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Silvergate is the Latest Company to be Probed Over FTX and Almeda Case

FTX and Alameda Research are two of the biggest names in the crypto industry that fell from grace earlier this year. Now, Silvergate is joining them, according to Bloomberg.

Continued Domino Investigations

When FTX suddenly imploded last November, Silvergate was among the lenders that were hardest hit. As a result of the loss of $1 billion that the bank reported last quarter, 40% of its staff were laid off. As a result of Bankman-Fried’s collapse, a large amount of money was taken out in loans in order to stave off a run on the company’s deposits.

There are people who have asked not to be identified for the purpose of discussing a confidential investigation into Silvergate’s hosting of accounts linked to Sam Bankman-Fried’s businesses. In addition to the review, lawmakers have also been examining the La Jolla, California-based bank as a part of mounting scrutiny of the bank.

One of the biggest outstanding questions surrounding the FTX debacle has been answered by the investigation, which began several weeks ago and is still ongoing: What did banks and intermediaries working with Bankman-Fried’s firms know about what US officials have described as a scheme to defraud investors and customers over the past several years? 

There were early providers of services that catered to the needs of crypto companies such as Silvergate, which appeared as a go-to bank. It implemented systems to allow its cryptocurrency customers to transact in fiat currency in real time between their bank accounts and their cryptocurrency wallets. 

alameda research

Among some ex-prosecutors turned cryptocurrency enthusiasts who had become involved with the firm in the past, it was known for being careful to comply with all the laws in the US.

According to the bank’s financial statements, there has been a warning that the bank may be exposed to regulatory risks when dealing with cryptocurrency companies. By far, however, its work with companies that are associated with Bankman-Fried has been its biggest headache here in Washington. 

During the first week of January, Silvergate reported that as of the end of 2022, it had about $4.6 billion in cash and cash equivalents as well as $4.3 billion in short-term advances with the Federal Home Loan Bank.

In the event that the court finds the company guilty, we can expect not only bad news for the whole ecosystem but also bad news for this sector in general. The problem of centralized systems has been shown once again to be a problem. Moreover, these crises are caused by the connected and centralized management systems.