In a recent lawsuit, the Securities and Exchange Commission (SEC) alleges that Silvergate Bank, which was once a prominent player in the crypto financial world, deceived its investors by providing false information about its anti-money laundering controls and misrepresenting the potential impact of the FTX collapse.
These alleged actions resulted in significant financial losses for the bank's investors. The company's chief executive officer, chief risk officer, and chief financial officer were also included in the lawsuit.
Silvergate Bank to Settle SEC Lawsuit
Silvergate has reached a settlement agreement with the SEC, agreeing to pay $50 million. The company neither admitted nor denied the allegations made against them, as stated in the SEC's official statement.
CEO Alan Lane and CRO Kathleen Fraher have also agreed to settle for $1 million and $250,000 respectively.
According to Bloomberg, a federal court in Manhattan received a lawsuit from the SEC against the bank, citing "securities fraud" as the cause, as stated in a docket entry on Monday (July 1).
Amidst the rise of the digital-asset industry, Silvergate, a traditional bank, found itself entangled in the crypto industry's downturn in late 2022 and 2023.
The lender gained recognition for its operation of a payments system that provided a unique opportunity for investors and digital asset companies to convert US dollar deposits into digital assets.
According to the SEC, FTX was one of the biggest clients of Silvergate. Following the declaration of bankruptcy by the crypto exchange, Silvergate faced a bank run that would ultimately lead to its demise.
Lane, cognizant of the online discussions surrounding Silvergate, requested that the bank conduct a thorough evaluation of its association with FTX.
A review conducted in 2022 uncovered over 300 transactions that raised suspicions. According to the SEC complaint, the transfers in question amounted to nearly $9 billion.
According to the SEC, Silvergate's chief financial officer, Antonio Martino, is accused of participating in a fraudulent scheme to deceive investors regarding the Bank's precarious financial situation.
Martino was aware that the bank had taken out a massive loan, which would need to be repaid in early 2023. It seems that the only way this could have occurred is through the sale of securities.
However, Martino gave the green light to an earnings release that inaccurately claimed the Bank anticipated selling just $1.7 billion in securities during the First Quarter of 2023, despite already having sold $1.5 billion.
Silvergate Bank CFO Accused of Providing False Information
The SEC complaint alleges that the earnings release failed to accurately reflect the losses incurred by Silvergate from its securities sales. According to the complaint, Martino allegedly made false statements during the bank's quarterly earnings call.
Rachel Katz, a spokeswoman for Martino's law firm Linklaters, stated in an email that Martino "categorically denies" these allegations.
In the center of the SEC's allegations lies the network Silvergate operated to enable cryptocurrency customers to conduct transactions around the clock, known as SEN.
Several stablecoin issuers, including Circle, Paxos, and Gemini, utilized this. Despite Silvergate's assurance of SEN's safety, the SEC has revealed that the network lacked automatic monitoring for suspicious transactions for a period of at least 15 months before Novermber 2022, The Verge reported.
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