Silvergate Capital Under Fire

Silvergate Capital is under pressure from US Senators who want the company to clarify whether it knew about the mismanagement of customer funds by FTX and Alameda. Some of the customer funds channeled from FTX to its sister company Alameda were reportedly transferred using accounts held by Alameda at Silvergate.

US Senators grill Silvergate over FTX collapse

US Senators Elizabeth Warren, Roger Marshall, and John Kennedy have sent a letter to Silvergate, saying that the bank did not fully answer questions related to the FTX collapse in December during an earlier inquiry on the matter. The bank had declined to answer some queries because of “confidential supervisory information.”

According to a report by Bloomberg, the senators decried that Silvergate left out crucial information that could be used in determining whether Silvergate was responsible for the illegal transfer of customer funds from FTX to Alameda.

The senators want Silvergate to respond to new questions that will help establish whether the bank knew that FTX was wiring funds to Alameda and whether the bank had flagged any of these transactions as suspicious. The three senators also want Silvergate to share comprehensive details about its due diligence process and the company’s reviews done by the Fed and auditors.

In 2022, Silvergate used the Federal Home Loan Bank (FHLB) as its lender of last resort. Silvergate revealed it had taken $4.3 billion in short-term advances in early January from FHLB. The senators also want Silvergate to account for how it plans to use the money borrowed from FHLB. Silvergate needs to respond to these queries by February 13.

“Both Congress and the public need and deserve the information necessary to understand Silvergate’s role in FTX’s fraudulent collapse,” the senators said.

Silvergate’s ties with FTX and Alameda

Silvergate has significant exposure to FTX and Alameda, which both filed for bankruptcy in November last year. In December, Silvergate informed the US senators that Alameda created an account with the bank in 2018 before the FTX exchange was launched.

However, despite having a close association with the two companies, Silvergate has refuted claims of being involved in the collapse of the two firms. The bank maintains that it runs a thorough compliance and risk management program. It also asserts that it is reviewing the transactions involving the accounts linked to the two companies.

The bank also said that it completed checks on FTX and Alameda during the onboarding process. Silvergate faced a large number of withdrawals toward the end of last year amid concerns about FTX ties. The bank has previously said that at the end of 2022, it held $4.6 billion in cash and cash equivalents, which enabled it to avoid a bank run.

The bank’s shares have also been on a sharp drop but recently reported a gain after BlackRock revealed an increased stake in the bank. The bank was forced to sell some of its assets at a loss to meet the run on deposits. It also fired 40% of its staff.


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