New Jersey

Sens. Marshall, Warren, Kennedy, Release New Information, Renew Push for Answers from Silvergate Bank over Role in FTX Collapse

(Washington, D.C. February 1, 2023) – US Senator Roger Marshall MD, Elizabeth Warren (D-Mass.) and John Kennedy (R-La.) released new information about Silvergate Bank’s failures related to crypto firm FTX in a follow-up letter to Silvergate CEO Alan Lane. The Senators released Silvergate’s response to their December Letter It requested information on whether the bank was aware of FTX client funds being improperly transferred to Alameda’s Silvergate account and whether the bank is prepared to withstand the stresses of the current crypto market.

On December 6, 2022, lawmakers wrote to Silvergate seeking answers about the bank’s role in the loss of billions of dollars in FTX client funds that were exposed for abuse following the crypto exchange collapse. The bank’s response was largely evasive, refusing to provide much of the requested information on the grounds that it was “confidential regulatory information”.

“We have written to you to obtain information regarding what appears to be an egregious failure by your bank to monitor and report suspicious financial activity.” wrote the legislature. “Your response confirms the magnitude of these failures – but then neglects to provide important information Congress needs to understand why and how these failures occurred.”

Although Silvergate’s response was unsatisfactory, it revealed several new pieces of information, including (1) “Silvergate had risk management and due diligence processes in place – but that those processes were failing, they were failing miserably;” (2) that Silvergate (at least ) has been subject to annual reviews by the Federal Reserve and annual reviews by independent auditors, none of which identified issues with FTX and Alameda; (3) that Silvergate conducts an ongoing internal investigation of FTX and Alameda; and (4) that Silvergate has not yet held its chief risk manager, Mr. Tyler Pearson, accountable for the extraordinary omissions in the bank’s due diligence process.

“It is critical that you provide Congress with the information needed to assess Silvergate’s degree of responsibility for improperly transferring FTX client funds to Alameda and the nature of your bank’s compliance violations and their auditors to determine who might have allowed such abuses”, concluded the legislature.

In the weeks since Silvergate’s response, the bank has suffered severe financial losses and in early January it was revealed that the bank had received a $4.3 billion loan from the Federal Home Loan Bank (FHLB) of San Francisco.

“By utilizing the FHLB as a functional ‘lender of last resort’, Silvergate has further introduced crypto market risk into the traditional banking system,” wrote the legislature. “If Silvergate were to fail – as banks have faced a fraction of the withdrawal rates Silvergate has faced – the FHLB could ‘assert statutory lien precedence over other assets – essentially putting Home Loan Bank ahead of all other creditors, including the Federal Deposit Insurance of the Company’s Deposit Insurance Fund (FDIC).”

Lawmakers are asking Silvergate to fully answer initial questions about the bank’s involvement in transferring FTX client funds to Alameda and, prompted by the new information in Silvergate’s response, are asking for new information about the bank’s risk management policies, audits and Company audits and their utilization of the FHLB loan by February 13, 2023 at the latest.

You can click HERE to read the letter from the senators.

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