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Silvergate Bank Neglected To Sufficiently Monitor $1 Trillion In Crypto Transactions, Says SEC

By Eric George


Reviewed by: Eric George


Silvergate Bank

The long pending fight between the Securities Exchange Commission and Silvergate Bank finally came to a conclusion today. In this article, we will look at the details of the case and answer the following questions.

What were the accusations against Silvergate Bank, why were they targeted by the SEC and what was the verdict of the case

Let us find out the answers to all these questions in the following sections.

Accusations against Silvergate Bank

The Silvergate Bank was at one point one of the leading crypto-friendly banks in the market. The Bank which closed down its operations towards the end of last year was sued by the SEC following charges of Misinformation and misconduct against the bank among several other accusations.

According to the statement by the SEC, the bank was accused of failing to detect nearly $9 billion in the form of suspicious transfers conducted by FTX and its related entities.

The charges were also made against the former executives of Silvergate Bank including the Former CEO Alan Lane, Former COO Kathleen Fraher, and former CFO Antonio Martino.

The US Securities and Exchange Commission (SEC) sued the parent company of SIlvergate Bank, Silvergate Capital for lying and misleading its investors about having a functioning Bank Secrecy Act/anti-money laundering program while not having one.

The SEC further accused the Bank of failing to monitor suspicious transaction activities worth approximately $1 trillion carried on on their Silvergate Exchange Network (SEN) alongside the neglect of nearly $9 billion in suspicious transactions carried out by FTX.

The now-defunct FTX was at the time one of the major clients of the Silvergate Bank and their transaction history with the bank was said to be one of the major highlights for the case that has been currently charged against the bank.

The Silvergate Bank had in one way become an accomplice to the fraudulent activities that were carried out by FTX through this client-service provider relationship.

Concerning the $1 trillion worth of transactions that were unmonitored, this took place in their SEN platform which the bank launched in 2017.

Silvergate Bank and Securities And Exchange Commission (SEC)

The Silvergate Exchange Network (SEN) was found to have serious flaws in its BSA/AML compliance program and was not subjected to automated monitoring during the 15 months between 2021 and 2022.

It was also pointed out by the SEC in their report that Silvergate had previously received a word of caution from government examiners saying that their efforts to monitor the transactions were not adequate but this statement was apparently ignored by the Bank.

The SEC wasn’t the only authority which the bank had problems with, other financial institutions such as The Federal Reserve and California’s Department of Financial Protection and Innovation (DFPi) also brought similar charges against the Bank.

As per the charges brought against Silvergate, the Federal Reserve had imposed a fine of $43 million and California’s Department of Financial Protection and Innovation (DFPi) had given them a fine amounting to $20 million.

Aftermath of the Verdict

Silvergate agreed to pay a fine of $50 million while both Alan Lane, Former CEO of the Bank, and Kathleen Fraher, Former COO of the bank agreed to settle for $1 million and $250,000 each without admitting to or denying the accusations.

Concerning similar accusations, the former CFO Antonio Martino has not agreed to settle for any accusations yet.

In a statement released by Martino, he denied the allegations by saying that the accusations are tied to a single quarter in 2022 and pertained to judgment-driven decisions.

As the later conclusion to these accusations, the total penalty of $113 million has been finalized to be settled by the bank to end the case that has been put up against them.

The $113 million consisted of the 50 million that the SEC had imposed on them along with the $43 million from the Fed and the $20 million from the California regulators.

With the announcement of settlement today, the bank will be officially off the investigation by the Federal Reserve, SEC, and DFPI.

Final Thoughts

The case of Silvergate Bank and the accusations that it faced from major regulators should bring everyone’s attention to the interconnectedness and interlinking nature that many financial institutions have with regard to each other.

The already settled case of FTX has been one of the reasons for one of the accusations against the Silvergate Bank.

This teaches us about how important it is to choose trustworthy clients and services in the market to avoid further problems such as the ones faced by Silvergate Bank.

Eric George

Eric George, a retired journalist, focused primarily on market research and current tech trends. With a career spanning news media, he made significant contributions to understanding the intersection of technology and finance. Today, he continues to engage with these topics in various capacities

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