Silvergate Capital recently settled with the SEC for $50 million, while also facing demands from Federal Reserve governors and California financial regulators for an additional $63 million in fines. The SEC’s claims against Silvergate Capital, its subsidiary Silvergate Bank, and two executives center around allegations of misleading investors regarding 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 is Silvergate’s automated monitoring system, which reportedly failed to monitor over $1 trillion of customer transactions on the Silvergate Exchange Network (SEN). This failure occurred between November 2022 and January 2023, leading to concerns about the company’s compliance with regulations and potential involvement in fraudulent activities related to FTX.
The SEC settlement includes a $1 million civil penalty for former Silvergate CEO Alan Lane, a $250,000 civil penalty for former Silvergate Chief Risk Officer Kathleen Fraher, and permanent injunctions on both the companies and executives involved. In addition, Lane and Fraher agreed to five-year officer-and-director bars as part of the settlement terms. It is worth noting that all parties settled without admitting or denying the allegations brought forth by the SEC, pending court approval.
Apart from the SEC settlement, Silvergate and its former CFO, Antonio Martino, are also facing allegations of misleading investors about the company’s losses from expected securities sales following FTX’s collapse. Martino, who has not yet reached a settlement with the SEC, is charged with violations of federal securities laws. Furthermore, the Federal Reserve Board of Governors and the California Department of Financial Protection and Innovation (DFPI) have announced parallel actions seeking an additional $63 million in fines. These actions do not explicitly mention Silvergate’s involvement with FTX but focus on the company’s handling of crypto and monitoring failures.
The aftermath of Silvergate Capital’s settlement with the SEC and the subsequent demands from regulatory authorities highlight the complexities and consequences of inadequate compliance measures in the financial industry. The case serves as a stark reminder of the importance of transparency, accountability, and robust monitoring systems to maintain trust and integrity in the financial sector. As Silvergate faces significant penalties and scrutiny, the industry as a whole is reminded of the need for stringent regulatory compliance and ethical practices to safeguard investors and uphold market integrity.
