Silvergate Bank to Stand Trial Over Allegations of Enabling FTX Scam

Silvergate Bank must now confront a class-action lawsuit. This legal action stems from accusations that the bank played a pivotal role in facilitating fraudulent activities associated with the now-defunct cryptocurrency exchange FTX and its affiliate, Alameda Research. The federal court’s decision came after Silvergate Bank attempted to have the lawsuit dismissed in June, a motion that Judge Ruth Bermudez Montenegro denied on March 20.

The legal action launched by the FTX customers boils down to the idea that Silvergate Bank was part of the deception; this is because the bank was conscious of its role in the failing of FTX and Alameda Research, as it gave these entities essential banking services. This type of the service is charged by the involved partners, who subsequently divert customers’ funds.

The court denied the assertions of the bank and opined that those allegations were grave and among the reasons for the continuation of the case. The bank’s defense claimed that no duty of care was owed to FTX customers, and attributing the harm to FTX and its co-founder, Sam Bankman-Fried, did not persuade the judge.

Silvergate Bank SEN Network Faces Legal Scrutiny

The center of all accusations is Silvergate Exchange Network (SEN) which enables fast and easy exchange transfers between the exchanges. A network like this, the court found, was also the operational backbone of FTX, leaving it with things and positions it traditionally could not cover.

According to Silvergate Bank’s argument, SEN’s operations, as they were applied to the customers who lacked access to digital currency exchange platforms, had no significant bearing on the customers’ inability to recover their digital currency in exchange for fiat money. Nevertheless, the bank successfully challenged this claim because the judge indicated the scarcity of other banking institutions willing to expand their crypto-business portfolio – thus leaving no other competitors to take up the slack and fill the void created by the failure of this bank.

Apart from the exchange’s legal complications, the court also observed the bank’s financial motivations behind maintaining its connection with FTX. According to reports, the bank’s annual income experienced a dramatic jump from $7.6 million to $75.5 million even before FTX downfall. This was mainly driven by fees and interests coming from its accounts that were involved with the exchange. This verdict judges the considerable financial gain of the bank, which relates to the provisions of a contract that is believed to be disadvantageous to the fund owners.

Judge Consolidates Lawsuits Amidst FTX Fallout

The legal implications for Silvergate Bank go far beyond this lawsuit in class action. On April 26, 2023, United States District Judge Jacqueline Scott Corley postponed the three lawsuits against Silvergate into a single lawsuit that claimed that Silvergate’s role in FTX investor fraud was to aid and abet criminal action. This aggregation manifests itself in the oppressive legal checking facing Silvergate Bank, contextualized within the implications following FTX bankruptcy filed in November of the preceding year.

These laws, which came up as Bankman-Fried was found guilty of fraudulently and laundering money, were the outcomes in my country. The awaited sentencing date of March 28th is around the corner, after which the legal framing of the FTX and its associates is nearing a close. Like a star on the map, the event of the Silvergate Bank trial will surely stand out as a central discussion in the ongoing dialog regarding the role of financial institutions in the cryptocurrency domain.

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