Mathieu
SILVERGATE BANK AND ITS EXECUTIVES SETTLE SEC LAWSUIT
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SILVERGATE BANK, formely an important player in the crypto financial world, faced a downfall in early 2023. The Securities and Exchange Commission (SEC) accused the bank of deceiving investors by providing false information about its anti-money laundering measures and the impact of the FTX collapse. The lawsuit also named the company’s CEO, CRO, and CFO.
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The SEC revealed that Silvergate agreed to pay $50 million to settle the charges, while CEO Alan Lane and CRO Kathleen Fraher settled for $1 million and $250,000 respectively. The SEC stated that Silvergate claimed to have a robust anti-money laundering program tailored for cryptocurrencies but failed to monitor around $1 trillion in transactions and missed nearly $9 billion in suspicious transfers by FTX entities.
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FTX, one of Silvergate’s major clients, declared bankruptcy, triggering a bank run that ultimately led to Silvergate’s demise. The SEC disclosed that Lane requested a review of the relationship with FTX after social media speculation, which uncovered over 300 suspicious transactions totaling almost $9 billion in 2022.
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The SEC alleged that Silvergate’s CFO, Antonio Martino, engaged in fraudulent activities by misleading investors about the bank’s financial state, despite knowing about billions in borrowings due for repayment in early 2023. Martino approved false earnings releases, understating losses and providing misleading information on quarterly earnings calls.
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Martino’s attorney denied these allegations, stating that his client acted in good faith. However, the SEC pointed out that Silvergate’s SEN network, utilized by stablecoin issuers like Circle, Paxos, and Gemini, lacked automatic monitoring for suspicious transactions for at least 15 months before November 2022. Additionally, government examiners highlighted Silvergate’s inadequate compliance with the Bank Secrecy Act.
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In addition, the SEC revealed that investors were misled about the effectiveness of Silvergate’s compliance program, as there was no automatic monitoring in place for several months before the release of the earnings statement in November 2022.
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UPDATE, July 1st: We have added a statement from Linklaters, details of the SEC press release, and settlement information.
Sources:
– Securities and Exchange Commission (SEC) press release
– Statement from Linklaters
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