The U.S. Securities and Exchange Commission (SEC) on Monday charged cryptocurrency-friendly lender Silvergate Capital (OTC:SICP) for “negligence-based fraud” on Monday.
According to the SEC’s complaint, Silvergate and its former CFO Antonio Martino had misrepresented the company’s financial condition during a liquidity crisis and bank run following FTX’s collapse.
The complaint also added that Silvergate’s former CEO Alan Lane and former chief risk officer Kathleen Fraher had misled investors in stating that the company had an effective BSA/AML compliance program. It had conducted an ongoing monitoring of its high-risk crypto customers, including FTX.
However, Silvergate’s automated transaction monitoring system failed to monitor over $1 trillion of transactions by its customers on Silvergate Exchange Network, its payments platform.
The SEC estimated that Silvergate allegedly failed to detect about $9 billion in suspicious transfers among FTX and its related entities.
Rather than tell investors about the serious deficiences in its compliance programs during the collapse of FTX, they doubled down in a way that misled investors about the soundness of the programs, said Gurbir Grewal, director of the SEC’s Division of Enforcement.
The complaint, filed in the U.S. District Court for the Southern District of New York, charged the company, Lane, and Fraher with negligence-based fraud and Silvergate with violating certain reporting, internal accounting control, and books-and-records provisions.
The SEC also charged Martino with violating certain of the antifraud and book-and-records provisions of the federal securities laws, and with aiding and abetting certain of Silvergate’s violations.
Apart from Martino, all charged parties have since agreed to settle SEC’s charges.
Silvergate agreed to a final judgement to pay $50 million civil penatly and imposing a permanent injunction to settle the charges, without admitting or denying allegations. Lane and Fraher also settled charges under the same terms, along with a five-year officer-and-director bars, and civil penalties of $1 million and $250,000, respectively.
Press release.
More on Silvergate Capital Corporation
- Financial information for Silvergate Capital Corporation