Silvergate Capital settled with the SEC for $50 million after Federal Reserve governors and California financial regulators demanded $63 million in fines on July 1.
The SEC alleged that Silvergate Capital, its subsidiary Silvergate Bank, and two executives misled investors about the strength of its BSA/AML compliance program and monitoring of crypto clients, including the exchange FTX.
The company’s assurances were intended in part to refute claims that FTX used Silvergate accounts to carry out fraud. Silvergate’s automated monitoring system allegedly failed to monitor more than $1 trillion in customer transactions on the Silvergate Exchange Network (SEN).
The alleged abuse took place between November 2022 and January 2023
The SEC 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 also agreed to a five-year suspension for officers and directors.
Silvergate, Lane and Fraher settled without admitting or denying the SEC’s allegations. All settlements are subject to court approval.
The SEC also alleged that Silvergate and its former CFO, Antonio Martino, misled investors about the company’s losses from expected securities sales after FTX’s collapse. The SEC has charged Martino, who has yet to settle, with violations of federal securities laws.
Actions by the Fed and California DFPI
The Federal Reserve Board of Governors and the California Department of Financial Protection and Innovation (DFPI) have announced parallel actions seeking $63 million in fines.
The parallel actions do not specifically mention Silvergate’s involvement with FTX, but refer to Silvergate’s handling of cryptocurrencies and monitoring failures.
According to each press release, Silvergate can offset the $50 million it owes to the SEC by paying the amounts resulting from the actions of the Federal Reserve and the DFPI.
Silvergate closed in March 2023. The company filed an SEC filing saying it was facing DOJ investigations and planned to file a late 10-K report, ahead of a decline in the price of Silvergate stock and eventual collapse from the company.