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) — U.S. Senator Roger Marshall M.D., Elizabeth Warren (D-Mass.), and John Kennedy (R-La.) released new information on 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 that requested information about whether the bank was aware that FTX customer funds were being improperly wired to Alameda’s Silvergate account, and if the bank is prepared to withstand the stress of the current crypto market.

On December 6, 2022, the lawmakers wrote to Silvergate seeking answers about the bank’s role in the loss of billions of dollars in FTX customer funds, the misuse of which was revealed after the crypto exchange’s collapse. The bank’s response was largely evasive and refused to provide much of the requested information on the grounds that it was “confidential supervisory information.”

“We wrote to you seeking information on what appeared to be an egregious failure of your bank’s responsibilities to monitor and report suspicious financial activity,” wrote the lawmakers. “Your response confirms the extent of this failure – but then neglects to provide key information needed by Congress to understand why and how these failures occurred.”

While Silvergate’s response was unsatisfactory, it did reveal several new pieces of information, including that (1) “Silvergate had risk management and due diligence processes in place – but that these processes failed they did, in fact, fail miserably;” (2) that Silvergate was subject to (at least) annual exams conducted by the Federal Reserve and annual audits conducted by independent auditors, neither of which identified the problems with FTX and Alameda; (3) that Silvergate has an ongoing internal investigation of FTX and Alameda; and that (4) Silvergate has not yet held its top risk manager, Mr. Tyler Pearson, responsible for the extraordinary gaps in the bank’s due diligence process. 

“It is crucial that you provide Congress with the information needed to assess the extent to which Silvergate is responsible for the improper transfer of FTX customer funds to Alameda, and to determine the nature of the compliance failures by your bank and your auditors that could have allowed for such abuses,” concluded the lawmakers.

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

“By using the FHLB as its functional ‘lender of last resort,’ Silvergate has further introduced crypto market risk into the traditional banking system,” wrote the lawmakers. “If Silvergate were to fail – as have banks facing a fraction of the withdrawal rates Silvergate has faced  – FHLB could ‘assert statutory lien priority on other assets – essentially putting the Home Loan bank ahead of all other creditors,’ including the Federal Deposit Insurance Company’s (FDIC) deposit insurance fund.”

The lawmakers are urging Silvergate to respond in full to initial questions about the bank’s involvement in the transfer of FTX customer of 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, examinations, and audits, and its use of the FHLB loan, no later than February 13, 2023.

You may click HERE to read the Senators’ letter.