Silvergate shares saw a sharp decline in pre-market trading following the news that US authorities have opened an investigation into the crypto bank’s dealings with fallen crypto giants FTX and Alameda Research.
according to recent reports By Bloomberg, the US Justice Department is probing Silvergate’s ties to now-defunct cryptocurrency exchange FTX and its trading arm Alameda Research, including probing the bank’s hosting of accounts linked to businesses belonging to Sam Bankman-Fried.
The crypto-friendly bank has not been accused of any wrongdoing and the investigation, which is in its early stages, could end without charges, Bloomberg reported, citing people familiar with the matter.
Following the news, Silvergate shares plummeted, falling as much as 10% in pre-market trading. Notably, the company’s shares lost nearly 88% of their value in 2022 amid the broader crypto market downturn, which wiped out nearly $2 trillion from the market.
The investigation, which began a few weeks ago, reportedly centers around one key question: “What did the banks and intermediaries who worked with Bankman-Fried’s firms know when US authorities defrauded investors and customers?” Where is a year long plan to give?”
Disgraced FTX founder Sam Bankman-Fried has been indicted on eight criminal charges, including conspiracy to commit wire fraud and misappropriation of customer funds. infamous crypto boss pleaded not guilty For all charges in the previous month.
Silvergate was one of the lenders most affected by the fall of FTX in November last year. As mentioned, Silvergate faced a bank run Following the collapse of FTX and had to sell $5.2 billion of debt securities held on its balance sheet to cover approximately $8.1 billion in user withdrawals.
As a result, it lost $718 million, which reportedly exceeds the bank’s total profits since 2013. Furthermore, Silvergate only had $3.8 billion in deposits at the end of 2022, compared to $11.9 billion in 2021.
It’s worth noting that Silvergate has Received At least $3.6 billion in loans from federal home loan banks, a system originally designed to support housing finance and community investment. This could be a sign of growing ties between crypto-exposed banks and Tradefi companies.
Some market participants have warned that lending to crypto-exposed banks could spread the crypto infection to traditional finance companies as well. “That’s why I’m warning about the dangers of allowing crypto to be intertwined with the banking system,” Senator Elizabeth Warren said last month.
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