Silvergate Capital Corporation Securities Lawsuit

On January 5, 2023, Silvergate released fourth-quarter financial results disclosing that it was taking a $196 million impairment charge after customers withdrew approximately $8.1 billion of digital-asset deposits during the fourth quarter of 2022. Silvergate also announced that it was preparing to lay off 40% of its staff to mitigate its losses, and that it had sold $5.2 billion of debt securities for cash proceeds during the fourth quarter of 2022 in an effort to “accommodate sustained lower deposit levels and to maintain a highly liquid balance sheet.” The sale of these debt securities led to a $718 loss on the sale of securities and related derivatives in the fourth quarter of 2022, according to Silvergate.  

 Silvergate’s disappointing fourth-quarter results and announcements follow the recent collapse of FTX, a Silvergate customer, which filed for bankruptcy in November 2022 amidst an $8 billion shortfall and allegations that it misappropriated billions of dollars of customer funds, as reported by the New York Times. Three U.S. Senators who wrote a letter demanding that Silvergate explain its role in facilitating transfers from FTX later told the Wall Street Journal that an account at Silvergate “appears to be at the center” of FTX’s collapse, according to Cryptoslate. 

On November 15, 2022, Marcus Aurelius Research tweeted that “recently subpoenaed Silvergate bank records reveal $425 million in transfers from $SI crypto bank accounts to South American money launderers. Affidavit from investigation into crypto crime ring linked to smugglers/drug traffickers.” Then, on November 17, 2022, The Bear Cave published an article linking Silvergate to the same money laundering operation. 

The cryptocurrency industry has come under fire in the wake of the FTX collapse. On Tuesday, January 3, 2023, US Bank regulators issued a statement warning financial institutions that the crypto-asset sector has been marked by significant volatility over the past year and dealing with cryptocurrency comes with the risk of fraud and scams, inaccurate or misleading representations and disclosures, and “other practices that may be unfair, deceptive, or abusive, contributing to significant harm to retail and institutional investors, customers, and counterparties.” CNBC describes how the “industry has been exposed as rife with poor risk management, interconnected risks and outright fraud.”