SEC Slams, then Settles with Silvergate over Compliance Controls, Customer Monitoring and Statements “Fraudulently” Made to Investing Public

The US Securities and Exchange Commission (“SEC”) peppered Silvergate Capital Corporation (“Silvergate”) and three former members of its executive team with a broadside of accusations relating to its Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) compliance architecture, customer monitoring and assurances made to investors.  

FTX Trading Ltd. (“FTX), itself mired in scandal as a result of alleged fraudulent crypto currency trading activities, entered into billions of dollars of trades using Silvergate as a conduit. According to the SEC, Silvergate was obligated to monitor such activity.  

Silvergate’s former CEO Alan Lane (“Lane”), former chief risk officer Kathleen Fraher (“Fraher”) and former chief financial officer Antonio Martino (“Martino”) were all targets of the SEC’s complaint (the “SEC Complaint”), which was filed in a Manhattan federal court on July 1.  

Moreover, the SEC alleged that Silvergate, Lane and Fraher “fell not only woefully, but also fraudulently, short” in connection with speaking “truthfully to the investing public” regarding the firm’s BSA/AML compliance and customer monitoring shortfalls. 

Consequently, Silvergate’s stock “cratered . . . because of those deficiencies, [and it] failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities.”

According to the SEC, Silvergate and Martino, meanwhile, “understated Silvergate’s losses from expected security sales and misrepresented that it remained well-capitalized as of December 31, 2022.”

Subsequently, Silvergate and the SEC entered into a settlement agreement contemplating, among other things, the payment of a $50 million civil penalty to the SEC. The firm also agreed to pay a total of $63 million in combined fines to the Federal Reserve and California’s Department of Financial Protection and Innovation for the misconduct outlined in the SEC Complaint.  

Lane and Fraher, meanwhile, entered into settlements with the SEC of their own. Each agreed to permanent injunctions, five-year officer-and-director bars and civil penalties of $1 million (for Lane) and $250,000 (for Fraher).  

Martino, on the other hand, rejected the SEC Complaint’s accusations. Maintaining his innocence, he reported being “deeply committed to the highest standards of integrity and transparency in financial reporting, as has been the case over the course of my 30+ year career. The allegations made by the SEC are unfounded and irresponsible, and I look forward to presenting my case in court and clearing my name.”

To review the SEC Complaint in its entirety, see Securities and Exchange Commission v. Silvergate Capital Corporation et al., No. 1:24-cv-04987 (S.D.N.Y. July 1, 2024).  

Are you concerned about your business’s compliance and client monitoring programs? Do you have concerns about your communications with investors? If so, achieve greater peace of mind with respect to such matters by reaching out to Castle Garden Law to for an introductory conversation.