According to some sources, US prosecutors from the Justice Department’s fraud unit are investigating Silvergate Capital Corp.’s transactions with fallen crypto businesses FTX and Alameda Research.
According to individuals who asked not to be identified about the sensitive matter, the criminal inquiry is focusing on Silvergate’s hosting of accounts linked to Sam Bankman-Fried’s businesses. The La Jolla, California-based bank has also sparked the interest of lawmakers because of the review.
The investigation is still in its early stages. It may conclude without charges being filed against the crypto-friendly bank. The Justice Department in Washington, where the probe is being carried out, and Silvergate’s representatives declined to comment by this point.
In extended trading on Thursday, Silvergate shares fell more than 20% in New York. This reversed a 29% gain throughout regular market hours.
What are the main questions in the banks investigation?
The sudden collapse of FTX last November hit many borrowers, including Silvergate. Last quarter, the bank suffered a $1B loss. Therefore, it had to lay-off 40% of its employees. Later, with Bankman-Fried’s companies falling, it also revealed borrowing tens of billions of dollars to stop a run on deposits.
What did banks and intermediaries know about Bankman-Fried’s scheme to fraud investors and consumers? That is one of the most crucial open questions shaping the FTX scandal.
Working with digital-currency businesses may trigger regulatory issues, and the bank has previously warned in financial disclosures. Its biggest headache in Washington, however, has been its work with corporations linked to Bankman-Fried.
The business has a thorough compliance and risk management program. Also, there’s lots of checks on FTX and Alameda Research, according to a Silvergate representative.
Besides, the bank is contesting a potential class action filed by investors. They claim that the bank hasn’t been forthcoming about its accounting controls in the wake of the FTX collapse.
