Silvergate Bank to Face Class-Action Suit over Alleged FTX Fraud Involvement
Summary:
Silvergate Bank is set to face a class-action lawsuit from FTX users who allege the bankrupt bank participated in fraudulent activities associated with FTX and Alameda Research. This follows the rejection of the bank's dismissal motion by Federal Judge Ruth Bermudez Montenegro in San Diego. The bank's annual income surged from $7.6 million to $75.5 million after it began banking the exchange. The lawsuit was green-lighted more than a year after its original filing, following the combined class actions against Silvergate.
FTX users have been given the go-ahead for a class-action lawsuit against Silvergate Bank. The suit alleges that the now-dissolved bank was complicit in fraud happening at FTX and the associated trading company, Alameda Research. This news comes after Silvergate Bank's dismissal motion was rejected on March 20 by Judge Ruth Bermudez Montenegro in a San Diego federal court. The Judge concluded that the plaintiffs sufficiently argued that Silvergate was not only aware of the fraudulent activities at FTX, but also profited from it, thereby unjustly enriching itself at the detriment of the FTX clientele. The bank insists these accusations are baseless.
Montenegro found that Silvergate was responsible for looking after the interests of FTX customers. It emphasized that the Silvergate Exchange Network, meant to facilitate money transfer to crypto exchanges, was set up primarily to benefit FTX users and that the existence of a crypto exchange like FTX would have been nearly unachievable prior to this system.
She detailed that both FTX and Alameda were clients of Silvergate, which completed transfers and authorized deposits which funneled FTX client money to Alameda. "The bank played a major role with FTX's trading platform and app; hence it was very motivated to sustain executing transfers and accepting deposits from FTX and Alameda's customers,” Montenegro pointed out.
The ruling stated that the risk of fraud and loss to client funds was foreseeable with the allowance of deposits into non-FTX accounts. Silvergate profited from translation fees and interest on accounts related to FTX. The adjudicator highlighted that Silvergate's yearly income hiked from $7.6 million before FTX to $75.5 million afterward.
Silvergate stood firm on its stance that it held no responsibility for the FTX clients' inability to withdraw their funds and claimed that not accepting FTX’s transactions would only have led to the exchange finding a different bank. They argued that the complaints brought forward were not relevant to their business dealings and the financial problems of FTX and its co-founder Sam Bankman-Fried were to blame. They disputed this claim, calling it pure speculation because very few banks were willing to work with the crypto industry at the time.
Three separate class actions filed against Silvergate in February 2023 were consolidated in April. Silvergate collapsed in March 2023, only months after FTX declared bankruptcy in November 2022. The court ruled in favour of the class-action lawsuit, over a year after it was initially filed.
Bankman-Fried was convicted last November on seven charges related to various instances of fraud and money laundering. His sentence will be delivered on March 28.
Published At
3/22/2024 10:01:54 AM
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