Silvergate Bank, once a cornerstone<\/a> of the crypto financial world until its collapse in early 2023<\/a>, defrauded its investors by lying about its anti-money laundering controls and misleading investors about how the fallout from the FTX collapse would affect it, the Securities and Exchange Commission says in a lawsuit. Also named in the suit were the company\u2019s chief executive officer, chief risk officer, and chief financial officer.<\/p>\n<\/div>\n Silvergate agreed to pay $50 million to settle the charges, without admitting or denying the allegations, the SEC said in a statement.<\/a> CEO Alan Lane and CRO Kathleen Fraher also settled for $1 million and $250,000 each.<\/p>\n<\/div>\n Silvergate said it had an effective anti-money laundering (AML) program tailored specifically to crypto but actually didn\u2019t adequately monitor \u201capproximately $1 trillion\u201d in transactions, the complaint says. Silvergate also didn\u2019t notice \u201cnearly $9 billion in suspicious transfers\u201d by FTX entities.<\/p>\n<\/div>\n FTX was among Silvergate\u2019s largest customers, the SEC says. Days after the crypto exchange declared bankruptcy<\/a>, the bank run that would ultimately kill Silvergate<\/a> had begun. Lane, aware of social media chatter about Silvergate, asked the bank to review its relationship with FTX. That review found more than 300 suspicious transactions in 2022. Those suspicious transfers totaled almost $9 billion, the SEC complaint says.<\/p>\n<\/div>\n At that point, Silvergate\u2019s chief financial officer Antonio Martino \u201cengaged in a fraudulent scheme to mislead investors about the Bank\u2019s dire financial condition,\u201d the SEC alleges. Martino knew the bank had borrowed billions, which it would have to repay in January and February 2023. The only way that could happen would be by selling securities, but Martino approved an earnings release that \u201cfalsely stated the Bank expected to sell only $1.7 billion in securities during the First Quarter of 2023, of which it had already sold $1.5 billion.\u201d<\/p>\n<\/div>\n That earnings release understated Silvergate\u2019s losses from its securities sales, the SEC complaint alleges. Martino also lied on the bank\u2019s quarterly earnings call, according to the complaint.<\/p>\n<\/div>\n Martino \u201ccategorically denies\u201d these allegations, said his attorney, Adam Lurie, in a statement emailed to The Verge <\/em>by Rachel Katz, a spokeswoman for Martino\u2019s law firm Linklaters. \u201cMr. Martino acted reasonably and in good faith throughout his time at Silvergate.\u00a0He denies any wrongdoing and intends to challenge the SEC\u2019s claims in court,\u201d said Lurie, who was also directly quoted in a statement Katz said was his.<\/p>\n<\/div>\n At the heart of the SEC\u2019s allegations is the network Silvergate ran to allow crypto customers to transact at all hours, called SEN. This was used by, among others, stablecoin issuers such as Circle, Paxos, and Gemini. Though Silvergate said SEN was safe, the SEC says the network wasn\u2019t being automatically monitored for suspicious transactions for \u201cat least 15 months prior to November 2022.\u201d<\/p>\n<\/div>\n What\u2019s more, on several occasions in 2022, the bank\u2019s government examiners made it clear to the C-suite that Silvergate\u2019s program for compliance with the Bank Secrecy Act was inadequate.<\/p>\n<\/div>\n The earnings statement for the first quarter of 2023 wasn\u2019t the only one alleged to contain fraud. In November 2022, the company suggested to investors that it had a \u201cstate-of-the-art\u201d compliance program. In reality, the SEC says there was no automatic monitoring for several months before that earnings statement was released.<\/p>\n<\/div>\n