Yesterday’s press release from the U.S. Securities and Exchange Commission (SEC) stated that the agency accused crypto-friendly bank Silvergate and its former CEO and former chief risk officer of monitoring nearly $9 billion in suspicious financial flows between the collapsed exchange FTX and its related entities. Dereliction of duty in dealings, directly promoting and participating in the exchange’s fraudulent activities.

(Federal Reserve examiner says encryption business was the main reason for the collapse of Silvergate Bank)

SEC had filed suit against Silvergate

Documents submitted to the District Court of the Southern District of New York yesterday (1) showed that the SEC accused Silvergate, its former CEO Alan Lane and former chief risk officer Kathleen Fraher of failing to implement adequate measures to monitor the records of customers transferring funds, including FTX, and violated The Bank Secrecy Act and the Anti-Money Laundering Compliance Program (BSA/AML) were adopted.

The SEC said the two even made false statements to investors regarding this matter, misleading them:

From November 2022 to January 2023, Silvergate, Lane and Fraher misled investors by stating that the bank had an effective BSA/AML compliance program and, to a certain extent, that its high-risk cryptocurrency clients, including FTX, Continuous monitoring was conducted.

It added, "In fact, Silvergate's automated transaction monitoring system failed to monitor more than $9 billion in customer transactions on its own bank payment platform, Silvergate Exchange Network (SEN)."

In addition, Silvergate’s former CFO Antonio Martino was accused of deliberately distorting and downplaying the company’s financial crisis after FTX’s collapse:

Martino, in the company's earnings releases and meetings, underestimated its expected losses on securities sales and misled investors into believing that Silvergate remained well capitalized.

SEC Enforcement Director:

In this regard, SEC Enforcement Director Gurbir Grewal also expressed strong condemnation, emphasizing that listed companies and their executives must face investors and the public honestly in times of crisis:

Rather than being honest with investors about the serious flaws in their compliance programs, especially after the collapse of FTX, one of Silvergate's largest banking customers, they instead doubled down on their efforts to mislead investors about the adequacy of those programs.

It added, "In fact, because of these misdirections, Silvergate failed to detect FTX's concerns, and the company's stock plummeted, wiping out billions of investors' funds."

Silvergate settles with SEC, no direct response

Currently, Silvergate, Lane and Fraher have all reached settlements with the SEC, paying civil penalties of US$50 million, US$1 million, and US$250,000 respectively to them. However, they have still not expressed "admission or denial" to the relevant charges.

Among them, only Martino refused to reach a settlement with the SEC and clarified through his law firm Linklaters:

The SEC's charges are baseless and irresponsible, and I look forward to presenting my case in court and clearing my name.

The settlement agreement is still pending court approval, and settlement of litigation between Silvergate and the Federal Reserve (Fed) and the California Department of Financial Protection and Innovation is also ongoing.

The fall of Silvergate

At the end of 2022, FTX filed for bankruptcy, multiple executives were indicted for fraud, and Silvergate's customers faced a run on their deposits.

Until March last year, the United States saw the collapse of three banks in just one month, and Silvergate was one of them. Different places voluntarily applied for liquidation.

(The Federal Reserve orders Silvergate to liquidate within a limited time! A review of the life of crypto-friendly bank Silvergate)

A few months ago, a federal judge in San Diego approved a class-action lawsuit filed by FTX users against Silvergate, saying it was aware of FTX's fraudulent practices but unfairly and unlawfully benefited from them at the expense of FTX users.

This article Crypto-friendly bank Silvergate was accused of fraud by the SEC: knowingly knowing that FTX had abnormal cash flows of up to US$9 billion first appeared on Chain News ABMedia.