The charges focus on the company’s Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance measures and its monitoring of high-risk cryptocurrency customers, including the defunct crypto exchange FTX.
According to the SEC's complaint, Silvergate, along with its former CEO Alan Lane and former Chief Risk Officer Kathleen Fraher, misled investors between November 2022 and January 2023 by overstating the effectiveness of their BSA/AML compliance program. The SEC alleges that Silvergate's automated transaction monitoring system failed to track over USD 1 trillion in customer transactions, raising concerns about the company's oversight capabilities, particularly about FTX, a major client. The SEC contends that these failures contributed to the company’s inability to detect nearly USD 9 billion in suspicious transfers involving FTX and its related entities, ultimately leading to significant losses in shareholder value.
The complaint further alleges that Silvergate, along with its former Chief Financial Officer Antonio Martino, downplayed the company's financial losses following FTX's collapse. It is alleged that misleading statements were made in earnings releases and calls, which inaccurately suggested that Silvergate remained financially stable and well-capitalised as of December 31, 2022. Following the liquidity crisis and subsequent banking run, Silvergate announced in March 2023 that it would cease its banking operations, resulting in a dramatic drop in the company's stock value.
The SEC has filed these charges in the U.S. District Court for the Southern District of New York, accusing Silvergate, Lane, and Fraher of negligence-based fraud and violations of various reporting, internal accounting, and record-keeping regulations. Without admitting or denying the allegations, Silvergate has agreed to a USD 50 million civil penalty and a permanent injunction, with potential offsets for penalties paid to other regulatory bodies. Lane and Fraher have also settled the charges, accepting permanent injunctions, bans from serving as officers or directors for five years, and civil penalties of USD 1 million and USD 250,000 respectively, subject to court approval.
Martino faces charges of violating antifraud and record-keeping laws, and of aiding and abetting some of Silvergate's violations. The Federal Reserve Board and the California Department of Financial Protection and Innovation have also announced concurrent settled charges against Silvergate.
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