DoJ Looking Into Silvergate’s Dealings With FTX

Table of Contents

• Prosecutors Launch Silvergate Investigations
• Criminal Probe Underway
• Could Silvergate Be Charged? 
• Silvergate’s Struggles

The United States Department of Justice has launched a probe into Silvergate Capital Corp. and its dealings with bankrupt crypto firm FTX and its sister concern Alameda Research. 

Prosecutors Launch Silvergate Investigations

The FTX debacle of 2022 has continued to have consequences across the industry, including on certain firms in the TradFi sector. It has also incited the Department of Justice into more focused action by charging the CEOs of FTX and Alameda Research with fraudulent activities. 

An inside source has reported that the DoJ is now looking into the operations of Silvergate Captial Corp., the parent company of the fintech and crypto-focused Silvergate Bank. The bank, which was one of the chief backers of FTX, witnessed over two-thirds of its customer base withdrawing deposits of over $8 billion after the crypto exchange collapsed. This resulted in a net loss of $1 billion for the bank in the fourth and final quarter of 2022. 

Criminal Probe Underway

The collapse of the FTX ecosystem spelled major trouble for Silvergate, as it had been hosting several accounts tied to several businesses associated with FTX founder Sam Bankman-Fried. As a result, the company’s shares lost 88% of their value in 2022 and were down 40% in premarket trading. The bank has had to resort to drastic layoffs to mitigate the damages incurred by it. 

On top of that, the crypto-focused bank has been facing increasing scrutiny, especially from government bodies and policymakers. For example, federal prosecutors in the DoJ’s fraud section are conducting a criminal probe into the bank’s dealings, especially those with FTX and Alameda Research. 

Could Silvergate Be Charged? 

Most recently, the firm was requested by a bipartisan group of United States Senators for details of its risk management practices and further information on its dealings with FTX. In addition, the increasing judicial scrutiny has continued to weigh down Silvergate’s performance, as it has created FUD among wary investors. Although no charges have been brought against Silvergate, that eventuality is a possibility, especially in light of the current environment and the anti-crypto sentiments among most U.S. government departments. 

Silvergate’s Struggles

Silvergate used to be a small US organization till it went public in November 2019. Soon it entered the crypto market and became a significant feature as a bank for crypto companies that were turned down by traditional banking service providers. Its shares reached a peak in 2021, growing over 1500%. However, the exodus of customers and deposits in the wake of the FTX debacle has resulted in a loss of over $700 million, completely wiping out all its profits since its birth. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.