SEC Holds Silvergate Responsible for FTX Collapse: Direct Lawsuit Filed

The Securities and Exchange Commission filed a lawsuit against Silvergate Bank. The regulator took aim at Silvergate, which officially closed and went into liquidation last year. He accused them of misleading customers and investors about the effectiveness of compliance programs, including anti-money laundering efforts.

In addition to the bank itself, the lawsuit names former CEO Alan Lane, former Chief Risk Officer Kathleen Freher, and former Chief Financial Officer Antonio Martino as defendants. In SEC court documents,

In SEC filings and other public statements, SCC, Lane and Fraher misrepresented the operational and legal risks facing the Bank by falsely stating that the Bank had an effective BSA/AML compliance program tailored to the increasing risks posed by its crypto asset customers.

Crypto-friendly bank Silvergate was sued by the SEC over alleged breaches that led to a $63 million settlement.

The SEC notes that the bank “currently involves one of its most notorious clients, FTX (the crypto asset trading platform that imploded in November 2022). It also claimed that “FTX has conducted extensive due diligence and transaction monitoring on these customers, including their respective entities.” However, the program was “inadequate”.

Silvergate staff were able to track $9 billion in transfers from FTX-related entities during the investigation, which took place less than a week after the crash. SEC lawyers, 

Most troubling to BSA staff was the trend of funds flowing from FTX's custody accounts (which hold FTX customer funds) into the accounts of a number of unattended FTX-related entities. These funds were then transferred to other third parties through the person or to accounts outside the Bank.