FTX and Alameda Deals Lead Silvergate to US Fraud InvestigationTable of Contents
FTX and Alameda Deals Lead Silvergate to US Fraud Investigation
By CoinUnited.io Research Team
2 min read
People familiar with the inquiry indicated that Silvergate is being investigated for illegal activity related to the hosting of accounts associated with Sam Bankman-enterprises. Fried's The bank in La Jolla, California, has attracted the attention of both regulators and politicians, and the current examination is only the latest round of scrutiny.
The cryptocurrency-friendly financial institution has not been accused of any wrongdoing, and the investigation is still very much in its infancy. Silvergate and the Justice Department representatives in Washington, where the inquiry is taking place, both declined to comment.
In extended trading on Thursday, Silvergate shares fell more than 20%, wiping out a 29% gain made during regular New York market hours.
When FTX collapsed suddenly last November, Silvergate was among the most impacted lenders. After losing $1 billion in the previous quarter, the bank had to lay off 40% of its workforce. It was also revealed that billions of dollars were borrowed to prevent a run on deposits following the collapse of the Bankman-Fried exchange.
One of the most pressing concerns surrounding the FTX fiasco is being addressed by the investigation, which has only recently begun. About how much of what US investigators have dubbed a multi-year plan to deceive investors and consumers did banks and intermediaries working with Bankman-enterprises Fried's know?
The former CEO and co-founder of FTX, as well as key members of his inner circle, have been charged with fraudulently transferring billions of dollars' worth of assets from FTX clients to Alameda, a company that Bankman-Fried also founded. Before his trial later this year, Bankman-Fried is now residing in California with his parents and has pled not guilty to a number of allegations brought against him by US authorities.
According to Silvergate, Alameda established a bank account with the institution in 2018, well before the launch of FTX. The bank has stated that it is conducting due diligence on FTX and Alameda throughout the onboarding process and through continuing monitoring, and is now analyzing transactions related to accounts affiliated with both companies. The Federal Reserve, the company's banking regulator, conducts yearly tests, and independent audits are also conducted on the company.
Silvergate positioned itself as the crypto industry's primary financial institution and a pioneer in providing related services. It set up infrastructure to facilitate instantaneous exchanges of fiat currency between cryptocurrency holders with bank deposits. Some retired US attorneys who are now crypto aficionados knew the company for its strict adherence to US regulations.
The bank has warned investors that dealing with cryptocurrency businesses might expose it to regulatory concerns in the past. However, the company's involvement with Bankman-Fried-affiliated businesses has been the source of the most controversy in the nation's capital.
On Tuesday, a spokesman for Silvergate said that the company has a thorough compliance and risk management policy and that it did extensive research on FTX and Alameda Research.
According to Bankman-Fried, FTX monies were transferred via Alameda bank accounts. People familiar with the situation told Bloomberg News in November that the agreement was FTX's attempt to circumvent banks' reluctance to house crypto linked assets due to potential regulatory difficulties.
In the meantime, the bank is fighting off prospective class action securities fraud claims from investors who believe the bank hasn't been forthright about its financial procedures, citing the FTX collapse.
Short-term advances from the Federal Home Loan Bank were $4.3 billion, while Silvergate reported having around $4.6 billion in cash and cash equivalents by the end of 2022. Several crypto-friendly banks, like this one, have used a program established by President Herbert Hoover to increase mortgage lending.
The cryptocurrency-friendly financial institution has not been accused of any wrongdoing, and the investigation is still very much in its infancy. Silvergate and the Justice Department representatives in Washington, where the inquiry is taking place, both declined to comment.
In extended trading on Thursday, Silvergate shares fell more than 20%, wiping out a 29% gain made during regular New York market hours.
When FTX collapsed suddenly last November, Silvergate was among the most impacted lenders. After losing $1 billion in the previous quarter, the bank had to lay off 40% of its workforce. It was also revealed that billions of dollars were borrowed to prevent a run on deposits following the collapse of the Bankman-Fried exchange.
One of the most pressing concerns surrounding the FTX fiasco is being addressed by the investigation, which has only recently begun. About how much of what US investigators have dubbed a multi-year plan to deceive investors and consumers did banks and intermediaries working with Bankman-enterprises Fried's know?
The former CEO and co-founder of FTX, as well as key members of his inner circle, have been charged with fraudulently transferring billions of dollars' worth of assets from FTX clients to Alameda, a company that Bankman-Fried also founded. Before his trial later this year, Bankman-Fried is residing in California with his parents after pleading not guilty to a range of accusations brought against him by US authorities.
According to Silvergate, Alameda established a bank account with the institution in 2018, well before the launch of FTX. The bank has stated that it is conducting due diligence on FTX and Alameda throughout the onboarding process and through continuing monitoring, and is now analyzing transactions related to accounts affiliated with both companies. The Federal Reserve, the company's banking regulator, conducts yearly tests, and independent audits are also conducted on the company.
Silvergate positioned itself as the crypto industry's primary financial institution and a pioneer in providing related services. It set up infrastructure to facilitate instantaneous exchanges of fiat currency between cryptocurrency holders with bank deposits. Some retired US attorneys who are now crypto aficionados knew the company for its strict adherence to US regulations.
The bank has warned investors that dealing with cryptocurrency businesses might expose it to regulatory concerns in the past. However, the company's involvement with Bankman-Fried-affiliated businesses has been the source of the most controversy in the nation's capital.
On Tuesday, a spokesman for Silvergate said that the company has a thorough compliance and risk management policy and conducted extensive research on FTX and Alameda Research.
According to Bankman-Fried, FTX monies were transferred via Alameda bank accounts. People familiar with the situation told Bloomberg News in November that the agreement was FTX's attempt to circumvent banks' reluctance to house crypto linked assets due to potential regulatory difficulties.
In the meantime, the bank is fighting off prospective class action securities fraud claims from investors who believe the bank hasn't been forthright about its financial procedures, citing the FTX collapse.
Short-term advances from the Federal Home Loan Bank were $4.3 billion, while Silvergate reported having around $4.6 billion in cash and cash equivalents by the end of 2022. Several crypto-friendly banks, like this one, have used a program established by President Herbert Hoover to increase mortgage lending.
(Includes recent stock price adjustment in fourth paragraph.)
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