The Securities and Exchange Commission (SEC) has charged Silvergate Bank, once a major player in the cryptocurrency financial sector, for defrauding its investors.
The bank is accused of misleading investors about its anti-money laundering controls and the potential impact of the collapse of FTX on its operations. This lawsuit also implicates Silvergate’s CEO, CRO, and CFO as defendants.
How Silvergate Bank Settled For $50 Million
As part of the resolution, Silvergate Bank has agreed to a $50 million settlement without admitting or denying SEC’s allegations. Additionally, CEO Alan Lane and CRO Kathleen Fraher have settled for $1 million and $250,000, respectively.
According to SEC, Silvergate failed to properly monitor about $1 trillion in transactions and ignored nearly $9 billion in suspicious transfers by FTX entities.
The downfall of Silvergate Bank was significantly triggered by the bankruptcy of FTX, one of its largest customers. The bankruptcy led to a bank run, causing major financial distress for Silvergate.
See Also: The SEC Confirms Smooth Approval Process for Ethereum ETF
Following social media discussions about Silvergate, CEO Lane initiated a review of the bank’s relationship with FTX. This review uncovered over 300 suspicious transactions in 2022, totaling nearly $9 billion.
The SEC has also accused Silvergate’s CFO, Antonio Martino, of engaging in a fraudulent scheme to mislead investors about the bank’s financial status.
Martino allegedly knew that the bank had borrowed billions that were due for repayment in early 2023. Despite this, he approved an earnings release that falsely stated the bank intended to sell only $1.7 billion in securities during the first quarter of 2023.
Martino’s attorney has denied these allegations, stating that his client acted reasonably and in good faith throughout his tenure at Silvergate.
The SEC’s allegations extend to the Silvergate Exchange Network (SEN), which allowed crypto customers to transact at all times.
Despite Silvergate’s claims of SEN’s security, the SEC asserts that the network was not automatically monitored for suspicious transactions for at least 15 months prior to November 2022.
In 2022, US government examiners repeatedly notified Silvergate that its compliance program with the Bank Secrecy Act was inadequate.
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