Key Points:
Silvergate Capital will pay $63 million to settle regulatory charges over misleading disclosures and inadequate anti-money laundering practices.
The Silvergate SEC settlement includes fines, pending court approval.
Silvergate Bank decided to wind down operations in March 2023 after significant losses and a liquidity crunch following the FTX collapse.
Silvergate Capital, the parent company of the now-defunct Silvergate Bank, has agreed to pay $63 million to settle a lawsuit and accusations from the U.S. Securities and Exchange Commission (SEC), Federal Reserve Board, and California regulators.
Silvergate SEC Settlement Finalized With Regulatory Charges
The Silvergate SEC settlement addresses charges that the bank and its former executives failed to maintain a proper anti-money laundering program and made misleading disclosures about its effectiveness.
The SEC, Federal Reserve, and California Department of Financial Protection and Innovation (DFPI) alleged that Silvergate Bank misled the public and shareholders by claiming to have an effective Bank Secrecy Act/anti-money laundering program, which it did not. The charges also included accusations of insufficient tracking of internal transactions and understating losses, thereby misrepresenting the bank's financial health at the end of 2022.
As part of the Silvergate SEC settlement, the bank was fined $43 million by the Federal Reserve and $20 million by California regulators. The SEC also imposed a $50 million fine but allowed these penalties to be offset against payments to other regulators. The settlement, pending court approval, highlights the ongoing regulatory scrutiny faced by financial institutions involved in the cryptocurrency industry.
Crypto Industry Turmoil Forces Silvergate Bank to Wind Down Operations
Silvergate Bank, once a prominent player in the digital asset sector, decided to wind down operations and voluntarily liquidate in March 2023. The decision followed significant losses triggered by the collapse of FTX, a major cryptocurrency exchange.
Founded in 1998 and venturing into crypto in 2013, Silvergate Bank was one of the few traditional banks to support the burgeoning digital asset industry. The meltdown of the crypto market in late 2022 and 2023 severely impacted Silvergate, which had provided critical infrastructure for converting US dollar deposits into digital assets. The bank’s eventual sale of additional debt securities at a loss in 2023 further diminished its capital, culminating in its decision to shut down operations.
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