For FTX & Alameda Ties Silvergate Under Criminal Investigation: Report

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The US Justice Department’s fraud unit has launched a criminal investigation into Silvergate Capital Corp’s connection to fallen crypto giants FTX and Alameda Research, according to a February 2nd report.

The person who was familiar with the matter claimed that the investigation is focused on Silvergate’s hosting of accounts tied to Sam Bankman-Fried’s businesses.

Silvergate, a La Jolla, California-based crypto-friendly bank, has not been accused of any wrongdoing, but the inquiry is drawing attention from lawmakers. 

The probe, which started in recent weeks, is looking into the bank’s knowledge of Bankman-Fried’s allegedly fraudulent activities that led to the downfall of the crypto exchange FTX.

Examining Silvergate’s Role in FTX Debacle

The probe delves into a crucial aspect of the FTX collapse, exploring the knowledge of banks and intermediaries associated with SBF’s companies regarding the supposed prolonged fraudulent scheme aimed at deceiving investors and clients. 

The former CEO of FTX and key associates have been charged with redirecting billions of dollars of the exchange customer assets to Alameda.

Silvergate is subject to annual exams by the Federal Reserve and independent audits and has previously stated that working with digital-currency companies can pose regulatory risks. 

However, the bank’s work with Bankman-Fried’s firms has drawn significant scrutiny from lawmakers. According to the report, a bipartisan group of senators sent a letter to the bank asking for answers on FTX’s alleged misuse of customer funds and expressing their dissatisfaction with the bank’s previous answers.

Silvergate representative stated that the bank has a comprehensive compliance and risk management program and conducted significant due diligence on SBF’s both companies. 

Additionally, Silvergate Bank is facing a lawsuit from investors alleging securities fraud due to a lack of transparency in its financial controls. 

The report also reveals that the bank’s shares experienced a 20% decline in after-hours trading, despite a 29% increase during regular market hours, as it is among several crypto-friendly banks relying on the Federal Home Loan Bank program to maintain liquidity. 

Despite a $1 billion loss in the last quarter and significant staff cuts, the bank reported $4.3 billion in Federal Home Loan Bank advances and approximately $4.6 billion in cash and cash equivalents as of the end of 2022.

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