Crypto Bank Silvergate Reaches $63 Million Settlement With SEC

• Silvergate ‘missed’ $9 billion in suspicious transactions linked to FTX.
• The crypto-friendly bank allegedly failed to monitor over $1 trillion of customer transactions.
• Silvergate CFO Antonio Martino denies any wrongdoing and will continue to challenge the SEC in court.

Without admission or denial of guilt, defunct crypto-friendly Silvergate Bank has settled with U.S. authorities following its collapse in 2023.

Having agreed to pay a $63 penalty for allegations of financial mismanagement and deceiving investors, the lawsuit against FTX collapse-linked bank will now come to a close.

Silvergate Settles Charges

In a July 1, 2024 press release , the U.S. Securities and Exchange Commission (SEC) announced that Silvergate Bank, its former CEO Alan Lane, and former Chie Risk Officer LLathleen Fraher, have agreed to settle the SEC’s charges.

https://twitter.com/silvergatebank/status/1807916718913700244

Silvergate will pay $20 million to the Department of Financial Protection and Innovation (DFPI), and $43 million to the Fed. A separate $50 million settlement with the SEC will be offset by these payments.

CEO Lane and CRO Fraher will pay the SEC $1 million and $250k, respectively. Former Chief Financial Officer (CFO) Antonio Martino intends to fight the allegations.

Failures and Frauds

The SEC’s complaint alleges that Lane and Fraher had misled investors following their claims that Silvergate Bank had adequate monitoring and anti-money laundering systems.

According to the SEC, Silvergate’s automated systems missed more than “$1 trillion of transactions” made by customers on the Silvergate Exchange Network. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement stated:

“At all times, but especially during moments of crises, public companies and their officers must speak truthfully to the investing public. Here, we allege that Silvergate, Lane and Fraher fell not only woefully, but also fraudulently, short in that regard,”

Following the collapse of FTX, one of Silvergate’s main clients, the bank “doubled down” on the prowess and integrity of its compliance programs, and downplayed the impact it would have. Grewal explains that those very same deficiencies caused  Silvergate to ‘miss’ $9 billion in suspicious transfers “among FTX and its related entities”.

It’s also alleged that Silbergate and Martino understated losses in a Q4 2022 earnings call amid the liquidity crisis caused by FTX. Just three months later in March 2023, Silvergate announced it would be shuttering operations.

A company statement issued July 1, 2024, the settlement will also see Silvergate surrender its bank charter. It also confirmed that all deposits had been repaid to banking customers following its collapse.

Not Over Yet

The SEC charged Martino with violating antifraud and recordkeeping provisions within federal securities laws, including aiding and abetting Silvergate.

Notably, Martino is the person who reported the banks’ soundness to investors on the January 2023 earnings call. In the original complaint, the SEC also alleges that Martino falsified bank statements and “failed to devise and maintain important accounting controls”.

In an emailed statement, Martino refuted the SEC’s claims, arguing that the allegations revolve around a highly subjective business judgment. According to Martino’s attorney, Adam Lurie, Martino “acted responsibly” throughout his time at Silvergate, and denies any wrongdoing.