The United States Securities and Exchange Commission (SEC) has initiated legal action against Silvergate Capital Corporation, the firm behind the crypto-friendly Silvergate Bank.

According to a July 1 filing, the SEC alleges that Silvergate, along with its former CEO Alan Lane and former Chief Risk Officer Kathleen Fraher, misled investors about its Bank Secrecy Act/Anti-Money Laundering compliance program and the “monitoring” of its clients, including FTX.

SEC enforcement director Gurbir Grewal stated that Silvergate failed to detect “$9 billion in suspicious transfers among FTX and its related entities.” He added that the bank and its executives allegedly continued to mislead investors even after FTX’s collapse. These actions reportedly resulted in significant losses for investors.

Following FTX’s bankruptcy filing, Silvergate opted for voluntary liquidation in March 2023. This decision was influenced by several of the bank’s clients, like Coinbase and Gemini, severing ties due to Silvergate’s connections with FTX.

At the time, U.S. senators Elizabeth Warren, Roger Marshall, and John Kennedy claimed in a letter to Silvergate that FTX had “directed customers to wire money to Alameda’s account with Silvergate in exchange for assets” on FTX. Former FTX CEO Sam Bankman-Fried had also admitted that FTX did not have an account with Silvergate and that funds were “improperly transferred to Alameda’s bank accounts.”

Silvergate CEO and top execs to depart amid bank’s wind-down

Bankman-Fried is currently serving a 25-year sentence in federal prison. As of now, the filing states that Silvergate has agreed to pay a $50 million civil penalty without admitting or denying the allegations.

Lane also settled a $1 million fine, and Fraher agreed to pay $250,000. These settlements are subject to court approval. Additionally, the SEC has charged Silvergate Chief Financial Officer Antonio Martino for “misleading” investors about the firm’s “losses from expected securities sales following FTX’s collapse.”

Martino is also accused of violating the “antifraud and books-and-records provisions of the federal securities laws” and “aiding” Silvergate in some of its violations. However, Martino has not settled with the SEC and argues that the SEC’s allegations are “unfounded and irresponsible.” According to his legal team, he will pursue legal action to clear his name.

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