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Silvergate’s ties with FTX draws the attention of DoJ

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Silvergate's ties with FTX draws attention of DoJ

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  • Silvergate’s share price in after-hours trading plummets as DoJ investigation report surfaces
  • The enforcement agency is probing the bank’s ties with the bankrupt crypto exchange

Silvergate Capital, a bank providing services to crypto firms, has drawn the attention of the Department of Justice for its association with bankrupt crypto-exchange – FTX. According to a report by Bloomberg, the law enforcement agency’s fraud unit is investigating its ties to the crypto exchange and its investment arm – Alameda Research.

The agency is reportedly probing the bank’s hosting of accounts linked to FTX and Alameda. However, the agency has not accused the bank of misconduct, and the investigation may end with any charges pressed against the firm. Nonetheless, the investigation has resulted in its shares tumbling by over 28% in after-hours trading.

Moreover, the news comes days after BlackRock, a prominent investment management firm, disclosed a stake of 7.2% in the bank. The firm has over 228,000 shares of Silvergate as of December 31, 2022, an increase from the previous year’s 187,000 shares.

Silvergate bears the brunt of FTX collapse

The collapse of the once-leading crypto exchange led to a massive bank run on Silvergate, with reports stating that the bank had to sell its assets to keep up with the withdrawals.

The withdrawals amounted to nearly $8.1 billion, forcing the firm to sell its assets at a loss. In addition, crypto-related deposits fell by nearly 68% in Q4 2022. The hit also resulted in Silvergate laying off nearly 40% of its workforce at the beginning of the year. The firm cited “the economic realities facing the digital asset industry” as the reason for its firing spree in its SEC filing.

Silvergate probed by US Senators

Moreover, another report stated that even the US Senators were probing the bank for its relations with FTX. The Senators have urged Silvergate to disclose its knowledge of FTX misusing customer funds and its ties to the exchange. Senators Elizabeth Warren, Roger Marshall, and John Kennedy have stated that Silvergate’s December response on the matter was “evasive and incomplete”.  The Senators are particularly seeking more information on its risk management practice in its dealings with FTX.

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Priya is a freelance cryptocurrency writer at AMBCrypto. A student in business administration, Priya focuses on the latest developments in the cryptocurrency and blockchain technology space.
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