Silvergate Capital Corporation, a crypto-friendly bank, is set to pay $68 million to settle investigations on its compliance. The settlement was the first enforcement action related to the series of U. S. bank failures in 2023 that involved state and federal agencies.
The Federal Reserve and the California Department of Financial Protection and Innovation (DFPI) noted shortcomings in Silvergate’s systems for monitoring transactions that may violate the anti-money laundering (AML) regime. However, at the same time, due to its failure to disclose that its IT systems were not adequate to prevent this type of fraud, the SEC has filed charges against the bank and its former executives for providing inaccurate reports regarding such compliance.
Former CEO Alan Lane and former Chief Risk Officer Kathleen Fraher have settled SEC charges, agreeing to officer-and-director bans and civil penalties without admitting guilt. Lane will face a $1 million fine and a five-year ban, while Fraher’s penalties include a $250,000 fine and a similar duration ban. On the other hand, Antonio Martino, the former CFO, has opted to contest the SEC’s allegations concerning misleading investor communications.
According to the SEC, Silvergate failed to monitor $1 trillion in transactions through its Silvergate Exchange Network (SEN), missing nearly $9 billion in suspicious transfers related to FTX and its associated entities.
This agreement which also includes the delivery of Silvergate’s banking charter also seeks to end several investigations conducted by the Federal Reserve, the DFPI, and the SEC to stop a turbulent period for the now-defunct bank. The comprehensive agreement assigns $20 million in fines to DFPI and $43 million to the Federal Reserve, with an additional $50 million in SEC fines being offset by the payments to federal and state regulators.
La Jolla, California-based Silvergate announced its decision to decline operations and voluntarily liquidate in March 2023 following losses triggered by the FTX collapse and a downturn in digital assets.
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