Silvergate Capital Settles with SEC for $50 Million Amid Demands from Federal Reserve and California Regulators
On July 1, Silvergate Capital reached a settlement with the Securities and Exchange Commission (SEC) for $50 million as Federal Reserve governors and California financial regulators demanded $63 million in fines. The SEC alleged that Silvergate Capital, along with its subsidiary Silvergate Bank and two executives, misled investors regarding the strength of its BSA/AML compliance program and monitoring of crypto customers, including FTX exchange.
The company’s assurances were in response to claims that FTX had used Silvergate accounts for fraudulent activities. It was revealed that Silvergate’s automated monitoring system failed to oversee over $1 trillion worth of customer transactions on the Silvergate Exchange Network (SEN). The alleged misconduct occurred between November 2022 and January 2023.
As part of the settlement, former Silvergate CEO Alan Lane will pay a $1 million civil penalty, former Chief Risk Officer Kathleen Fraher will pay a $250,000 civil penalty, and both executives will face five-year bars from serving as officers or directors. Silvergate, Lane, and Fraher settled without admitting or denying the SEC’s allegations, and all settlements are subject to court approval.
The SEC also accused Silvergate’s former CFO, Antonio Martino, of misleading investors about the company’s losses from expected securities sales following FTX’s collapse. Martino, who has not settled yet, faces charges of violating federal securities laws.
In parallel actions, the Federal Reserve Board of Governors and the California Department of Financial Protection and Innovation (DFPI) announced they are seeking $63 million in fines from Silvergate. While the actions did not specifically mention FTX, they focused on Silvergate’s handling of crypto and monitoring failures.
Silvergate ceased operations in March 2023, citing investigations from the Department of Justice and delays in filing a 10-K report. The news led to a decline in Silvergate’s share price, ultimately resulting in the firm’s collapse.
Please note that all mentioned settlements and actions are currently pending court approval.
