The SEC, FRB, and DFPI in the U.S. have collectively initiated disciplinary measures against Silvergate Capital Corp., the parent company of Silvergate Bank, and its previous leadership for deceptive practices and inadequate oversight of substantial transactions. Silvergate has agreed to financial penalties as part of the resolution without acknowledging wrongdoing.
Enforcement Actions Against Silvergate Capital Corp. and Former Leaders
A recent announcement by the U.S. Securities and Exchange Commission (SEC) revealed charges brought against Silvergate Capital Corp., former CEO Alan Lane, and former Chief Risk Officer Kathleen Fraher. These charges pertain to misleading investors regarding the effectiveness of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program and the supervision of cryptocurrency clients, such as FTX, by Silvergate Bank, a subsidiary wholly owned by Silvergate. The SEC has also charged Silvergate and its former Chief Financial Officer, Antonio Martino, with providing false information on the company’s losses resulting from expected securities sales after FTX’s collapse.
Key points highlighted by the SEC include:
– Failures in Silvergate’s automated transaction monitoring system, which neglected to oversee over $1 trillion in customer transactions on the Silvergate Exchange Network payments platform.
– A failure to monitor almost $9 billion in suspicious transfers, leading to a significant decline in the company’s stock value.
While not admitting fault, Silvergate has agreed to a settlement that includes a $50 million civil penalty and a permanent injunction to resolve the allegations. Lane and Fraher have also settled without admitting wrongdoing, agreeing to permanent injunctions, five-year bans from officer and director roles, and civil penalties of $1 million and $250,000, respectively.
Additional Action by the Federal Reserve Board and California State Regulator Against Silvergate
In parallel, the Federal Reserve Board (FRB) and the California Department of Financial Protection and Innovation (DFPI) announced a joint penalty of $63 million against Silvergate for deficiencies in monitoring transactions to comply with anti-money laundering regulations via the Silvergate Exchange Network (SEN). The FRB imposed a civil penalty of $43 million on Silvergate Capital Corp. and Silvergate Bank, headquartered in La Jolla, California. The DFPI issued a consent order as part of the $63 million penalty levied against Silvergate Bank, its parent company, and specific executives.
Silvergate consented to these actions without an admission of guilt. Last year, Silvergate announced the voluntary winding down of its operations and has since refunded all deposits to its customers. The DFPI outlined:
– The penalty comprises a $20 million payment to DFPI, a $43 million payment to the FRB, and $50 million in SEC penalties, which will be mitigated by Silvergate’s payments to the DFPI and the FRB.
Following settlements with the SEC, FRB, and DFPI, Silvergate issued a statement expressing: “In early March 2023, Silvergate opted for a responsible self-liquidation process without external aid. By November 2023, all customer deposits had been reimbursed, and Silvergate halted banking operations shortly thereafter. The settlements announced today, which pave the way for the surrender of Silvergate’s bank charter, mark the conclusion of investigations by the Federal Reserve, DFPI, and SEC.”
Share your thoughts on the regulatory measures against Silvergate Capital Corp. and its former executives in the comments below.
