Silvergate Faces Federal Probe Into FTX Relationship

Washington’s watchful eye doesn’t like what it sees across the crypto industry ecosystem.

This, as U.S. prosecutors in the Department of Justice’s (DOJ) fraud unit are reportedly examining Silvergate Capital’s banking relationship with the collapsed crypto giants FTX and Alameda Research.

The DOJ probe, which is already underway, does not accuse the bank of any wrongdoing.

As reported by PYMNTS, the federal investigation comes about two months after U.S. senators Elizabeth Warren (D-Mass.), John Kennedy (R-La.) and Roger Marshall (R-KS) penned a strongly worded Dec. 5 letter to Silvergate requesting answers around the bank’s role in “facilitating the transfer of FTX customer funds to Alameda.”

The bank’s response did little to quell the senators’ questions.

“We are disappointed by your evasive and incomplete response to our December 5, 2022 letter,” the trio of lawmakers wrote in a new note to Silvergate made public earlier this week (Jan. 30).

Read more: FTX Prosecutors Seize $698M In Bankman-Fried Assets

“We wrote to you seeking information on what appeared to be an egregious failure of your bank’s responsibilities to monitor and report suspicious financial activity. Your response confirms the extent of this failure — but then neglects to provide key information needed by Congress to understand why and how these failures occurred,” the senators added. “Both Congress and the public need and deserve the information necessary to understand Silvergate’s role in FTX’s fraudulent collapse, particularly given the fact that Silvergate turned to the Federal Home Loan Bank as its lender of last resort in 2022.”

Silvergate modeled itself as one of the leading go-to banks for crypto companies and emerged early on as a key provider of services catering to the industry.

It built industry-specific systems that allowed real-time fiat currency transactions between cryptocurrency customers with deposits at the bank, which included FTX founder Bankman-Fried’s enterprise group of cryptocurrency companies.

Alameda Research, for example, opened an account with Silvergate in 2018, a year prior to the 2019 founding of the FTX exchange.

As such, it was among the more traditional lenders hit hardest by FTX and Alameda’s rapid implosion last November — reporting a $1 billion loss for the final quarter of 2022 and undertook a 40% reduction in headcount.