The crypto bank Silvergate Capital Corp. was asked by three U.S. senators to release all records about transfers of funds for the collapsed FTX empire of Sam Bankman-Fried.
"Your bank's involvement in the transfer of FTX customer funds to Alameda reveals what appears to be an egregious failure of your bank's responsibility to monitor for and report suspicious financial activity carried out by its clients," Sens. Elizabeth Warren, Roger Marshall and John Kennedy wrote in
Shares of the La Jolla, California-based bank fell as much as 8%. The slide extends Silvergate's losses on the year to more than 84% and has it trading at a fresh 52-week low.
The letter cites concerns about the banking services that Silvergate provided to both FTX as well as Bankman-Fried's trading firm, Alameda Research. It says the arrangement between FTX and Alameda depended on Silvergate's depository services and puts the bank "at the center of the improper transmission of FTX customer funds."
"Silvergate's failure to take adequate notice of this scheme suggests that it may have failed to implement or maintain an effective anti-money laundering program, as required under the Bank Secrecy Act," the senators said.
A representative for Silvergate Capital had no immediate comment.
Before the letter's release, Silvergate Chief Executive Alan Lane published his own letter in an attempt to quell growing investor concerns about the bank in the wake of what he called "speculation and misinformation" being circulated by short sellers. "While this has been a turbulent time in the digital asset industry, our customers' deposits are, and have always been, safely held," Lane said.
Lane once again also addressed the bank's relationship with FTX and Alameda Research saying that they had "conducted significant due diligence" on both entities "both during the onboarding process and through ongoing monitoring." Last month Lane told investors that FTX represented less than 10% of all digital-asset deposits.
Still, the inquiry from lawmakers "raises some fairly significant questions regarding Silvergate's compliance with the anti-money-laundering laws, including the know-your-customer rules and the OFAC list, as well as the suspicious activity report rules," said Jerry Comizio, an adjunct law professor at American University.
Any issue with the bank may depend on "what Alameda told Silvergate the purpose of the account was and if those wires were in line with the bank's expectations," according to Alma Angotti, a former enforcer with the Securities and Exchange Commission and Treasury Department who now works as a partner at the consulting firm Guidehouse.
Silvergate shares have been under pressure for much of this year as prices of digital assets including Bitcoin have plunged but the collapse of FTX has ratcheted up the intensity in recent weeks. The stock has fallen nearly 60% since the end of October. It's not alone either, with other
The recent selloff, however, has driven an
The turbulence is also starting to catch the attention of Wall Street. Morgan Stanley analyst Manan Gosalia downgraded the company on Monday, saying "ongoing stress in the crypto ecosystem drives a wide range of risks for Silvergate."
Still, not everyone has soured on the stock. Cathie Wood's Ark Investment Management has
— With assistance from Max Reyes and Yueqi Yang.
