The United States Securities and Exchange Commission (SEC) has initiated legal action against Silvergate Capital Corporation, the parent company of a crypto-friendly bank accused of facilitating fraud at the now-defunct exchange FTX.
In a filing dated July 1 in the U.S. District Court for the Southern District of New York, the SEC alleged that Silvergate, along with former CEO Alan Lane and former Chief Risk Officer Kathleen Fraher, deceived investors about the robustness of its Bank Secrecy Act/Anti-Money Laundering compliance program and its oversight of crypto customers such as FTX. Additionally, former Silvergate Chief Financial Officer Antonio Martino was charged with misleading investors regarding the company’s losses stemming from expected securities sales after FTX collapsed. All involved parties, except Martino, have agreed to settle with the SEC.
Martino rebutted the SEC’s claims, stating, “The allegations made by the SEC are baseless and reckless, and I eagerly anticipate the opportunity to defend myself in court and clear my name,” as conveyed by his legal representatives at Linklaters to Cointelegraph.
According to Gurbir Grewal, the SEC’s enforcement director, Silvergate allegedly failed to detect nearly $9 billion in suspicious transfers involving FTX and its affiliated entities, resulting in significant investor losses. Grewal asserted that Silvergate and its executives exacerbated the issue by continuing to mislead investors following FTX’s collapse from November 2022 to January 2023.
In parallel with the SEC’s enforcement action, Silvergate agreed to pay a $50 million civil penalty “without admitting or denying the allegations,” while Lane and Fraher consented to pay $1 million and $250,000 respectively, subject to court approval. Concurrently, Silvergate reached a settlement with the Board of Governors of the Federal Reserve System and the California Department of Financial Protection and Innovation.
Silvergate voluntarily liquidated in March 2023 after several crypto firms announced plans to sever ties with the bank, citing connections to FTX. FTX had filed for bankruptcy in November 2022, leading to criminal charges against multiple executives, including former CEO Sam Bankman-Fried, who is currently serving a federal prison sentence.
The SEC complaint detailed that under Bankman-Fried’s leadership, FTX directed customers to wire funds to Alameda’s account at Silvergate in exchange for assets on the exchange. Bankman-Fried had also endorsed the crypto-friendly bank on its website, praising its transformative impact on banking for blockchain companies.
The SEC’s action followed a judge’s approval of a class-action lawsuit filed by FTX users against Silvergate, alleging that the bank was aware of fraudulent activities at the crypto exchange, a claim Silvergate has refuted.
Coinciding with these developments, the U.S. Supreme Court issued two opinions on June 27 and 28 potentially influencing how the SEC handles enforcement cases involving cryptocurrencies. One opinion affirmed that defendants in SEC civil cases related to securities fraud are entitled to a jury trial.
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