Silvergate Bank, known for its support of cryptocurrencies and its provision of services to FTX, has agreed to pay $63 million to settle charges with the SEC, the Federal Reserve, and the California Department of Financial Protection and Innovation (DFPI).
Accusations and Settlements of Silvergate Bank
Silvergate Capital Corp., the parent company of Silvergate Bank, was accused of not maintaining an effective Anti-Money Laundering (AML) program and providing misleading information to the public and shareholders. Former CEO Alan Lane and former COO Kathleen Fraher have agreed to settlements, while former CFO Antonio Martino has denied the charges.
Furthermore, given the results of multiple examinations of Silvergate by the Federal Reserve, through the Federal Reserve Bank of San Francisco (FRBSF), Lane and Fraher should have known that the bank’s BSA/AML compliance program had serious deficiencies.
Financial Penalties and Bans
Silvergate has agreed to pay $43 million to the Fed and $20 million to the California regulator, which also identified deficiencies in the bank’s internal transaction management. The SEC has imposed a $50 million fine, but this amount is not expected to be added to the total penalties due to possible offsets. In addition to the fines, Lane and Fraher have accepted a five-year ban from serving as executives in public companies.
Failures in Transaction Monitoring
According to the SEC complaint, Silvergate failed to detect nearly $9 billion of suspicious transfers made by its primary client, FTX, which filed for bankruptcy in November 2022. Silvergate’s exchange network, the Silvergate Exchange Network (SEN), allowed its crypto clients to transfer funds among themselves without adequate monitoring of suspicious activities, involving approximately $1 trillion in banking transactions.
Efforts in Orderly Liquidation
Silvergate decided to voluntarily liquidate its operations in March 2023, without government assistance. By November 2023, all deposits had been refunded, and the bank had ceased operations. The announced settlements facilitate the abandonment of Silvergate’s banking charter and conclude the investigations conducted by the Fed, the DFPI, and the SEC.
The closure of Silvergate, as well as Silicon Valley Bank and Signature Bank, has caused disruptions in the US banking sector, making financial relationships more challenging for cryptocurrency companies. Silvergate, which had become the preferred financial partner in the digital asset sector, experienced a rapid ascent followed by an equally rapid descent, losing over $8 billion in deposits from its crypto clients by the end of 2022.
