US senators request a full account of the financial activities that may have led to the loss of billions in FTX customer assets and are determined to disclose any role that Silvergate may have played in this story
In a joint letter to Silvergate Bank, three US senators request information regarding its connection to the infamous FTX and Alameda collapse. While clients and investors wait for reimbursement, the search for the causes of the event that triggered wider crypto turbulence gets more complicated.
Senators allege that Silvergate might have facilitated the improper transfer of FTX customer funds to Alameda. As Sam Bankman-Fried (SBF) recently explained, FTX didn’t have its own bank account in the early days, so customers sent funds to related party Alameda, with Silvergate as an intermediary. In his words, company executives simply “forgot” about this scheme until the company imploded.
In that case, questions arise about Silvergate’s role in this scenario. Namely, why did the bank do nothing to halt these activities or report these suspicious transactions to the Financial Crimes Enforcement Network (FinCEN)? Furthermore, the bank’s lack of awareness suggests it may have failed to implement or maintain an effective AML program, as required under the Bank Secrecy Act (BSA).
The amount of the transfers in question is between $5 billion and $8 billion. The exact number is unknown, as SBF’s statements vary. Moreover, a lot of details in the story of corporate “negligence” presented by SBF don’t add up. Thus, Ledger Insights has wondered how FTX could buy crypto for its clients if the funds remained in Alameda accounts. One of the possible explanations is that it never did and used fictitious accounting to create an illusion of trading.
Nevertheless, Silvergate’s explanations may clarify whether FTX’s senior management committed criminal fraud or was truly just negligent about proper accounting.
Besides, the legislators ponder over Silvergate’s liquidity itself. At the end of September, 90% of the bank’s overall deposit base came from crypto firms. In a month, at least two of the bank’s digital asset clients – FTX and BlockFi – have declared bankruptcy. Besides, loans issued by Silvergate through the “SEN Leverage” program were collateralised by bitcoin, which has lost a lot of its value this year.
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