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Silvergate Bank has been charged by the Securities and Exchange Commission (SEC) for misleading investors regarding the effectiveness of its Anti-Money Laundering (AML) compliance program.
The SEC has charged three former executives: former CEO Alan Lane, former Chief Risk Officer Kathleen Fraher, and former Chief Financial Officer Antonio Martino. All parties, with the exception of Martino, have agreed to settle the SEC’s charges.
According to the SEC’s complaint, between November 2022 and January 2023, Silvergate executives falsely assured investors that the bank maintained an effective compliance program and continuously monitored high-risk crypto customers, such as FTX, which filed for bankruptcy in 2022.
These statements were part of an effort to counter public speculation that FTX had used Silvergate accounts to facilitate its misconduct.
In March, it emerged that FTX users were suing the now-defunct Silvergate, claiming the bank abetted FTX and its affiliated trading firm, Alameda Research, in committing a historic fraud. On March 20, Judge Ruth Bermudez Montenegro of a San Diego federal court issued an order denying Silvergate’s motion to dismiss the case.
Silvergate Fails to Monitor $1 Trillion in Customer Transactions
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However, the SEC alleges that Silvergate’s automated transaction monitoring system failed to monitor more than $1 trillion in customer transactions on the Silvergate Exchange Network.
“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,” said Gurbir Grewal, director of the SEC’s Division of Enforcement.
He emphasized that rather than disclosing serious deficiencies in its compliance programs following the collapse of FTX, Silvergate misled investors about the soundness of these programs. Due to these deficiencies, Silvergate allegedly failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities. This ultimately led to a significant drop in Silvergate’s stock, wiping out billions in market value for investors.
The SEC’s complaint also accuses Silvergate and Martino of misrepresenting the company’s financial condition during a liquidity crisis and bank run following FTX’s collapse.
It claims that Silvergate and Martino, in an earnings release and earnings call, understated the bank’s losses from expected securities sales and falsely asserted that it remained well-capitalized as of December 31, 2022.
In March 2023, Silvergate announced it would wind down its banking operations, resulting in its stock plummeting to near zero.
The post Silvergate Bank Faces SEC Charges Over Flawed Compliance Program appeared first on Cryptonews.
