Silvergate is being sued by a class action lawsuit for its involvement with the now defunct FTX crypto exchange. The case alleges that the Bahamian government obtained unauthorized access to the crypto exchange's client account through Silvergate. It also claims that a transfer of billions of dollars in crypto transfers from FTX's client account to the Alameda accounts was handled by Silvergate without authorization.
FalconX cut ties with crypto bank Silvergate
FalconX, one of the largest digital asset prime brokers, is cutting ties with crypto bank Silvergate. This move is part of an attempt to increase market stability. It's consistent with the actions of other market players.
Last week, Silvergate revealed that it had material exposure to the collapsed FTX exchange. This disclosure caused the company's stock to plunge by 47%. However, there is still no sign that the FTX fallout has damaged the firm's balance sheet.
Despite these developments, Silvergate is facing uncertainty over the flow of its deposits. That's because FTX was responsible for keeping a ledger of underlying customer assets. It may not be long before some of these customers begin pulling their funds out of the bank, which could strain the firm's finances.
FTX claims that the Bahamian government obtained "unauthorized access"
If you've been watching the FTX bankruptcy battle unfold, you've probably seen that the company claimed to have evidence that the Bahamian government obtained unauthorized access to the company's systems. They did so, FTX claims, after the company's former CEO, Sam Bankman-Fried, transferred the assets of the bankrupt exchange to the government.
The company's new chief executive officer, John Ray III, said the company has credible evidence that the Bahamian government ordered unauthorized access to the FTX systems. It's not entirely clear why the company feels the government was involved. However, it could be the result of an attempt to seize the assets of the bankrupt exchange to ensure that creditors receive their money.
Meanwhile, the Bahamas Attorney General's Office has also confirmed that the exchange is under investigation. On Sunday, the attorney general's office revealed that FTX was under a civil probe.
Silvergate handled billions in transfers from FTX's client account to the Alameda accounts
A large group of US politicians are investigating FTX and its parent company Alameda Research LLC. Several members of the group have asked for Silvergate Bank's financial records, and they are also requesting an anti-money laundering compliance program review.
A former top employee at FTX said that a number of customers transferred funds to Alameda, which operated as a separate company. He alleged that Bankman-Fried had control over those transfers.
The US Securities and Exchange Commission has filed civil fraud charges against Sam Bankman-Fried. In his statement, he blamed poor management practices and lax accounting practices for the loss of client funds. In an interview with Vox, he acknowledged that people were able to wire money to Alameda's bank account and then deposit it into FTX.
Silvergate's actions and inaction were integral to Bankman-Fried's enterprise
The United States government has filed a series of civil and criminal charges against former FTX CEO Samuel Bankman-Fried. In total, he is facing a litany of allegations ranging from money laundering and a conspiracy to defraud the Federal Election Commission to a fraudulently created gold mine. In fact, he is expected to be extradited to the United States.
During his tenure at FTX, Bankman-Fried amassed a fortune in the digital currency space. Over the years, people wired $8 billion to Alameda. Some FTX customers have continued to wire transfers as recently as this year.
However, it is the company's aforementioned fintech bank, Silvergate Capital Corp., that is at the center of the scandal. The company, which is based in La Jolla, California, is one of the few Federal Reserve member banks to provide services to the digital asset space. As of September 30, the bank said it had about $11.9 billion in deposits from digital asset customers.
FTX's bankruptcy trustee calls for independent examiner
An independent examiner is being requested by the United States Trustee to investigate the FTX bankruptcy. The exchange filed for bankruptcy on November 11, and was soon in full meltdown mode.
Vara, who oversees bankruptcy proceedings, wrote a motion in the Delaware federal court recommending an immediate probe. He believes that there is a "substantial basis" for a suspicion that Bankman-Fried and other managers may have mismanaged the exchange.
FTX's bankruptcy is a complicated case, and the questions it raises are complex. As with many large bankruptcies, the US Trustee has recommended a third-party examiner to help uncover the truth.
Whether or not an independent examiner is appropriate is still up for debate. The FTX Trustee claims that an examiner's appointment is needed, but other parties are arguing that an internal investigation is more effective.
The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.