Silvergate Sued Over Role in FTX, Alameda Collapse

The FTX contagion continues to spread in the crypto space weeks after the fallen crypto exchange filed for bankruptcy. Next in line to be slammed with a lawsuit are Silvergate Bank, Silvergate Capital Corporation, and Silvergate CEO Alan Lane. A class-action lawsuit filed at the California Southern District Court alleges that Silvergate directly aided and abetted FTX’s fraud and breaches of fiduciary duty by participating in the commingling of funds and improper transfers. “Silvergate processed billions in transfers from FTX’s client account at Silvergate to the Alameda accounts. Silvergate also accepted deposits from FTX investors—intended to be stored, traded, or cashed out—that at Bankman-Fried’s direction were wired straight to Alameda bank accounts and misused,” the plaintiff alleges in the lawsuit. The class-action lawsuit was filed by an FTX investor Joewy Gonzalez, representing himself and all other FTX investors stuck in the same situation.

The Crypto Bank Faces Questions

Silvergate Bank has earned the name “the crypto bank,” because of its involvement in the on-ramp and off-ramp of fiat onto most US-based crypto exchanges.

In the wake of the FTX collapse, Silvergate published a press release regarding its relationship with and exposure to FTX. “In light of recent developments, I want to provide an update on Silvergate’s exposure to FTX. As of September 30, 2022, Silvergate’s total deposits from all digital asset customers totaled $11.9 billion, of which FTX represented less than 10%. Silvergate has no outstanding loans to nor investments in FTX, and FTX is not a custodian for Silvergate’s bitcoin-collateralized SEN Leverage loans. To be clear, our relationship with FTX is limited to deposits,” Alan Lane, CEO of Silvergate said in the press release.

Senator Elizabeth Warren along with Senators Roger Mashall and John Kennedy have asked Silvergate, in a letter, to release full records of  FTX transactions to ascertain Silvergate’s potential role in the collapse of FTX. A December 19 deadline has been given to Silvergate to comply with the lawmakers’ request. “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 public is owed a full accounting of the financial activities that may have led to the loss of billions in customer assets, and any role that Silvergate may have played in these losses,” the senators wrote.

Amidst the FTX debacle, Silvergate stock price has been on a free fall, dropping by about 14% on Tuesday, reaching a two-year low.