange for the settlement. Former CFO Martino did not agree to the settlement, denied the charges against him, and will go to court to fight the SEC.
9. The SEC alleges that Silvergate and Martino misrepresented the company’s bleak financial position during the liquidity crisis and bank runs that followed FTX’s collapse, falsely claiming in earnings reports and earnings calls that it would remain well-capitalized as of the end of 2022.
10. Silvergate Settlement Resolves U.S. Regulatory Investigation
11. Silvergate Bank was once one of the very few crypto-friendly banks in the U.S. It launched SEN, an instant payments system, in 2017, allowing most cryptocurrency companies and investors to invest in major cryptocurrencies Currency trading companies transfer dollars between companies, becoming the bank of choice for many crypto companies.
12. However, after the FTX thunderstorm in November 2022, Silvergate experienced a run of up to US$8.1 billion in the fourth quarter, and its stock price continued to plummet. In early March last year, it was reported that the bank was investigated by judicial agencies, and a shutdown crisis broke out. After shutting down the SEN network, it subsequently announced the closure of its banking business and voluntary liquidation of assets, becoming one of the banks that went bankrupt in the wave of bank failures that started with Silicon Valley Bank in March last year.
13. In response to Monday’s settlement, Silvergate said in its latest statement: “The settlement announced today will facilitate the relinquishment of Silvergate’s banking license as part of the bank’s ongoing orderly winddown and the successful conclusion of the Fed, DFPI and SEC investigation. "
14. The bank added that it made the responsible decision to liquidate voluntarily without government assistance in 2023 and that all deposits have been repaid to bank customers.

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