A Lawsuit has been filed against Silvergate Bank, Silvergate Capital Corporation, and Silvergate CEO Alan Lane. Silvergate Bank is the leading bank for innovative businesses in fintech and cryptocurrency, based in San Diego.
The suit holds Silvergate accountable for its role in placing FTX user deposits into the bank accounts of Alameda Research and FTX which filed for Chapter 12 bankruptcy in November.
Silvergate, is a publicly traded and federally regulated bank, maintained accounts of both FTX and its affiliated company Alameda Research, with the plaintiff asserting that it was engaged in “first-hand participation in the commingling of funds, improper transfers, and lending out of customer money.”
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Per court filings, plaintiff Joewy Gonzalez and “all others similarly situated” entrusted their investments to the now-bankrupt crypto exchange FTX, which promised investors that they would be able to “store assets securely as they gained in value, cash them out or trade them for other assets or financial products.”
In a July 2019 podcast interview, Silvergate’s CEO, Alan Lane, talked about the risks in banking the digital currency industry and said in part,
The biggest risk is that [Anti-Money Laundering] risk. So, the broad regulation, it’s the Bank Secrecy Act. AML, KYC, it’s all different ways of kind of saying the same thing, which is making sure that you know who your customers are and making sure that you’re not in any way providing funding, financing etc for illicit activity… The penalties are fines and they can be really severe. You can essentially put the entire bank at jeopardy.
However, with the collapse of FTX last month, the plaintiff and other FTX investors are unable to recover their investments, facing “years of uncertainty and catastrophic losses.”
The lawsuit also alleges that the defendants made misleading statements, failing to disclose that the company’s platform lacked sufficient controls and procedures to detect instances of money laundering.
“FTX/Alameda was one of Silvergate’s most important customers, and their business operations and interests were tightly entwined. Silvergate profited from deposits by digital-asset customers, which grew exponentially as FTX’s own business Expanded,” reads the filing.
Two weeks ago, The Bear Cave highlighted an August 2022 forfeiture application for probable cause filed in Broward County that alleges Silvergate was connected to a money laundering operation. The filing, first highlighted by Marcus Aurelius Research, reads in part,
$SI Recently subpoenaed Silvergate bank records reveal $425 million in transfers from $SI crypto bank accounts to South American money launderers. Affadavit from investigation into crypto crime ring linked to smugglers/drug traffickers (we are short):https://t.co/8Cyz5QiXei pic.twitter.com/qa2IaeKFGa
— AV (@AureliusValue) November 15, 2022
Records produced by Silvergate Bank found: (i) During the period of September 2021 to June 2022 ten companies had transferred a total of over $425 million dollars off these cryptocurrency trading platforms into accounts held at different US banks. (ii) The accounts were receiving funds in the same pattern as those… used to facilitate the laundering of illicit funds.
Consequently, Signature Bank and Silvergate Capital, two financial companies with exposure to the digital currency universe, have seen their share prices fall sharply since cryptocurrency broker FTX blew up nearly one month ago.
It also added that “Silvergate’s actions and inaction were integral to Sam Bankman-Fried’s enterprise,” with all financial dealings occurring “in plain sight” of the La Jolla-based firm.
News of a class action lawsuit against Silvergate comes in the wake of Morgan Stanley’s move last week to downgrade the firm’s stock from “equal weight” to “underweight,” which sent the price of its shares tumbling.
To add more pressure on the firm, a group of senators, including the long-time crypto critic Elizabeth Warren, sent a letter to Silvergate CEO Alan Lane, requesting to disclose information about the bank’s relationship with FTX and the Bankman-Fried entities.
“Your bank’s involvement in the transfer of FTX customer funds to Alameda reveals what appears to be an egregious failure of your bank’s responsibility to monitor for and report suspicious financial activity carried out by its clients,” the letter said.