Silvergate Capital Another Contagion Casualty of FTX

The share price of Silvergate Capital is plunging as it is mired by the collapse of FTX and affiliated Alameda Research.  Multiple US Senators have asked for the crypto bank to release all records related to fund transfers regarding both the failed FTX and Alameda Research.

Silvergate Stock Plunges as FTX Contagion Threats Increase

Silvergate Bank were bankers to both the collapsed giant cryptocracy broker, FTX, and sister company, Alameda Research. And with billions of dollars missing from FTX, Silvergate’s role as FTX’s banker is being questioned. Shares of the California-based bank plunged and seen losses for 2022 of over 83% to a 52-week low.

Silvergate Capital built a standing as one of the few banks in the U.S. that embraced cryptocurrency customers and, as such, was seen to have numerous strategic advantages as a “first-mover” in this space. The bank’s website, until very recently, featured a testimonial from Sam Bankman-Fried (SBF), crediting Silvergate as having “revolutionized banking for blockchain companies.”

Senators Seeking Answers

Early this week, Massachusetts Democrat and member of the Senate banking committee Elizabeth Warren and two Republican colleagues, Sens. Roger Marshall of Kansas and John Kennedy of Louisiana, sent Alan Lane, Silvergate’s Chief Executive, a request for information about the bank’s relationship with FTX.

In the letter, it stated, “In the weeks since FTX’s shocking collapse, new and disturbing allegations about the company’s business practices have continued to surface,” adding, “including the reports that Mr. Bankman-Fried ‘secretly transferred some $10 billion of customer funds to his trading vehicle, Alameda Research,’ to fund ‘risky bets,’ violating both U.S. securities laws and FTX’s own terms of service. We are concerned about Silvergate’s role in these activities because of reports suggesting that Silvergate facilitated the transfer of FTX customer funds to Alameda.”

Furthermore, the Senators went on, “Silvergate’s failure to take adequate notice of this scheme suggests that it may have failed to implement or maintain an effective anti-money laundering program, as required under the Bank Secrecy Act.”

Silvergate CEO Alan Lane in Defence Mode

On Monday, Alan Lane, Silvergate’s CEO, issued a public letter that attempted to “set the record straight.” He stated that Silvergate “conducted significant due diligence on FTX and its related entities, including Alameda Research,” adding that anyone engaging in OTC trades with Alameda “would have been instructed by Alameda to send funds to Alameda’s account whether at Silvergate or any of their other banking partners.”