July 15, 2024

Silvergate Capital Corp. Settles for $63 Million Over Regulatory Accusations


Silvergate Capital Corp., the parent company of the crypto-friendly Silvergate Bank, has agreed to pay $63 million to settle accusations from U.S. and California regulators regarding internal management failings and the dissemination of misleading information to investors. This settlement comes after the bank’s collapse in 2023, which exacerbated the ongoing banking crisis within the cryptocurrency industry.

The U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Silvergate Capital Corporation, its former CEO Alan Lane, former COO Kathleen Fraher, and former CFO Antonio Martino. The SEC alleges that Silvergate misled the public and shareholders by falsely claiming to have an effective Bank Secrecy Act (BSA)/anti-money laundering (AML) program. The Federal Reserve and California’s Department of Financial Protection and Innovation (DFPI) also brought charges against the La Jolla, California-based lender.

As part of the settlement, Silvergate, Lane, and Fraher agreed to pay penalties without admitting or denying the SEC’s allegations. Lane and Fraher also agreed to a five-year ban from serving as officers or directors of any public company. Silvergate settled with both the Federal Reserve and the DFPI, agreeing to pay $43 million to the Fed and $20 million to the California regulator for deficiencies in tracking internal transactions. The SEC imposed a $50 million fine, which may be offset by the amounts paid to the banking regulators. These settlements are pending court approval.

Martino, the former CFO, denied the allegations, stating through his attorneys that the accusations pertain to “judgement-driven” decisions tied to a single quarter in 2022.

The SEC’s complaint indicated that Silvergate failed to detect nearly $9 billion worth of suspicious transfers by major customer FTX, which declared bankruptcy in November 2022. The complaint also highlighted that Silvergate had not conducted appropriate automated monitoring of its Silvergate Exchange Network (SEN) during most of 2021 and 2022. SEN, designed to facilitate fund transfers among the bank’s crypto asset customers, failed to adequately monitor approximately $1 trillion in banking transactions for suspicious activity.

Despite being informed by government examiners of the inadequacies in its BSA/AML compliance program, Silvergate did not disclose these issues in its quarterly or annual reporting forms (10-Q and 10-K). A 2021 quarterly filing acknowledged a “heightened risk” due to some of its crypto customers but did not disclose specific deficiencies linked to its BSA compliance.

A spokesperson for Silvergate told CoinDesk that the settlements are part of the bank’s ongoing efforts to wind down its operations. “In early March 2023, Silvergate made a responsible decision to liquidate voluntarily and without government assistance. As of November 2023, all deposits had been repaid to banking customers, and Silvergate ceased banking operations soon after. The settlements announced today, which will facilitate the surrender of Silvergate’s bank charter, are part of the Bank’s continued orderly wind down and successfully conclude investigations by the Federal Reserve, DFPI, and SEC,” the spokesperson said.

Silvergate’s settlement marks a significant chapter in the ongoing regulatory scrutiny of the cryptocurrency industry, underscoring the challenges faced by financial institutions operating in the rapidly evolving sector.

Digital Assets Desk

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