Crypto-Friendly Bank Fined $63m

Silvergate Capital Corporation, the parent company of a crypto-friendly bank, has agreed to pay $63 million to settle charges by US and California regulators for misleading investors.

The US Securities and Exchange Commission (SEC) fined Silvergate $43 million, while California’s Department of Financial Protection imposed a $20 million penalty on the company.

The bank launched the Silvergate Exchange Network in 2017, which enabled US dollar transfers between major crypto trading firms and investors.

The SEC charged Silvergate’s former CEO Alan Lane and former chief risk officer Kathleen Fraher with misleading investors about the strength of its Bank Secrecy Act/Anti-Money Laundering program.

According to the SEC’s complaint, they led investors to believe Silvergate had an effective compliance program and conducted ongoing monitoring of its high-risk crypto customers, including FTX.

However, Silvergate’s automated transaction monitoring system failed to monitor more than $1 trillion of transactions by its customers on the Silvergate Exchange Network.

The SEC also charged Silvergate and its former chief financial officer Antonio Martino with misleading investors about the company’s losses from expected securities sales following the collapse of FTX.

The SEC’s complaint alleges that Silvergate and Martino misrepresented the company’s financial distress during a liquidity crisis and bank run triggered by FTX’s collapse.

Gurbir Grewal, director of the SEC’s division of enforcement, said:  “Rather than coming clean to investors about serious deficiencies in its compliance programs in the wake of the collapse of FTX, one of Silvergate’s largest banking customers, they doubled down in a way that misled investors about the soundness of the programs.”

All parties charged, aside from Martino, have agreed to settle the SEC’s charges without admitting or denying the allegations.