Silvergate Bank under investigation by the US DOJ

Tuesday 7 February 2023 08:48 CET | News

The US Department of Justice has reportedly started an investigation into US-based crypto-friendly Silvergate Bank due to its connection to FTX.


According to citing a report by Bloomberg, the DOJ is looking closely at the bank’s dealings with FTX as it still tries to unravel the FTX debacle. It’s worth noting that Silvergate Bank has not been accused of any wrongdoing, and that the investigation is still in its early stages. Furthermore, people familiar with the matter reported that the investigation started weeks ago. 

As soon as the Bloomberg report came out, Silvergate shares experienced a high degree of volatility, rising at first and then dropping by as much as 18.26%. The bank had issued a previous announcement in which it expressed that it had little exposure to FTX through Genesis. 

In January 2023, US-based crypto lender Genesis has filed for Chapter 11 bankruptcy protection in New York following major losses in June 2022. Genesis is another company in the cryptocurrency industry to file for bankruptcy in the wake of the high-profile FTX bankruptcy filing in November 2022. The filings submitted by the company estimate that it has between USD 1 billion and USD 10 billion in assets and between USD 1 billion and USD 10 billion in liabilities.


The US Department of Justice has reportedly started an investigation into US-based crypto-friendly Silvergate Bank due to its connection to FTX.


Silvergate Bank’s relation with FTX

Silvergate took a hard hit when FTX suddenly imploded in November 2022. The bank reported a USD 1 billion loss last quarter and had to let go of 40% of its staff. The bank also revealed that it took out billions of dollars in loans to stave off a run-on deposit after Bankman-Fried’s exchange collapsed. According to Silvergate, Alameda, the sister company of FTX, opened an account with the bank in 2018.  

The bank’s representatives also stated that they are reviewing transactions involving accounts associated with FTX and Alameda and that the bank conducted due diligence on the firms during the onboarding process and through ongoing monitoring. To be specific, a Silvergate official said that the firm has a comprehensive compliance and risk management program and did significant due diligence on both FTX and Alameda Research. 

In early January, Silvergate also disclosed that it held USD 4.3 billion in short-term Federal Home Loan Bank advances and had about USD 4.6 billion cash and cash equivalents at the end of 2022. According to Bloomberg, Silvergate was one of the multiple crypto-friendly banks that used the program originally set up under President Herbert Hoover to strengthen mortgage lending.  

The investigation from the US Department of Justice primarily aims to find out what banks and intermediaries working with Bankman-Fried’s firms know about what was going on at FTX, particularly when it comes to defrauding investors and customers. 

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Keywords: compliance, banks, cryptocurrency, digital assets
Categories: DeFi & Crypto & Web3
Companies: Silvergate Bank
Countries: United States
This article is part of category

DeFi & Crypto & Web3

Silvergate Bank

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