Silvergate investigated for its link to FTX bankruptcy

California crypto bank faces an investigation into its dealings with former FTX CEO

Negocios February 3
Kimberly Rodriguez Medina

The Silvergate crypto branch is at the center of an investigation by the United States department of justice into its relationship with the cryptocurrency exchange FTX, which went bankrupt. According to a February 3 Bloomberg report, investigators are trying to determine the depth of Silvergate's ties to FTX and Alameda.

Silvergate has not been charged with any crime, but investigators are trying to find out if the institution and any other companies that have worked with FTX were aware of the situation. Crypto banking was hit hard by the FTX crash in November, reporting a $1 billion loss last quarter. After the collapse of the SBF empire, the bank laid off 40% of its staff and revealed that it had borrowed billions of dollars to prevent a liquidity crisis and bank run.

According to Silvergate, Alameda opened an account with the bank in 2018, before the launch of FTX. The company claims to have conducted due diligence and ongoing monitoring at the time. On Wednesday, a bank representative said the firm "has a comprehensive compliance and risk management program."

The latest criminal investigation may have an impact on cryptocurrency exchanges with links to Silvergate, according to commentary from crypto trader Josh Rager. On January 27, Silvergate suspended its dividend, citing "recent volatility in the digital asset industry." At the time, it claimed to have a "cash position above its digital asset customer-related deposits."

A difficult 2022 for Silvergate

Silvergate Capital Corporation recently announced its fourth quarter 2022 results, at a time when the digital asset industry experienced a crisis of confidence. Distrust generated by several high-profile bankruptcies has led to significant deposit outflows during the quarter and has forced the company to take steps to maintain cash liquidity.

According to the report, Silvergate suffered a net loss of $33.16 per common share in the last quarter of 2022, compared with a profit of $1.28 per diluted share in September 2022. The company also experienced a significant decline in deposits of customers, going from 12 billion to 7.3 billion dollars.

The company has come under fire for its role in the FTX collapse and is now facing a lawsuit over its alleged involvement in a fraudulent operation. To address this situation, Silvergate has taken steps to ensure business resilience, including managing its spending and evaluating its product portfolio and customer relationships. In addition, it has significantly reduced its workforce.

Despite the difficulties faced, the CEO of Silvergate pointed out that the company's mission remains the same and that they continue to believe in the digital asset industry and provide value-added services to their institutional clients. The company is committed to maintaining a highly liquid balance sheet and strong capital position for the time being.