Silvergate Capital Corp., along with former CEO Alan Lane and former chief risk officer Kathleen Fraher, has agreed to pay $63 million to resolve U.S. regulatory charges related to its anti-money laundering (AML) program and the financial losses incurred during the collapse of FTX. The Securities and Exchange Commission (SEC) charged the company and its executives with misleading investors about the effectiveness of their Bank Secrecy Act and AML compliance programs, as well as the monitoring of cryptocurrency customers.
Additionally, the SEC charged them with providing false information about the company’s anticipated losses from expected securities sales after FTX’s downfall. It is alleged that Silvergate and its leadership misrepresented the company’s precarious financial situation during a liquidity crisis and bank run triggered by FTX’s collapse. The firm announced last year that it would wind down its banking operations, leading to a dramatic drop in its stock value, which ultimately neared $0.
Gurbir Grewal, director of the SEC’s Division of Enforcement, stated, “Instead of being forthright about significant deficiencies in its compliance programs following the collapse of FTX—one of its largest banking clients—Silvergate misled investors about the integrity of those programs. As a result of these deficiencies, Silvergate purportedly failed to identify nearly $9 billion in suspicious transactions involving FTX and its affiliates, causing significant losses for investors.”
As part of the settlement, Silvergate will pay a $43 million penalty to the Federal Reserve System and an additional $20 million to the California Department of Financial Protection and Innovation. While the SEC has also imposed a $50 million penalty, this amount will be offset by payments to the Fed and DFPI.
Lane and Fraher have settled their charges without admitting or denying the allegations, agreeing to permanent injunctions, five-year bars from serving as officers or directors, and civil penalties of $1 million and $250,000 respectively. Former CFO Martino has denied the allegations through a statement from his attorneys. All settlements are pending court approval.