Silvergate Capital Declares Bankruptcy, Finalizing Its Crypto-Driven Collapse

Silvergate Capital has filed for bankruptcy to close
its operations, marking the final chapter for the parent company of Silvergate
Bank, Reuters reported. The La Jolla-based institution shut down operations
earlier in 2023 following a crippling run on deposits caused by the chaos in
the digital asset market.

Bankruptcy and Liquidation

Silvergate is set to use its remaining $163 million to
settle with creditors. The bank’s deposits rose from $1.8 billion in
2019 to $14.3 billion by 2021, with over half of these deposits coming from
digital asset exchange customers.

However, this rapid expansion came with its risks. The
collapse of major crypto players like FTX in 2022 caused massive withdrawals
from the bank, over $8 billion, forcing it to sell long-term securities
at a loss to meet customer demands.

Silvergate Capital had no choice but to file for
bankruptcy in Wilmington, Delaware, aiming to complete its liquidation. The
remaining cash, approximately $163 million, will reportedly be distributed
among bondholders and preferred equity holders.

According to the bankruptcy filings, bondholders owed
$18 million are expected to be repaid in full. Silvergate maintains that it
didn’t fail in the traditional sense, pointing out that all customer deposits
were returned, leaving no burden on the Federal Deposit Insurance Corporation.

Market Volatility and Regulatory Scrutiny

The downfall of Silvergate wasn’t solely due to market
volatility. The bank also faced intense scrutiny from regulators following the
2022 crypto collapse. In 2023, Silvergate agreed to pay $63 million to settle
investigations by the Federal Reserve, California’s bank regulator, and the
U.S. Securities and Exchange Commission (SEC).

The probes found that the bank had deficiencies in its
monitoring of anti-money laundering compliance and that it, along with its
executives, had made misleading statements. These legal battles compounded
Silvergate’s financial troubles, making it harder for the bank to recover.

In July, Finance Magnates reported that Silvergate
Capital and its top former executives agreed to pay a total of $63 million as
penalties to settle charges brought by federal and California regulators
alleging internal management and disclosure failures. The allegation also
included dealing with the now-collapsed crypto exchange FTX.

California’s Department of Financial Protection &
Innovation imposed a civil penalty of $20 million against the company, while
the Federal Reserve Board fined the firm $43 million. Besides that, the SEC
imposed a $50 million fine, which was reportedly offset by other penalties.

This article was written by Jared Kirui at www.financemagnates.com.
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