Silvergate Capital Faced With Further Class Action Suits

Several allegations have come up against Silvergate Capital since its involvement with the now-bankrupt FTX was discovered.

Most recently filed, is a class action against the San Diego-based bank by Pomerantz LLP on behalf of all investors who bought Silvergate securities between November 9, 2021, and January 5, 2023. The class action lawsuit was filed in the United States District Court of Southern California on Tuesday.

Ultimately, Silvergate Capital is being charged with a violation of federal securities laws (Securities Exchange Act) because it allegedly made “False and/or misleading statements, as well as {failing} to disclose material adverse facts about the Company’s business, operations, and prospects.” The company’s Chief Executive Officer (CEO) Alan Lane and its Chief Financial Officer (CFO) Antonio Martino were indicted alongside the firm.

Specifically, the charges against Silvergate Capital include failure to disclose accurate information about the company’s ability, control and procedure to detect cases of money laundering. There were claims that the Silvergate platform failed to realise that some of its customers were involved in money laundering to the tune of $425 million and the company would probably face regulatory consequences for this.

“Defendant’s positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis. […] As a result of these materially false and/or misleading statements, and/or failures to disclose, Silvergate’s securities traded at artificially inflated prices during the Class Period,” according to the filing.

Silvergate’s Involvement With Bankrupt FTX

Silvergate’s troubles started following the implosion of the Bahamian-headquartered cryptocurrency exchange FTX. 

At first, crypto prime brokerage firm FalconX informed its customers that it had severed ties with Silvergate Exchange Network (SEN) citing that the market was in a heightened risk environment and they were being cautious. In no distant time, Silvergate came under serious scrutiny by regulators.

To allay the fears in the minds of its investors, Lane released a statement clarifying that investors’ assets are secured. In addition, Silvergate’s CEO mentioned that they were working with law enforcement agencies and regulators to ensure that bad actors are brought to the book. However, in mid-December, the first lawsuit was filed against Silvergate for its role in FTX misdeeds.