Silvergate Capital found itself in hot water as it settled with the SEC for a hefty $50 million. This settlement was accompanied by demands from Federal Reserve governors and California financial regulators for an additional $63 million in fines, totaling a significant sum. The SEC accused Silvergate Capital, along with its subsidiary Silvergate Bank and two executives, of misleading investors regarding the strength of its BSA/AML compliance program and its monitoring of crypto customers, including the well-known exchange FTX.
The allegations against Silvergate Capital were quite serious, with the company being accused of providing false assurances to counter claims that FTX had utilized Silvergate accounts to carry out fraudulent activities. One of the most troubling revelations was the failure of Silvergate’s automated monitoring system to keep track of over $1 trillion in customer transactions on the Silvergate Exchange Network (SEN). These alleged wrongdoings occurred over a specific period, from November 2022 to January 2023.
As part of the SEC’s settlement, former Silvergate CEO Alan Lane was slapped with a $1 million civil penalty, while former Chief Risk Officer Kathleen Fraher faced a $250,000 civil penalty. Both individuals also agreed to five-year officer-and-director bars. The settlements, which included the companies and executives, did not entail an admission of guilt. However, the repercussions were significant, with permanent injunctions being imposed on the parties involved.
In addition to the SEC settlement, Silvergate Capital faced further allegations from the Federal Reserve Board of Governors and the California Department of Financial Protection and Innovation (DFPI), who sought an additional $63 million in fines. While these parallel actions did not explicitly reference Silvergate’s ties to FTX, they highlighted the company’s mishandling of crypto assets and monitoring failures. The former CFO, Antonio Martino, was charged with violations of federal securities laws in relation to misleading investors about the company’s losses stemming from expected securities sales after FTX’s collapse.
Interestingly, according to the press releases issued by the relevant authorities, Silvergate Capital could offset the $50 million owed to the SEC by paying the fines imposed by the Federal Reserve and DFPI. This interconnected web of penalties and settlements underscored the gravity of the situation for Silvergate Capital and its executives. Ultimately, the fallout from these legal entanglements led to Silvergate shutting down in March 2023.