Recently, Silvergate Capital found itself in hot water, settling with the SEC for a hefty $50 million. This settlement came as Federal Reserve governors and California financial regulators demanded an additional $63 million in fines on the company on July 1. The SEC alleged that Silvergate Capital, along with 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.
One of the key points of contention was the claim that Silvergate’s automated monitoring system failed to keep track of over $1 trillion worth of customer transactions on the Silvergate Exchange Network (SEN). This alleged wrongdoing took place over a period between November 2022 and January 2023. As a result, the SEC’s settlement not only included a $1 million civil penalty on former Silvergate CEO Alan Lane and a $250,000 civil penalty on former Silvergate Chief Risk Officer Kathleen Fraher, but also permanent injunctions on the companies and executives. Furthermore, Lane and Fraher agreed to five-year officer-and-director bars as part of the settlement.
In addition to the allegations against Lane and Fraher, the SEC also charged Silvergate’s former CFO, Antonio Martino, with violations of federal securities laws. Unlike Lane and Fraher, Martino has not yet settled with the SEC. Meanwhile, the Federal Reserve Board of Governors and the California Department of Financial Protection and Innovation (DFPI) announced parallel actions against Silvergate and are seeking a combined $63 million in fines. While the parallel actions did not explicitly mention Silvergate’s involvement with FTX, they did focus on the company’s handling of crypto and its monitoring failures.
Settlement Terms and Closure
According to the press releases from each regulatory body, Silvergate has the opportunity to offset the $50 million owed to the SEC by paying the fines imposed by the Federal Reserve and DFPI. Ultimately, these legal challenges proved to be too much for Silvergate to handle, leading to its shutdown in March 2023. The fallout from the settlement and the subsequent fines serves as a stark reminder of the importance of transparency and regulatory compliance in the financial sector.
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