Cryptocurrency-focused bank Silvergate is facing investigation from the US Justice Department for suspicious dealings with FTX and its affiliated Alameda Research. The investigators want to know how the California-based bank handled the accounts associated with Sam Bankman-Fried, the former CEO and co-founder of the troubled exchange, currently facing fraud charges.
According to sources who shared information with Bloomberg on anonymity, Silvegate has not been accused of any wrongdoing yet, and the charges may not even materialize. However, DOJ is not the only authority going after the lender, and its troubles may not end anytime soon.
US Lawmakers Are Also Questioning Silvergate’s Conduct
Still in Washington D.C., a group of senators led by Democrat Elizabeth Warren has brought similar concerns against the lender. The legislators want to know whether Silvergate knew about the alleged mismanagement of funds by FTX, terming an earlier response on the same as ‘‘evasive and incomplete.’’ The letter – seen by Bloomberg News – reached Silvergate on Monday.
In defense, the NYSE-listed bank said it complied with the necessary due diligence processes on all the accounts owned by Alameda (reportedly opened in 2018,) and those by FTX, before onboarding them, and afterward.
The headwinds facing the 35-year-old financial institution have had a huge impact on the price of its stock, besides driving it to lay off some of its staff. Its shares dropped 20% during the extended trading hours on Thursday. Even before the probe, Silvergate was already in the red, having reported a $1 billion loss in the last quarter and retrenching about half its employees.
It remains to be seen how Silvergate would shrug off the claims, considering the latter recently declared that Alameda’s bank accounts were used in moving FTX funds. Besides, the bank is also defending itself against a possible class action lawsuit pitting it with investors who claim it neglected sound internal controls.
