Silvergate settles SEC lawsuit for $50 million; Fed, California regulator demand $63 million fine

On Jul 1, 2024

Silvergate Capital settled with the SEC for $50 million as Federal Reserve governors and California financial regulators demanded $63 million in fines on July 1.

The SEC claimed Silvergate Capital, its subsidiary Silvergate Bank, and two executives misled investors about the strength of its BSA/AML compliance program and the monitoring of crypto customers, including the exchange FTX.

The company’s assurances partially aimed to refute claims that FTX used Silvergate accounts to carry out its fraud. Silvergate’s automated monitoring system supposedly failed to monitor over $1 trillion of customer transactions on Silvergate Exchange Network (SEN).

The alleged wrongdoing took place between November 2022 and January 2023

The SEC’s settlement also imposes a $1 million civil penalty on former Silvergate CEO Alan Lane, a $250,000 civil penalty on former Silvergate Chief Risk Officer Kathleen Fraher, and permanent injunctions on the companies and executives. Lane and Fraher additionally agreed to five-year officer-and-director bars.

Silvergate, Lane, and Fraher settled without admitting or denying the SEC’s allegations. All settlements are subject to court approval.

The SEC also alleged Silvergate and its former CFO, Antonio Martino, misled investors about the company’s losses from expected securities sales after FTX’s collapse. The SEC charged Martino, who has not yet settled, with violations of federal securities laws.

Fed and California DFPI actions

The Federal Reserve Board of Governors and the California Department of Financial Protection and Innovation (DFPI) announced parallel actions and are seeking $63 million in fines.

The parallel actions do not specifically mention Silvergate’s involvement with FTX but refer to Silvergate’s handling of crypto and monitoring failures.

According to each press release, Silvergate can offset the $50 million it owes to the SEC by paying the amounts in the Federal Reserve and DFPI actions.

Silvergate shut down in March 2023. The firm submitted an SEC filing stating that it faced investigations from the DOJ and intended to file a late 10-K report, preceding a drop in the price of Silvergate shares and, ultimately, the firm’s collapse.