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SEC, Fed Charge Silvergate for Misleading Investors, Failing to Monitor $1 Trillion in Transactions

Updated: 2 days ago

Silvergate Capital Corp. and its former executives are facing serious charges from multiple regulatory bodies, including the U.S. Securities and Exchange Commission (SEC), the Federal Reserve Board (FRB), and the California Department of Financial Protection and Innovation (DFPI). These charges stem from misleading investors and failing to properly monitor substantial financial transactions. Silvergate has agreed to pay significant penalties without admitting guilt.



SEC Charges Silvergate Capital Corp. and Former Executives

On Monday, the SEC announced that Silvergate Capital Corp., along with its former CEO Alan Lane and former Chief Risk Officer Kathleen Fraher, has been charged with misleading investors about the strength of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program. The SEC's findings highlighted Silvergate’s failure to monitor over $1 trillion in transactions, significantly affecting its stock value.


Federal Reserve and DFPI Actions

Simultaneously, the FRB and DFPI announced a combined $63 million penalty against Silvergate for deficiencies in their transaction monitoring through the Silvergate Exchange Network (SEN). This penalty includes payments to both the Federal Reserve and the DFPI. Silvergate has agreed to these penalties without admitting or denying the allegations.


Details of the Regulatory Charges

The SEC’s investigation revealed that Silvergate’s automated transaction monitoring system failed to track significant transactions by its customers, including those involving FTX. This failure led to nearly $9 billion in suspicious transfers going undetected, causing a sharp decline in Silvergate's stock value. Silvergate has agreed to a $50 million civil penalty and a permanent injunction as part of the settlement. Former executives Alan Lane and Kathleen Fraher have also settled, agreeing to five-year officer-and-director bans and civil penalties.

The regulatory actions come after Silvergate began voluntarily winding down its operations in early 2023, a process completed by November 2023 with all customer deposits returned. The penalties facilitate the orderly surrender of Silvergate's bank charter and conclude the investigations by the SEC, FRB, and DFPI.


The case against Silvergate underscores the critical importance of robust compliance programs and effective transaction monitoring systems in the financial industry, especially for institutions involved with cryptocurrency. The regulatory actions taken highlight the severe consequences of failing to adhere to these standards, serving as a stark reminder to other financial entities.


What do you think about the regulatory actions taken against Silvergate Capital Corp. and its former executives? Let us know in the comments section below.

 

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