In a significant regulatory development, the **U.S. Securities and Exchange Commission (SEC)**, along with the **Federal Reserve Board (FRB)** and the **California Department of Financial Protection and Innovation (DFPI)**, have initiated enforcement actions against **Silvergate Capital Corp.**, the parent entity of Silvergate Bank, as well as its past leadership for deceiving shareholders and neglecting to oversee critical financial exchanges. Silvergate has consented to settle the penalties while not conceding any wrongdoing.
**Enforcement Actions by SEC Against Silvergate and Its Former Leaders**
The SEC disclosed on a recent Monday that it has brought charges against Silvergate Capital Corp., its ex-CEO **Alan Lane**, and ex-Chief Risk Officer **Kathleen Fraher** for providing investors with false information regarding the robustness of their Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance framework and the supervision of cryptocurrency clients, including FTX, by its fully owned subsidiary, Silvergate Bank. Additionally, the SEC accused Silvergate and its ex-Chief Financial Officer, **Antonio Martino**, of misleading investors about the firm's anticipated securities sales losses following the downfall of FTX.
The SEC's findings reveal:
- Silvergate's automated system for transaction monitoring did not scrutinize over **$1 trillion** in customer transactions on the bank’s payment network, the **Silvergate Exchange Network (SEN)**.
- The complaint underscores Silvergate's failure to track nearly **$9 billion** in dubious transfers, which resulted in a significant decline in the company’s stock price.
Silvergate has agreed to a definitive judgment that includes a **$50 million** civil fine and a permanent injunction to resolve the allegations, without confirming or denying the claims. Lane and Fraher have also settled the charges under similar terms, consenting to permanent injunctions, five-year bans from serving as officers or directors, and civil fines of **$1 million** and **$250,000**, respectively.
**Additional Charges by FRB and California's Regulatory Body**
The FRB and the DFPI also declared on the same Monday a collective penalty of **$63 million** against Silvergate for its shortcomings in transaction monitoring in compliance with anti-money laundering regulations via the SEN.
The Federal Reserve System imposed a civil monetary fine of **$43 million** on Silvergate Capital Corp. and its subsidiary, Silvergate Bank, both located in La Jolla, California. The DFPI also disclosed a consent order as part of the collective **$63 million** penalty against Silvergate Bank, its holding company, and certain executives.
Silvergate has accepted this order without admitting or denying the allegations. Previously, Silvergate had announced its voluntary liquidation and has since reimbursed all deposits to its clients. The DFPI elaborated:
- The penalty includes a **$20 million** payment to the DFPI, a **$43 million** payment to the Federal Reserve Board, and **$50 million** in penalties assessed by the SEC, which will be offset by Silvergate’s payments to the DFPI and the Federal Reserve Board.
Following the settlements with the SEC, FRB, and DFPI, Silvergate issued a statement on Monday, stating: "In early March 2023, Silvergate opted to responsibly liquidate voluntarily and without government intervention. By November 2023, all customer deposits had been returned, and Silvergate ceased banking operations shortly thereafter. The settlements announced today, which will aid in the relinquishment of Silvergate’s banking charter, are integral to the bank’s ongoing orderly shutdown and mark the successful conclusion of investigations by the Federal Reserve, DFPI, and SEC."
The regulatory measures taken against Silvergate Capital Corp. and its former executives represent a pivotal moment in financial oversight. Share your thoughts on these developments in the comments below.