DoJ Investigates Crypto Bank Silvergate Capital Over FTX Crypto Scam Transfers

By Evan Spicer

Director of Cryptocurrency Investigations

In an effort to cast a wider net over crypto scams and require more accountability on behalf of crypto banks and platforms, the U.S. Department of Justice (DoJ) is investigating Silvergate Capital, one of the most trusted crypto banks. 

Silvergate’s reputation and stock price have faltered over questions about its failure to implement best practices in the case of crypto scam FTX and Alameda Research. 

PYMNTS reports that the DoJ investigation follows a letter issued by Senators Elizabeth Warren, John Kennedy and Roger Marshall asking for information about the bank’s role in “facilitating the transfer of FTX customer funds to Alameda.” 

Alameda Research was a fund created by FTX founder Sam Bankman-Fried, who is now facing fraud charges and violating federal financial laws. He was caught transferring money from FTX customer funds to Alameda Research and rewarding his accomplices with luxurious properties purchased with money directly from FTX accounts. 

The senators are investigating Silvergate Capital for its role in allowing transfers made between FTX and Alameda Research. Silvergate Capital responded vaguely to the letter, claimed it was making internal inquiries and was unwilling to release any “confidential supervisory information.” 

DoJ Claps Back over Silvergate Capital’s Evasive Answer about the FTX Crypto Scam

Warren, Kennedy, and Marshall were dissatisfied with this response and sent a strongly-worded follow-up letter: 

“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. 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.”

In addition, the senators reminded Silvergate Capital that Congress and the public had the right to know more details about FTX’s collapse and the bank’s possible role. Not only should Silvergate Capital, as a financial institution, be accountable to regulators, but the fact that the bank took a loan from the Federal Home Loan Bank when it lost money makes this case of particular public concern. 

Given the rapid losses during the FTX collapse, Silvergate Capital turned to the Federal Home Loan Bank for extra funds. If the loan fails, the federal lender, the FDIC, and ultimately the American taxpayer will have to bail out the crypto bank. 

DoJ Seeking More Information from Crypto Banks and Exchanges

This emphasizes the reason for louder calls for regulation of the crypto sector. Not only are numerous crypto scams a danger to the public, but increasingly, the links between crypto entities and traditional financial institutions, such as banks, create shockwaves across the entire economy when there a volatile crypto company collapses. 

In preliminary investigations, which is in addition to a further investigation by the DoJ, the senators have found that Silvergate Capital, as a regulated entity, had risk management and due diligence processes in place, but had “failed miserably.” In addition, the “extraordinary gaps” in Silvergate’s Capital’s due diligence process may have caused FTX to get away with shuffling funds. 

Silvergate has paid a steep price for its association with the crypto scam FTX. Its share price is down 87% year over year. However, it’s clear that there are steps Silvergate Capital could have taken to protect itself and the public from the FTX collapse. 

What Does the Government’s Investigation of Silvergate Capital Mean for Crypto Consumers? 

It’s clear from the DoJ’s investigation of Silvergate Capital that the government is taking a more active role in crypto investigations, and is including not only the crypto scams, but banks and exchanges that handled their transactions. 

It’s clear that crypto scams, including the FTX collapse, have a disastrous effect on the non-crypto finance sector and the ordinary consumer. We can expect to see crypto banks and platforms held accountable for implementing best practices that can stop crypto scams in their tracks. 

This can mean a safer environment for crypto traders. Also, it can lead to an improvement in the chances for crypto recovery for victims of bitcoin scams.

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If you have lost money to financial fraud, talk to the MyChargeBack team. Our investigations will provide evidence to bolster your claim. Our crypto investigation reports are essential for tracking down your funds on the blockchain and getting your started on the road to fund recovery.