DoJ Investigating Silvergate Over Connections to FTX and Alameda Research

According to a Thursday report, the Department of Justice is probing Silvergate for its connections with Sam Bankman-Fried’s collapsed companies. However, the bank has yet to be accused of any wrongdoing by the DoJ and the investigation is in the early stages.

Silvergate Probed by DoJ for Involvement With FTX and Alameda

Silvergate Bank is reportedly being investigated for its involvement with the cryptocurrency exchange FTX and sister company Alameda Research. The probe is allegedly centered on the bank’s hosting of accounts belonging to Sam Bankman-Fried’s bankrupt firms and is attempting to discover how aware it was of the illegal activities conducted by the companies.

The report also states that the DoJ’s probe is still in the early stages and that Silvergate has yet to be accused of any wrongdoing. The bank has been severely impacted by the collapse of FTX and the ensuing contagion. Early in 2023, a bank run worth $8 billion was revealed and it announced it would be cutting its workforce by as much as 40%.

Late in 2022, Silvergate also became the target of a class-action lawsuit for its dealings with SBF’s cryptocurrency empire. A complaint filed on December 16th alleged that the bank “directly aided and abetted” FTX and Alameda’s misappropriation of customer funds. The lawsuit also alleges that Silvergate accepted FTX users’ deposits before transferring them to Alameda’s accounts for future misuse.

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How FTX and Alameda Misused Customer Funds?

Quickly after FTX filed for bankruptcy, allegations of widespread misuse and misappropriation started emerging. Already in November, it was reported that the cryptocurrency exchange lent billions of dollars worth of users’ assets to prop up its sister company Alameda Research. Towards the very end of 2022, Caroline Ellison admitted to a US judge that Alameda also facilitated and obfuscated large loans for FTX executives at Sam Bankman-Fried’s behest.

Determining how bad the situation with FTX Group’s funds is has proven to be difficult as the company—according to its new CEO—had next to no record-keeping. The state after the bankruptcy proved so dire that the firm’s new management hired forensic investigators to track down the missing assets—a move that has already proven at least partially fruitful as FTX recently reported the recovery of more than $5 billion.

For his involvement as FTX’s CEO, Sam Bankman-Fried was arrested in the Bahamas in December and subsequently extradited to the United States. At a hearing on January 2nd, he pleaded not guilty to all charges and has been released to home detention on a $250 million bail bond. Unlike SBF, Caroline Ellison of Alameda Research, and Gary Wang of FTX chose to plead guilty and cooperate with the authorities.

Do you think the DoJ will find Silvergate guilty of criminal wrongdoing? Let us know in the comments below.