SEC files lawsuit against FTX-linked bank, alleging fraud

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The United States Securities and Exchange Commission (SEC) has filed a lawsuit against Silvergate Capital Corporation, the parent company behind a crypto-friendly bank that allegedly helped facilitate fraud at defunct exchange FTX.

In a July 1 filing in the U.S. District Court for the Southern District of New York, the SEC alleged that Silvergate, former CEO Alan Lane, and former Chief Risk Officer Kathleen Fraher misled investors regarding the strength of its Bank Secrecy Act/Anti-Money Laundering compliance program and the “monitoring of crypto customers” like FTX.

The regulator also charged former Silvergate Chief Financial Officer Antonio Martino with “misleading investors about the company’s losses from expected securities sales following FTX’s collapse.” All parties, except Martino, have agreed to settle with the SEC.

“The allegations made by the SEC are unfounded and irresponsible, and I look forward to presenting my case in court and clearing my name,” said Martino, according to a statement to Cointelegraph provided by his attorneys at law firm Linklaters.

According to SEC enforcement director Gurbir Grewal, Silvergate allegedly “failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities,” leading to massive losses for investors. He alleged the firm and its executives “doubled down” on misleading investors following FTX’s collapse from November 2022 to January 2023.

Source: U.S. Securities and Exchange Commission

The SEC said Silvergate had agreed to pay a $50 million civil penalty “without admitting or denying the allegations,” while Lane and Fraher agreed to pay $1 million and $250,000, respectively. The settlements will be subject to court approval. The commission’s enforcement action came i parallel to a settlement between Silvergate and the Board of Governors of the Federal Reserve System and the California Department of Financial Protection and Innovation.

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Silvergate voluntarily liquidated in March 2023 after several crypto firms announced they intended to cut ties to the bank, alleging links to FTX. Crypto exchange FTX collapsed and filed for bankruptcy in November 2022, resulting in criminal charges against several executives, including former CEO Sam Bankman-Fried, currently serving a 25-year sentence in federal prison.

The complaint stated that under Bankman-Fried, FTX had “directed customers to wire money to Alameda’s account with Silvergate in exchange for assets” on the crypto exchange. The former CEO also provided a testimonial for the crypto-friendly bank’s website, claiming it “revolutionized banking for blockchain companies.”

The SEC action also followed a judge signing off on a class-action lawsuit filed by FTX users against Silvergate, alleging that the bank had been aware of fraudulent activity at the crypto exchange. The company has denied the allegations.

On June 27 and 28, the U.S. Supreme Court released two opinions that could affect how the SEC handles crypto enforcement cases. One opinion held that defendants in SEC civil cases concerning securities fraud are entitled to a jury trial.

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