The California Department of Financial Protection and Innovation has agreed to a $20 million settlement with the parent company of Silvergate Bank after the group’s anti-money-laundering program failed to meet standards.
The crypto-focused bank was liquidated in 2023 after stock dropped by 36%, and regulatory developments led the company to rethink its operations.
Carrying $11 billion of assets, Silvergate was one of two main options for crypto companies alongside Signature Bank in New York.
Crypto expert Kane Pepi explains that there is significant long-term potential for consumers wondering what crypto to buy. He goes on to discuss the stability of established cryptocurrencies due to significant Web3 and blockchain technology investment by major brands, but this did not help Silvergate.
The firm had made efforts to stabilize the bank with job cuts, reducing its workforce by 40% before withdrawing from the market.
However, the company’s issues didn’t end there, and they were charged by the California Department of Financial Protection and Innovation, Federal Reserve and Securities and Exchange Commission for anti-money-laundering failings and misleading disclosures about the effectiveness of their program.
The Silvergate Capital Corporation recently agreed to a $63 million settlement that saw the Federal Reserve receive $43 million and California’s regulator receive $20 million.
The SEC had initially sued the bank, alleging that shareholders and the public were misled into believing the bank’s AML program was suitable. A $50 million fine from the SEC is set to be offset by Silvergates payments to the regulators.
Deficiencies in the institution’s Bank Secrecy Act (BSA) and anti-money laundering (AML) program came to light through examinations carried out by the Federal Reserve in 2022.
It was also alleged by the SEC that Silvergate failed to identify and investigate potentially suspicious transfers worth almost $9 billion by FTX.
FTX went on to crash in 2022, leading to multiple lawsuits and claims of fraudulent and misleading activity. Before its downfall, FTX was one of the top crypto exchange platforms. As the value of Bitcoin declined in 2021 and 2022, other exchanges began to close, but FTX continued to grow by acquiring competitors.
The company’s lack of diversity led to its downfall after CoinDesk revealed its balance sheet and its reliance on FTT, its own digital token.
Silvergate was popular among crypto companies because of the SEN (Silvergate Exchange Network), which made it easy for customers to transfer funds. However, the bank’s failure to monitor the system was brought to their attention by government examiners after around $1 trillion in transactions passed through it.
The bank’s filings then failed to acknowledge these risks and failed to disclose that it was made aware of deficiencies.
Silvergate’s decision to liquidate came without government assistance and they repaid all deposits to their banking customers. The settlement will conclude investigations carried out by the SEC, DFPI and Federal Reserve and allow the voluntary wind-down to come to an end.
Despite the loss of Silvergate, the crypto industry has bounced back and continues to enjoy greater adoption by household retail brands. The failure of some American states to update gambling regulations to coincide with the digital age has also seen offshore and crypto gambling sites enjoy growing popularity, especially among consumers in prohibitive states.
The luxury retail sector has also benefited from easier international transactions, made possible by decentralized cryptocurrencies with lower transaction fees.
Blockchain technology, which is crucial to cryptocurrencies, is also being implemented in the real estate industry, helping to automate processes and accelerate transaction speeds.
While the loss of Silvergate will have come as a blow to the crypto industry, its adaptability, and resilience have ensured that it remains a popular option among savvy investors and tech enthusiasts.
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