Silvergate Shares Slumps As Lawsuit Alleges it Aided FTX’s Fraud

The shares of Silvergate have now suffered a blow after news of a lawsuit filed against the crypto bank for its alleged role in Sam Bankman-Fried and FTX’s misdeeds. The shares slumped 9% on account of the news of the lawsuit.

According to the lawsuit, Silvergate, due to the numerous accounts, it held for FTX and its subsidiaries, had plain sight of the crimes committed by the exchange. It, therefore, argues that the crypto bank is liable for aiding and abetting a breach of fiduciary duty.

Is Silvergate Culpable in FTX’s Misdeeds?

Interestingly, the lawsuit claims Silvergate and FTX/Alameda’s relationship runs deep and is closely entwined as the latter is the crypto bank’s most important client. Adding that Silvergate benefitted from deposits made by customers as FTX’s business expanded

Prior to this lawsuit, a group of senators launched an inquiry into Silvergate’s management of FTX and Alameda funds. While citing reports that suggest that Silvergate facilitated transfers of FTX customers’ funds to its sister firm Alameda, the senators alleged that Silvergate failed in its responsibility to monitor for and report suspicious financial activities carried out by its clients. 

The Senators in the letter addressed to Alan Lane, CEO of Silvergate asked if the bank flagged FTX’s suspicious transactions to the Financial Crimes Enforcement Network. Recall that in an attempt to be cautious after the FTX debacle, crypto prime brokerage firm FalconX decided to sever its ties with Silvergate in the meantime

Meanwhile, Lane has reassured customers that his firm remains liquid and has enough capital to weather the current market volatility. The firm had limited exposure to FTX according to Lane.

Since the collapse of FTX, the company has come under searchlight due to its business with the beleaguered exchange. However, Lane has constantly maintained that its business with the exchange was only limited to deposits.

In November, Brendan Blumer, the founder, and CEO of EOS developer Block.One became the largest shareholder after buying 9.3% of crypto bank Silvergate Capital (SI), and Block.One bought an additional 7.5%.