Silvergate Capital Corporation, the parent company of the Silvergate crypto-friendly bank that collapsed in 2023, has agreed to pay $63 million to settle charges brought by US and California regulators. Silvergate Capital will pay $43 million to the Federal Reserve and $20 million to the California Department of Financial Protection and Innovation (DFPI).
Law enforcement agencies like the SEC and the Commodity Futures Trading Commission (CFTC) have long enforced action against crypto companies and crypto-friendly traditional firms for various offenses related to misrepresentation or misleading clients. On one hand, many have criticized the enforcement action applied to the crypto crackdown. On the other hand, crypto enthusiasts advise that members of the community only patronize crypto platforms that are in good standing with authorities to avoid problems. These crypto firms may include exchanges, retailers, merchants, payment platforms, or crypto casinos like those listed on bitcoincasinos.ltd. The casinos offer players the chance to play exciting casino games like roulette or blackjack while enjoying the security and privacy of blockchain technology through cryptocurrencies.
The US SEC had sued Silvergate in a federal court in early July, accusing the company of securities fraud. The Commission also named former CEO Alan Lane, former CFO Antonio Martino, and former COO Kathleen Fraher. According to the accusation, Silvergate used a “fraudulent scheme” to deceive its investors into believing it had anti-money laundering (AML) and bank secrecy compliance programs in place. In addition, Silvergate also reportedly misrepresented company health as it was in a “dire financial condition.” The SEC says the parent company actively misled its investors from November 2022 to January 2023.
Reportedly, Silvergate’s team received a notice from government examiners that its compliance measures were inadequate. However, the company’s quarterly and annual reporting (10-Q and 10-K forms) stated that no risk factors were present.
According to Gurbir S. Grewal, the SEC’s Division of Enforcement Director, public companies must be truthful to their investors. Grewal said that instead of informing investors about “serious deficiencies” in their compliance programs following the collapse of FTX, one of Silvergate’s largest banking customers, the company “doubled down” and continued to mislead investors.
“In fact, because of those deficiencies, Silvergate allegedly failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities. Silvergate’s stock eventually cratered, wiping out billions in market value for investors,” Grewal added.
Silvergate Bank officially collapsed last year following several problems, including a bank run that saw customers withdraw over $42 billion. The collapse of Silvergate and Signature, two major crypto-friendly banks, sent shivers around the crypto sector, especially following the FTX collapse.
An SEC’s press release states that Silvergate agreed to a $50 million civil penalty and a permanent injunction. In addition, Lane and Fraher also agreed to civil penalties of $1 million and $250,000 respectively, in addition to permanent injunctions. While all settlements are subject to court approval, the SEC notes that Silvergate’s payment “may be offset” by penalties the company pays to the DFPI and/or the Board of Governors of the Federal Reserve System.
The action is one of many indictments levied at crypto-focused firms for violating compliance laws. Authorities have cracked down on several firms and projects in the past, across several industries. In other cases, investors have banded together to take legal action against suspicious projects, such as the ZKasino case that accused the crypto gambling firm of perpetrating an exit scam.
