Silvergate Financial institution, once a cornerstone of the crypto monetary world till its collapse in early 2023, defrauded its buyers by mendacity about its anti-money laundering controls and deceptive buyers about how the fallout from the FTX collapse would have an effect on it, the Securities and Change Fee says in a lawsuit. Additionally named within the go well with had been the corporate’s chief govt officer, chief threat officer, and chief monetary officer.
Silvergate Bank didn’t adequately monitor $1 trillion in crypto transactions, SEC says
Silvergate agreed to pay $50 million to settle the fees, with out admitting or denying the allegations, the SEC said in a statement. CEO Alan Lane and CRO Kathleen Fraher additionally settled for $1 million and $250,000 every.
Silvergate stated it had an efficient anti-money laundering (AML) program tailor-made particularly to crypto however truly didn’t adequately monitor “roughly $1 trillion” in transactions, the grievance says. Silvergate additionally didn’t discover “almost $9 billion in suspicious transfers” by FTX entities.
FTX was amongst Silvergate’s largest clients, the SEC says. Days after the crypto exchange declared bankruptcy, the bank run that would ultimately kill Silvergate had begun. Lane, conscious of social media chatter about Silvergate, requested the financial institution to evaluate its relationship with FTX. That evaluate discovered greater than 300 suspicious transactions in 2022. These suspicious transfers totaled nearly $9 billion, the SEC grievance says.
At that time, Silvergate’s chief monetary officer Antonio Martino “engaged in a fraudulent scheme to mislead buyers concerning the Financial institution’s dire monetary situation,” the SEC alleges. Martino knew the financial institution had borrowed billions, which it must repay in January and February 2023. The one approach that might occur can be by promoting securities, however Martino permitted an earnings launch that “falsely acknowledged the Financial institution anticipated to promote solely $1.7 billion in securities in the course of the First Quarter of 2023, of which it had already bought $1.5 billion.”
That earnings launch understated Silvergate’s losses from its securities gross sales, the SEC grievance alleges. Martino additionally lied on the financial institution’s quarterly earnings name, in keeping with the grievance.
Martino “categorically denies” these allegations, stated Rachel Katz, a spokeswoman for Martino’s legislation agency Linklaters, in an emailed assertion. “Mr. Martino acted fairly and in good religion all through his time at Silvergate. He denies any wrongdoing and intends to problem the SEC’s claims in court docket,” Martino’s legal professional, Adam Lurie, stated within the assertion.
On the coronary heart of the SEC’s allegations is the community Silvergate ran to permit crypto clients to transact in any respect hours, known as SEN. This was utilized by, amongst others, stablecoin issuers reminiscent of Circle, Paxos, and Gemini. Although Silvergate stated SEN was protected, the SEC says the community wasn’t being routinely monitored for suspicious transactions for “a minimum of 15 months previous to November 2022.”
What’s extra, on a number of events in 2022, the financial institution’s authorities examiners made it clear to the C-suite that Silvergate’s program for compliance with the Financial institution Secrecy Act was insufficient.
The earnings assertion for the primary quarter of 2023 wasn’t the one one alleged to include fraud. In November 2022, the corporate instructed to buyers that it had a “state-of-the-art” compliance program. In actuality, the SEC says there was no automated monitoring for a number of months earlier than that earnings assertion was launched.
Replace, July 1st: Added Linklater’s assertion, SEC press launch, and settlement particulars.
