Silvergate Bank Settles Securities Fraud Charges with California Regulators

The parent company of the now-defunct Silvergate Bank, Silvergate Capital Corporation, and regulators in the United States and California have negotiated a settlement of $63 million over allegations of noncompliance with bank secrecy and anti-money laundering (AML) regulations. The California Department of Financial Protection and Innovation (DFPI) will receive $20 million, and the Federal Reserve will receive $43 million.

In a lawsuit filed in July, the Securities and Exchange Commission (SEC) charged Silvergate with securities fraud and deceiving investors about the company’s financial stability and compliance measures. The SEC claimed that Silvergate misled investors about the efficacy of its bank secrecy and AML systems, particularly following the failure of FTX, one of its principal clients. Examiners warned Silvergate about compliance concerns, yet the company persisted in distorting their risk management procedures.

Regulatory Crackdown on Crypto Misconduct

“Public companies must be truthful to their investors,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Instead of informing investors about serious deficiencies in their compliance programs following the collapse of FTX, one of Silvergate’s largest banking customers, the company doubled down and continued to mislead investors.”

The collapse of Silvergate Bank last year, following a $42 billion bank run, sent shockwaves through the crypto industry. Alongside Signature Bank, Silvergate’s failure underscored the vulnerabilities of crypto-friendly banks and highlighted the regulatory challenges in the rapidly evolving digital asset space.

The SEC’s action against Silvergate is part of a broader effort to crack down on crypto-related misconduct. As the crypto market matures, more enforcement actions and stricter regulations are expected.

This settlement and the SEC’s ongoing scrutiny signal a heightened regulatory focus on the crypto industry. Compliance failures, fraud, and market manipulation are under increasing scrutiny, and companies in this sector will need to adapt to stricter regulatory expectations.