SEC Sues Silvergate Capital over Alleged Aiding of Crypto Exchange Fraud
Summary:
The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Silvergate Capital Corporation, accusing it of aiding fraudulent activities that led to the downfall of the FTX crypto exchange. The former CFO of Silvergate, Antonio Martino, is contesting the charges, claiming they are baseless. Silvergate has agreed to pay a $50m fine with former CEO Alan Lane and ex-Chief Risk Officer Kathleen Fraher agreeing to pay substantial amounts too, despite denying the allegations. The lawsuit follows the voluntary liquidation of Silvergate after it was abandoned by several crypto firms over alleged ties to FTX.
In a legal action initiated by the U.S. Securities and Exchange Commission (SEC), Silvergate Capital Corporation, a key player in the cryptocurrency-friendly banking sector, has been accused of abetting fraudulent activities that led to the demise of the FTX exchange. The SEC lodged the complaint on July 1 at the U.S. District Court for the Southern District of New York, arguing that Silvergate, in conjunction with its previous CEO Alan Lane and ex-Chief Risk Officer Kathleen Fraher, intentionally obscured the truth from shareholders regarding the resilience of its compliance regime against money laundering and covert banking practices, as well as its oversight of "crypto clients" such as FTX. The SEC additionally indicted Antonio Martino, Silvergate's former CFO, for allegedly presenting a false picture of the company's financial health post FTX's demise. However, Martino is contesting the charges.
Martino, in asserting his innocence, told Cointelegraph via a statement from his legal representatives at Linklaters, "The charges leveled by the SEC are baseless and reckless, and I am confident that my name will be cleared once my defense is presented in court."
The SEC's enforcement director, Gurbir Grewal, alleges that Silvergate overlooked nearly $9 billion in suspicious transactions involving FTX and its associated organizations, resulting in colossal damage to its investors. He further accused the company and its management of heightening investor misguidance subsequent to the collapse of FTX, which transpired between November 2022 and January 2023.
Despite disputing the allegations, Silvergate has agreed to pay a $50 million fine, while Lane and Fraher will pay $1 million and $250,000 respectively, pending court approval. This enforcement action coincides with an agreement brokered between Silvergate, the Federal Reserve Board of Governors, and the California Department of Financial Protection and Innovation.
In March 2023, Silvergate began voluntary liquidation after several cryptocurrency firms declared their intentions to cut ties with the bank, citing association with FTX. FTX, the cryptocurrency exchange, went bankrupt in November 2022 and consequently, various officials, including then-CEO Sam Bankman-Fried, faced criminal charges. Bankman-Fried is currently serving a 25-year sentence in federal prison.
According to allegations, under Bankman-Fried’s stewardship, FTX instructed customers to transfer money to Alameda’s account with Silvergate in return for assets on the cryptocurrency exchange. Also, Bankman-Fried had praised the bank on its website, saying it had "revolutionized banking for blockchain businesses."
In response to the class-action lawsuit levied by FTX users against Silvergate, a judge gave approval, suspecting that the bank was aware of the fraudulent activities of the crypto exchange. This charge, however, has been denied by the company.
The U.S. Supreme Court recently released two judgments, on June 27 and 28, which could potentially impact how the SEC manages future crypto-related cases. One such ruling allows defendants facing SEC civil lawsuits regarding securities fraud to demand a jury trial.
Published At
7/2/2024 12:34:42 AM
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