TLDR
- Silvergate Capital Corp. has agreed to pay $63 million to settle charges with U.S. and California regulators
- The SEC sued Silvergate and former executives for misleading investors about its anti-money laundering program
- Silvergate allegedly failed to detect $9 billion in suspicious transfers by FTX
- Former CEO Alan Lane and former COO Kathleen Fraher settled, while former CFO Antonio Martino denied the charges
- The bank voluntarily liquidated in March 2023 following the crypto industry’s downturn
Silvergate Capital Corp., the parent company of the now-defunct crypto-friendly Silvergate Bank, has agreed to pay $63 million to settle charges brought by U.S. and California regulators.
The settlement addresses allegations of internal management failures and misleading disclosures to investors about the effectiveness of its anti-money laundering program.
The U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Silvergate Capital Corporation and its former executives, including CEO Alan Lane, COO Kathleen Fraher, and CFO Antonio Martino. The SEC accused the bank of misleading the public and shareholders about having an effective Bank Secrecy Act/anti-money laundering (BSA/AML) program when it did not.
According to the SEC’s complaint, Silvergate failed to detect nearly $9 billion worth of suspicious transfers by its major customer FTX, the crypto exchange that filed for bankruptcy in November 2022.
The regulators allege that for most of 2021 and 2022, the bank did not conduct appropriate automated monitoring of its Silvergate Exchange Network (SEN), a key product for crypto asset customers to transfer funds.
The Federal Reserve and California’s Department of Financial Protection and Innovation (DFPI) brought similar charges against the La Jolla, California-based lender. Silvergate’s penalties include $43 million from the Fed and $20 million from the California regulator. The SEC imposed its own $50 million fine, which may be offset by payments to the banking regulators.
Silvergate, Lane, and Fraher agreed to settlements where they neither admit to nor deny the SEC’s allegations.
However, they will pay penalties, and the two former executives agreed to a five-year ban on being officers or directors of another public company. Martino, the former CFO, has denied the allegations through his attorneys.
The SEC’s complaint reveals that Lane and Fraher were allegedly aware of serious deficiencies in the bank’s BSA/AML compliance program on several occasions prior to November 2022. Despite receiving word from government examiners that its efforts were inadequate, Silvergate still claimed there were no risk factors in its quarterly or annual reporting.
Silvergate’s rapid rise from a small community bank to the digital assets sector’s leading financial partner was followed by an even faster descent. The bank voluntarily folded under the pressure of the crypto sector’s downturn in March 2023, making it the first of three technology-tied lenders to be shuttered during that period’s “crypto winter.”
The loss of Silvergate and two other banks (Silicon Valley Bank and Signature Bank) triggered months of U.S. banking turmoil and left digital asset companies struggling to find financial relationships as crypto fell further out of favor.
A Silvergate spokesperson stated that the settlements are part of the bank’s ongoing efforts to wind down. The bank had already repaid all deposits to banking customers by November 2023 and ceased banking operations soon after.
