The U.S. Securities and Exchange Commission (SEC), the Federal Reserve Board (FRB), and the California Department of Financial Protection and Innovation (DFPI) have taken action against Silvergate Capital Corp., the holding company for Silvergate Bank, and its former executives for misleading investors and failing to monitor significant transactions. Silvergate has agreed to pay penalties without admitting guilt.
SEC, Fed Charge Silvergate for Misleading Investors, Failing to Monitor $1 Trillion in Transactions
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SEC Charges Silvergate Capital Corp. and Former Executives
The U.S. Securities and Exchange Commission (SEC) announced on Monday that it has charged Silvergate Capital Corp., former CEO Alan Lane, and former Chief Risk Officer Kathleen Fraher with misleading investors about the strength of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program and the monitoring of crypto customers, including FTX, by Silvergate’s wholly owned subsidiary, Silvergate Bank. The SEC also charged Silvergate and its former Chief Financial Officer, Antonio Martino, with misleading investors about the company’s losses from expected securities sales following FTX’s collapse.
According to the SEC:
Silvergate’s automated transaction monitoring system failed to monitor more than $1 trillion of transactions by its customers on the bank’s payments platform, the Silvergate Exchange Network.
The complaint highlights that Silvergate failed to monitor nearly $9 billion in suspicious transfers, leading to a substantial drop in the company’s stock value.
Without admitting or denying the allegations, Silvergate agreed to a final judgment requiring it to pay a $50 million civil penalty and imposing a permanent injunction to settle the charges. Lane and Fraher also settled the charges without admitting or denying the allegations, agreeing to permanent injunctions, five-year officer-and-director bans, and civil penalties of $1 million and $250,000, respectively.
Federal Reserve Board and California’s Regulator Also Charge Silvergate
On Monday, the Federal Reserve Board (FRB) and the California Department of Financial Protection and Innovation (DFPI) also announced a combined $63 million penalty against Silvergate for deficiencies in monitoring transactions for compliance with anti-money laundering laws through the Silvergate Exchange Network (SEN).
The Federal Reserve System imposed a civil money penalty of $43 million against Silvergate Capital Corp. and its subsidiary, Silvergate Bank, both based in La Jolla, California. The DFPI also announced a consent order as part of the combined $63 million penalty against Silvergate Bank, its holding company, and certain executives.
Silvergate has consented to this order without admitting or denying the allegations. Last year, Silvergate announced it was voluntarily winding down its operations and has since returned all deposits to its customers. The DFPI detailed:
The penalty amount consists of a payment of $20 million to be paid to the DFPI, a payment of $43 million to the Federal Reserve Board, and penalties of $50 million assessed by the SEC that will be offset by Silvergate’s payments to the DFPI and the Federal Reserve Board.
Silvergate released a statement Monday after agreeing to settlements with the SEC, the FRB, and the DFPI, stating: “In early March 2023, Silvergate made a responsible decision to liquidate voluntarily and without government assistance. As of November 2023, all deposits had been repaid to banking customers and Silvergate ceased banking operations soon after. The settlements announced today, which will facilitate the surrender of Silvergate’s bank charter, are part of the Bank’s continued orderly wind down and successfully conclude investigations by the Federal Reserve, DFPI, and SEC.”
What do you think about the regulatory actions taken against Silvergate Capital Corp. and its former executives? Let us know in the comments section below.
