Silvergate Bank, once a prominent crypto-friendly financial institution, has agreed to a $63 million settlement to resolve multiple federal and state investigations.
This resolution marks a significant chapter in the bank’s ongoing efforts to wind down operations following the collapse of the crypto exchange FTX.
Inside the Investigations: How Silvergate’s Lapses Led to Major Fines
The settlement addresses claims from the Federal Reserve, the Securities and Exchange Commission (SEC), and the California Department of Financial Protection and Innovation (DFPI). The penalties resolve allegations of misleading investors about the bank’s compliance programs and financial stability.
On Monday, the Federal Reserve announced that Silvergate would pay a $43 million fine. The California DFPI imposed a $20 million penalty, while the SEC’s portion of the settlement amounted to $50 million. Payments to other regulators offset some of these penalties.
Read more: Top Crypto Bankruptcies: What You Need To Know
The SEC charged Silvergate, its former CEO Alan Lane, and former COO Kathleen Fraher with misleading investors about the bank’s compliance programs and financial health. Additionally, the SEC accused the bank and its former CFO, Antonio Martino, of underreporting losses and misrepresenting its capital status at the end of 2022.
The Federal Reserve, SEC, and DFPI launched comprehensive investigations of Silvergate. They uncovered numerous deficiencies in the bank’s anti-money laundering (AML) and know-your-customer (KYC) protocols.
The Federal Reserve’s investigation also revealed that Silvergate’s compliance program was insufficient to handle the risks associated with its crypto clients. Silvergate Exchange Network (SEN), the bank’s automated monitoring system, failed to flag suspicious transfers.
“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. In fact, because of those deficiencies, Silvergate allegedly failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities. Silvergate’s stock eventually cratered, wiping out billions in market value for investors,” Gurbir Grewal, Director of the SEC’s Division of Enforcement, said.
Former executives Alan Lane and Kathleen Fraher agreed to settle the SEC’s charges without admitting or denying the allegations. They will pay penalties of $1 million and $250,000, respectively, and face five-year officer-and-director bars.
Antonio Martino, however, plans to challenge the SEC’s claims in court. His attorney, Adam Lurie of Linklaters, stated that Martino acted reasonably and in good faith during his tenure at Silvergate.
Silvergate Bank, headquartered in La Jolla, California, was a significant player in the crypto market. It used to provide crucial financial services to digital asset companies. However, the downfall of the FTX triggered a series of investigations into Silvergate’s practices and its involvement with FTX.
In February 2023, BeInCrypto reported that the Department of Justice (DOJ) investigated Silvergate for its dealings with FTX and Alameda Research—FTX’s sister company. By March 2023, the situation escalated, with Silvergate’s holding company voluntarily liquidating Silvergate Bank.
Read more: FTX Collapse Explained: How Sam Bankman-Fried’s Empire Fell
To oversee this process smoothly, the DFPI and the Federal Reserve Board issued a joint cease-and-desist order in May 2023. This was part of a broader strategy to ensure Silvergate Bank’s orderly dissolution. During this process, it was mandated to keep all financial activity records for a seven-year period.
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