SEC Files Lawsuit Against Silvergate Capital Over FTX-Linked Fraud Allegations

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The United States Securities and Exchange Commission (SEC) has filed a lawsuit against Silvergate Capital Corporation, the parent company of a crypto-related bank, which was alleged to have a fraudulent connection with FTX.
The lawsuit, filed on July 1 in the U.S. District Court for the Southern District of New York, indicted the company and several of its former top executives.

SEC’s Silvergate Capital Allegations and Charges

According to the SEC’s complaint, Silvergate’s former CEO Alan Lane and former Chief Risk Officer Kathleen Fraher allegedly misled investors about the legitimacy of Silvergate’s Bank Secrecy Act and Anti-Money Laundering (AML) compliance program about FTX.

SEC enforcement director Gurbir Grewal stated that Silvergate “failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities,” resulting in significant investor losses.

The regulatory body also charged former Silvergate Chief Financial Officer Antonio Martino for “misleading investors about the company’s losses from expected securities sales following FTX’s collapse.”

However, the trio of Silvergate, its CEO Alan Lane, and Fraher have agreed to settle with the SEC without admitting or denying the allegations.

The proposed settlements, subject to court approval, include financial penalties, which see Silvergate agreeing to pay a $50 million civil penalty. In comparison, Lane and Fraher have agreed to pay $1 million and $250,000, respectively.

Unlike his former colleagues, Antonio Martino has not agreed to a settlement while planning to contest the charges brought against him.

“The allegations made by the SEC are unfounded and irresponsible, and I look forward to presenting my case in court and clearing my name,” Martino declared.

Background on Silvergate and FTX Case

This lawsuit follows Silvergate’s voluntary liquidation in March 2023, after several crypto firms announced they would cut ties with the bank due to its alleged links to FTX.

The crypto exchange FTX, once a major player in the industry, collapsed and filed for bankruptcy in November 2022, leading to criminal charges against several executives, including former CEO Sam Bankman-Fried (SBF) and his parents, who refuted SEC’s allegations brought against them.

SBF is currently serving a 25-year sentence in federal prison.

The SEC’s complaint provides insight into the alleged relationship between Silvergate and FTX, stating that under Bankman-Fried’s leadership, FTX had “directed customers to wire money to Alameda’s account with Silvergate in exchange for assets” on the crypto exchange.

Bankman-Fried had even provided a testimonial for Silvergate’s website, claiming it “revolutionized banking for blockchain companies.”

This legal action by the SEC also follows a recent development in which a judge approved a class-action lawsuit filed by FTX users against Silvergate.

The lawsuit alleges that the bank was aware of fraudulent activity at the crypto exchange, a claim that Silvergate has denied.

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Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.