Silvergate Capital Corp, a cryptocurrency-friendly bank, is under scrutiny from a bipartisan group of US lawmakers due to its ties to the defunct cryptocurrency exchange FTX.
Senators Elizabeth Warren, Roger Marshall, and John Kennedy issued a letter to the bank inquiring if it was aware of FTX’s alleged abuse of client cash, citing the firm’s earlier replies as “evasive and inadequate.”
Senators have accused Silvergate of failing to adequately respond to their queries in December, claiming limits on revealing “secret supervisory information.” However, they have also questioned this argument, claiming that both Congress and the public need to know about Silvergate’s participation in FTX’s demise, especially since the bank became a lender of last resort to the Federal Home Loan Bank in 2022.
In response to the senators’ initial letter, Silvergate stated that it performed due diligence on FTX and affiliated businesses and is subject to yearly examinations by the US Federal Reserve and independent audits. The bank also noted that it was investigating transactions involving FTX and Alameda Research accounts.
Nonetheless, Senators Elizabeth Warren, Roger Marshall, and John F. Kennedy have accused Silvergate of omitting critical facts in their last answer.
In their most recent letter, they urged Silvergate to respond to a new series of questions concerning its knowledge of FTX, encouraging consumers to send payments to Alameda’s Silvergate account and if it marked any transactions as suspicious. The senators have also asked for details on Silvergate’s due diligence methods, audit results, and how the company intends to spend the proceeds of the Federal Home Loan Bank loan.
Sam Bankman-Fried, the former CEO of FTX, and several high-level officials have been accused of carrying out a fraudulent plan involving the transfer of billions of dollars in FTX client assets to Alameda Research. According to reports, some of these payments were funneled through Silvergate accounts.
According to a Silvergate spokesman, the company has a robust compliance and risk management policy and performed extensive due diligence on FTX and Alameda Research. Nonetheless, Sultan Meghji, former chief innovation officer for the Federal Deposit Insurance Corporation, stated that banks cannot release sensitive supervisory information and that Congress should collaborate with financial authorities to collect this information.
Silvergate has been given until February 13 to reply to the senators’ queries. The findings of this inquiry will provide light on the amount of Silvergate’s liability for the unlawful transfer of FTX client cash. It will also aid in determining any compliance lapses by the bank or auditors that may have permitted the alleged fraud.