Silvergate Bank Settles AML & Investor Misconduct Charges for $63 Million

Silvergate Bank’s owner agreed to a $63 million settlement with federal regulators due to compliance lapses, marking the first federal enforcement action related to the 2023 bank failures. 

Michelle Price and Hannah Lang reported the outlay for Reuters. 

The Federal Reserve and California regulators found significant deficiencies in Silvergate’s monitoring of transactions, particularly regarding anti-money laundering (AML) laws. The SEC also accused the bank and top executives of misleading investors. 

Former Silvergate Executives Face Penalties After SEC Settlement 

Former CEO Alan Lane and Chief Risk Officer Kathleen Fraher settled with the SEC, agreeing to permanent injunctions, five-year officer/director bans, and civil penalties ($1 million for Lane, $250,000 for Fraher). Both did not admit to the allegations. 

Former CFO Antonio Martino, also charged for misleading investors, is contesting the charges. 

Collapse of Silvergate Bank 

Silvergate, a major player in the cryptocurrency sector, announced its wind-down and liquidation in March 2023 after substantial losses linked to the collapse of crypto exchange FTX. It was one of four U.S. banks to collapse in 2023, selling debt securities at a loss amid an $8 billion withdrawal by depositors. 

Regulators Force Crypto Bank Charter Surrender 

Regulators cited Silvergate’s failure to monitor transactions for AML compliance as a critical issue, leading to extensive investigations. A Silvergate Capital spokesperson confirmed that customer deposits had been repaid and settlements would facilitate surrendering the bank’s charter as part of the wind-down process. 

Financial Breakdown of Settlement 

The $63 million settlement includes $20 million to the California Department of Financial Protection and Innovation (DFPI) and $43 million to the Federal Reserve. SEC penalties of $50 million will be offset by payments to the Fed and DFPI. The settlement addresses compliance failures and misleading statements contributing to Silvergate Bank’s collapse, allowing Silvergate Capital to proceed with liquidation. 

Reuters covers further details on Silvergate Bank’s collapse and the repercussions of its crypto compliance practices.