US Senators Demand Answers from Silvergate Capital Corp Over FTX’s Misuse of Customer Funds
US senators have turned their focus to Silvergate Capital Corp. yet again, saying that the company’s responses to a previous inquiry over its ties to the fallen FTX exchange were “evasive and incomplete.”
According to Bloomberg, senators from both sides of the aisle are demanding to know whether the parent company of crypto-focused Silvergate Bank knew about FTX’s misuse of customer funds.
The questions were sent in a letter to Silvergate’s Chief Executive Officer Alan Lane on Monday by, among others, Democrat Elizabeth Warren and Republicans Roger Marshall and John Kennedy. The senators argued that,
“The firm in December had declined to fully answer related questions, citing restrictions on disclosing “confidential supervisory information”,” Bloomberg wrote.
The senators reportedly argued in the letter that,
“This is simply not an acceptable rationale. […] 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.”
In early January, Silvergate said that it held $4.3 billion in short-term Federal Home Loan Bank advances and that it had some $4.6 billion cash and cash equivalents at the end of 2022 – which were put towards preventing a run on deposits following FTX’s collapse.
The senators gave Silvergate until February 13 to respond to its inquiries, including:
- answering if it knew that FTX was directing customers to wire funds to Alameda’s account at Silvergate;
- answering if it flagged any transactions as being suspicious;
- providing requested details on the firm’s due-diligence practices, the results of reviews conducted by the Federal Reserve and independent auditors,
- providing details on how it plans to use the proceeds from its Federal Home Loan Bank loan.
Following the senators’ December letter, the bank claimed that FTX’s parent company Alameda Research opened an account in 2018 prior – before FTX was founded, said Bloomberg, and that it was reviewing transactions involving accounts associated with FTX and Alameda.
However, the senators stated on Monday that, in its earlier response, the firm failed to include vital information that Congress needed in order to:
- assess the extent to which Silvergate is responsible for the improper transfer of FTX customer funds to Alameda,
- determine any compliance failures by the bank or auditors that could have enabled the alleged fraud.
Following this latest letter, a Silvergate representative claimed that the company has “a comprehensive compliance and risk management program” and that it did “significant due diligence” on both FTX and Alameda.
Earlier in January, as reported, US federal authorities confiscated approximately $700 million worth of assets belonging to the FTX founder Sam Bankman-Fried, including three accounts at Silvergate Bank that held US dollars.
US Prosecutors have charged the former CEO with eight criminal charges including wire fraud and conspiracy by misusing customer funds. Bankman-Fried pleaded not guilty to all charges.
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