Following the collapse of FTX, crypto bank Silvergate has been embroiled in rumors and lawsuits filed against them for being partially responsible for the FTX crash. Silvergate CEO Alan Lane had to take matters into his own hands and published a public letter trying to calm shareholders on how they navigated the situation.
In the letter, Silvergate’s CEO states, in accordance with risk management rules and procedures, Silvergate performed extensive due diligence on FTX and its affiliated companies, including Alameda Research, both during the onboarding process and through continuous monitoring.
According to a class-action lawsuit filed against the bank, Silvergate knowingly or negligently authorized FTX to divert client deposits to Alameda Research, which made the bank and its corporate officers complicit in and accountable for fraudulent damages in the FTX collapse.
Short sellers and other opportunists looking to profit from market instability have also distributed a lot of rumors and speculative material, Silvergate CEO noted.
Alan Lane noted, “We have a resilient balance sheet and ample liquidity.” Lane added the company takes risk management and compliance extremely seriously.
Silvergate reportedly tracks each account’s transaction activity and flags any activity that deviates from normal usage.
The company is required to file suspicious activity reports when they notice specific types of activities, and we regularly do this. “We have a track record of closing accounts that are used for purposes outside of the expected use,” the letter notes.
Silvergate CEO stated “By performing our risk management procedures and fulfilling our regulatory obligations, Silvergate plays a key role in helping law enforcement identify bad actors. We take this responsibility seriously.”
Addressing the FTX collapse effects on the bank, Morgan Stanley in a research report downgraded its rating on Silvergate’s shares to underweight from equal weight.
According to the analysts, Silvergate’s digital deposits have decreased by 60% so far in the fourth quarter compared to the third quarter. The bank’s net interest margins and net interest income are put under strain as customers withdraw their deposits.
Last month, Silvergate confirmed minimal exposure to BlockFi. Silvergate also made it clear BlockFi was not a custodian for its Bitcoin-collateralized leverage loans, and neither the firm has investments in BlockFi.
