SEC Sues Silvergate Bank for Alleged Non-compliance

The Securities and Exchange Commission (SEC) has filed a lawsuit against Silvergate Bank for alleged securities fraud. The crypto-friendly bank failed to meet certain legal requirements including provisions in the Bank Secrecy Act and anti-money laundering regulations. Former Silvergate’s executives were also roped in the lawsuit. 

SEC Files Lawsuit Against Silvergate Bank

The Financial Regular filed an action against the crypto-friendly bank and its former executives for the events leading up to its collapse in 2023. According to the docket entry filed on Monday, the SEC flagged the bank’s previous activities including noncompliance with certain regulations. 

Silvergate failed to meet the requirements of the Bank Secrecy Act and anti-money laundering regulations but made misrepresentations to the public and shareholders that it met the rules. Furthermore, the SEC noted that the bank failed to detect FTX’s $9 billion worth of transfers. Examiners from the Bank Secrecy Act flagged the actions of the bank but it claimed there were no risks at the time. 

The bank’s executives also failed to disclose certain deficiencies due to the heightened risk of some digital asset customers. As a result,  Alan Lane, Silvergate’s former CEO, Kathleen Fraher, ex-COO at the bank, etc were also sued for not monitoring suspicious activity. 

“In addition, through the results of multiple examinations of Silvergate by the Federal Reserve, through the Federal Reserve Bank of San Francisco (the ‘FRBSF’), Lane and Fraher should have known that there existed critical deficiencies in the Bank’s BSA/AML compliance program.”

Bank Agrees to $63 Million Settlement

Silvergate and some of its former executives have agreed to a settlement with the SEC, California Department of Financial Protection and Innovation, and the Federal Reserve. Following allegations of breach and misrepresentation to customers, the bank will pay $63 million ($43 million fine to the Feds and $20 million to the state regulators.)

While Fraher and Lane agreed to the settlement, former Chief Financial Officer Antonio Martino denied the allegations. Fraher and Lane will pay fines including a five-year ban from acting as officers of public companies. 

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