Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Defunct California bank Silvergate will pay $63mn to settle civil charges brought by federal and state regulators tied to the bank’s collapse in the wake of the massive fraud that brought down crypto exchange FTX.
The $63mn includes penalties assessed by the US Securities and Exchange Commission, the Federal Reserve and the California Department of Financial Protection and Innovation.
The SEC in a lawsuit on Monday said Silvergate and three executives had deceived investors about its legal compliance and monitoring of clients, including FTX.
“At all times, but especially during moments of crises, public companies and their officers must speak truthfully to the investing public,” Gurbir Grewal, the director of the SEC’s enforcement division, said in a statement.
Grewal said the bank and two executives, former chief executive Alan Lane and former chief risk officer Kathleen Fraher “fell not only woefully, but also fraudulently, short in that regard”. The bank and the two executives settled the SEC charges without admitting or denying the allegations.
Silvergate paid $20mn to the DFPI and $43mn to the Fed, and a separate $50mn settlement with the SEC will be offset by those payments, according to DFPI. Lane settled with the SEC for $1mn and Fraher $250,000.
Silvergate and a third executive were also sued by the SEC for allegedly defrauding investors by overstating the financial health of Silvergate in the wake of FTX’s collapse.
The third executive, former chief financial officer Antonio Martino, through his attorney, said he planned to fight the allegations.
Silvergate was a tiny real estate lender with three branches in southern California for most of its 30-year history, but embarked on a rapid growth strategy to become the largest cryptocurrency bank in the US in 2019. By 2021, it was a crucial bank behind Sam Bankman-Fried’s crypto empire, with deposits surging from $2bn to more than $10bn during that time.
Silvergate announced it was shutting down in March 2023 citing “industry and regulatory developments”. Customers had withdrawn about $8bn of deposits after FTX, its largest customer, imploded and sparked a collapse in the price of cryptocurrencies.
The SEC’s complaint said Silvergate “failed to adequately monitor for suspicious activity approximately $1trn in banking transactions” on its Silvergate Exchange Network, a product that allowed crypto investors to make real-time instant transfers with platforms such as FTX far more easily and quicker than at other banks.
“The bank also failed to detect nearly $9bn in suspicious transfers by FTX and its related entities,” it added. FTX filed for bankruptcy in November 2022. Bankman-Fried was convicted of criminal charges including fraud and sentenced to 25 years in prison.
Lane, who had been chief executive since 2008 and masterminded Silvergate’s move into the crypto economy, and Fraher “misrepresented the operational and legal risks facing the bank”, the complaint said.
The SEC said Martino “engaged in a fraudulent scheme to mislead investors about the bank’s dire financial condition”. It claimed he approved statements to the market that downplayed the high volume of securities the bank needed to sell to repay billions of dollars of debt amid the liquidity crisis.
Silvergate and Alan Lane could not be reached for comment. Fraher, through a lawyer, declined to comment.
Martino denied the allegations against him. He said: “The allegations made by the SEC are unfounded and irresponsible, and I look forward to presenting my case in court and clearing my name.”
