Silvergate Capital recently settled a lawsuit with the SEC for $50 million, while facing additional fines of $63 million from the Federal Reserve and the California Department of Financial Protection and Innovation. The SEC accused Silvergate of misleading investors about the strength of its compliance program and monitoring of crypto customers, particularly the exchange FTX. The company’s automated monitoring system reportedly failed to oversee over $1 trillion in customer transactions on the Silvergate Exchange Network.
The alleged misconduct occurred between November 2022 and January 2023, leading to a $1 million civil penalty on former Silvergate CEO Alan Lane, a $250,000 civil penalty on former Chief Risk Officer Kathleen Fraher, and permanent injunctions on the companies and executives involved. Lane and Fraher agreed to five-year officer-and-director bars as part of the settlement, without admitting or denying the SEC’s allegations.
Former CFO Antonio Martino, who has not yet settled with the SEC, was charged with violations of federal securities laws for allegedly misleading investors about the company’s losses following FTX’s collapse. In parallel actions, the Federal Reserve and the California DFPI are seeking $63 million in fines from Silvergate, emphasizing the company’s handling of crypto and monitoring failures. Silvergate can offset the $50 million owed to the SEC by paying the fines to the Federal Reserve and DFPI.
Silvergate ceased operations in March 2023 after disclosing investigations from the Department of Justice and delays in filing financial reports. These events led to a decline in Silvergate’s stock price and ultimately resulted in the firm’s collapse. The settlement agreements with the SEC, Federal Reserve, and California DFPI are pending court approval, reflecting the consequences of Silvergate’s alleged misconduct in the crypto industry. The case serves as a cautionary tale for financial institutions operating in the digital asset space, highlighting the importance of regulatory compliance and transparency in dealing with crypto transactions.