By Michelle Price and Hannah Lang
WASHINGTON (Reuters) - The owner of defunct crypto lender Silvergate Bank has agreed to pay $63 million to end probes over compliance lapses, the first federal enforcement action brought against entities and individuals in relation to a crop of bank failures in 2023.
The Federal Reserve and California regulator said on Monday that they found deficiencies in Silvergate's monitoring of transactions in compliance with anti-money laundering laws, while the U.S. Securities and Exchange Commission said the bank and three of its top executives made misleading statements.
The bank's former Chief Executive Alan Lane and former Chief Risk Officer Kathleen Fraher agreed to settle SEC charges that they misled investors in relation to the bank's monitoring of crypto customers, without admitting or denying the allegations.
They agreed to permanent injunctions, five-year officer-and-director bars, and civil penalties of $1 million and $250,000 respectively, the SEC said. They could not immediately be reached for comment.
The SEC also charged former Chief Financial Officer, Antonio Martino with misleading investors about the company’s losses from expected securities sales following FTX’s collapse. He is fighting the charges, the SEC said.
"Antonio Martino categorically denies the U.S. Securities and Exchange Commission’s allegations against him, and Mr. Martino will vigorously defend himself in court where he is confident the SEC’s over-reach and mischaracterization of the facts will be clear," Martino's lawyer said in a statement.
La Jolla, California-based Silvergate, which primarily served clients in the cryptocurrency industry, said in March 2023 that it would wind down operations and voluntarily liquidate after it was hit with losses following the collapse of crypto exchange FTX and a broader downturn in digital assets.
It was one of four U.S. banks that collapsed in 2023. Similar to failed Silicon Valley Bank, Silvergate sold debt securities at a loss as depositors withdrew more than $8 billion.
A spokesperson for Silvergate Capital (OTC:SICP), which neither admitted nor denied the SEC charges, said all deposits had been repaid to customers. "The settlements announced today, which will facilitate the surrender of Silvergate’s bank charter, are part of the Bank’s continued orderly wind down and successfully conclude investigations by the Federal Reserve, DFPI, and SEC.”
Silvergate Capital will pay $20 million to the DFPI, $43 million to the Fed, while penalties of $50 million assessed by the SEC will be offset by Silvergate’s payments to the Fed and DFPI.