Silvergate to pay $63m in penalties to settle with US regulators

California-based Silvergate Capital Corporation, owner of the now shuttered crypto-focused bank Silvergate Bank, has agreed to pay a combined $63 million in penalties after entering a consent order with US federal and state regulators relating to alleged “deficiencies” in its internal transaction monitoring.

Silvergate agrees to pay $63 million in combined penalties

The $63 million settlement covers penalties imposed by the Federal Reserve, the California Department of Financial Protection and Innovation (DFPI), and the US Securities and Exchange Commission (SEC).

Silvergate is set to pay $43 million to the Federal Reserve Board and $20 million to the DFBI. It has also received a $50 million civil penalty from the SEC, which according to the DFBI, will be “offset by Silvergate’s payments to the DFPI and the Federal Reserve Board”.

In a lawsuit on Monday, the SEC charged Silvergate, its former CEO Alan Lane, and former Chief Risk Officer Kathleen Fraher with “misleading investors about the strength of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program and the monitoring of crypto customers, including FTX, by Silvergate’s wholly owned subsidiary, Silvergate Bank”.

In a press release, the SEC says it also charged “Silvergate and its former Chief Financial Officer, Antonio Martino, with misleading investors about the company’s losses from expected securities sales following FTX’s collapse”.

“All parties charged, aside from Martino, have agreed to settle the SEC’s charges,” the regulator says.

In comments made to the Financial Times, Martino says “the allegations made by the SEC are unfounded and irresponsible”.

In its press release, the SEC writes: “Without admitting or denying the allegations, Silvergate agreed to a final judgment ordering it to pay a $50 million civil penalty and imposing a permanent injunction to settle the charges. Lane and Fraher also settled the charges without admitting or denying the allegations, agreeing to permanent injunctions, five-year officer-and-director bars, and civil penalties of $1 million and $250,000 respectively.”

Silvergate Bank pivoted to become a cryptocurrency-focused bank in 2019 after operating as a real estate lender since 1988. Silvergate announced in March 2023 that it would wind down operations and liquidate the bank. This decision came “in light of recent industry and regulatory developments” following the downfall of its largest customer, the crypto exchange FTX.

“At all times, but especially during moments of crises, public companies and their officers must speak truthfully to the investing public. Here, we allege that Silvergate, Lane and Fraher fell not only woefully, but also fraudulently, short in that regard,” says Gurbir S. Grewal, director of the SEC’s Division of Enforcement.

Grewal continues: “Rather than coming clean to investors about serious deficiencies in its compliance programs in the wake of the collapse of FTX, one of Silvergate’s largest banking customers, they doubled down in a way that misled investors about the soundness of the programs. In fact, because of those deficiencies, Silvergate allegedly failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities. Silvergate’s stock eventually cratered, wiping out billions in market value for investors.”