Silvergate Bank didn’t adequately monitor $1 trillion in crypto transactions, SEC says

Silvergate Bank, once a cornerstone of the crypto financial world until its collapse in early 2023, defrauded its investors by lying about its anti-money laundering controls and misleading investors about how the fallout from the FTX collapse would affect it, the Securities and Exchange Commission says in a lawsuit. Also named in the suit were the company’s chief executive officer, chief risk officer, and chief financial officer.

Silvergate said it had an effective anti-money laundering (AML) program tailored specifically to crypto but actually didn’t adequately monitor “approximately $1 trillion” in transactions, the complaint says. Silvergate also didn’t notice “nearly $9 billion in suspicious transfers” by FTX entities.

When FTX collapsed, the crypto industry panicked, leading to a run on Silvergate and a liquidity crisis. At that point, Silvergate’s chief financial officer Antonio Martino “engaged in a fraudulent scheme to mislead investors about the Bank’s dire financial condition,” the SEC alleges. Martino knew the bank had borrowed billions, which it would have to repay in January and February 2023. The only way that could happen would be by selling securities, but Martino approved an earnings release that “falsely stated the Bank expected to sell only $1.7 billion in securities during the First Quarter of 2023, of which it had already sold $1.5 billion.”

That earnings release understated Silvergate’s losses from its securities sales, the SEC complaint alleges. Martino also lied on the bank’s quarterly earnings call, according to the complaint.