Silvergate Bank settles charges with the Federal Reserve, the SEC, and the California Department of Financial Protection and Innovation: details of the $63 million agreement.
Silvergate Bank, a financial institution operating in the digital asset sector, has agreed to a $63 million settlement to close several federal and state investigations conducted by the Federal Reserve, the SEC, and the California Department of Financial Protection and Innovation (DFPI).
The investigations revealed deficiencies in the bank’s anti-money laundering (AML) and know-your-customer (KYC) protocols. These issues were particularly evident in the management of risks associated with clients dealing in cryptocurrencies. The SEC accused Silvergate Bank and its former executives of providing misleading information to investors about the bank’s compliance mechanisms and financial health. The Federal Reserve and the DFPI supported the same accusations made by the SEC, highlighting problems such as the bank’s ability to identify suspicious transactions through its automated monitoring system.
In the official statement, Gurbir Grewal, head of the SEC’s enforcement unit, stated:
“Because of those deficiencies, Silvergate allegedly failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities.”
Details of the settlement
The agreement includes a $43 million fine from the Federal Reserve and a $20 million penalty from California’s DFPI. The SEC’s imposed penalty amounts to $50 million, which will be offset by Silvergate’s payments to the DFPI and the Federal Reserve Board. Essentially, the payments Silvergate will make to the DFPI ($20 million) and the Federal Reserve ($43 million) will be considered as if they were also paid to the SEC.
Former CEO Alan Lane and former COO Kathleen Fraher have agreed to settle the charges with the SEC without admitting or denying the allegations, with penalties of $1 million and $250,000, respectively. In contrast, former CFO Antonio Martino intends to contest the allegations of underreporting losses and misrepresenting the bank’s capital status in court, asserting the soundness of his actions during his tenure.
Silvergate Bank’s problems began to surface after the collapse of the cryptocurrency exchange FTX, one of its major clients. The failure of FTX prompted broader investigations into the bank’s operations, leading to its closure. In February 2023, the Department of Justice (DOJ) initiated an investigation into Silvergate’s dealings with FTX and its affiliate, Alameda Research. In March 2023, Silvergate’s holding company announced the voluntary liquidation of the bank.
