According to persons familiar with the situation, US prosecutors in the Justice Department’s fraud unit are investigating Silvergate Capital (NYSE: SI) and its links with defunct crypto giants FTX and Alameda Research.
The crypto-friendly bank has not been accused of any crime, and the investigation, which is still in its early stages, may terminate without charges being filed.
However, the DOJ probe comes after a bipartisan group of US senators, including Democrat Elizabeth Warren and Republicans Roger Marshall and John Kennedy, sent Silvergate CEO Alan Lane a letter pressing the crypto bank to clarify its dealings with Sam Bankman-Fried’s businesses and other crypto names.
“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 letter wrote.
The firm’s shares had a sharp 28% decline in after-hours trading following the news.
On Friday, however, shares seem to have rebounded, regaining the rally it sustained a day before following a Federal Reserve-related rally in cryptocurrencies and crypto stocks.
Silvergate was one of the lenders hardest hit by FTX’s abrupt collapse last November. Last quarter, the bank announced a $1 billion deficit and laid off 40% of its employees. It also revealed that it borrowed billions of dollars to prevent a run on deposits after Bankman-Fried’s exchange collapsed.
The DOJ investigation, which began in recent weeks, addresses one of the most pressing unanswered questions surrounding the FTX debacle: What did banks and intermediaries working with Bankman-Fried’s firms know about what US officials have described as a years-long scheme to defraud investors and customers?
In early January, Silvergate revealed that it had $4.3 billion in short-term Federal Home Loan Bank advances and approximately $4.6 billion in cash and cash equivalents at the end of 2022. This cash assisted the company in avoiding a deposit run following the failure of FTX.
Despite the issues hounding the crypto lender, the world’s largest asset manager BlackRock (NYSE: BLK) recently announced that it has increased its stake in Silvergate to 7.2% from 5.9% a year earlier.
Despite the crypto winter, BlackRock’s exposure to digital assets and blockchain technology has grown. In January, the asset manager made news when it included bitcoin as an eligible investment to its flagship Global Allocation Fund, which is one of the most popular vehicles for both active and passive investors.
According to a business filing, the move allows BlackRock to devote a portion of the fund’s $15 billion to cash-settled bitcoin futures sold on CFTC-registered commodity exchanges. Despite regulatory worries in Europe, the New York-based financial behemoth announced the launch of its crypto ETF in December.
Silvergate Capital last traded at $18.64 on the NYSE.
Information for this briefing was found via Bloomberg, CoinDesk, Finance Feeds, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
