US Senators Interrogate Silvergate on FTX Insider Knowledge

A cohort of the United States Senate is questioning crypto bank Silvergate about its knowledge of the FTX fraud, after finding responses to prior questioning “evasive” and “incomplete.”

The senators suspect that Silvergate may have played a role in illegally transmitting FTX user funds to Alameda Research through the trading firm’s accounts with the bank. 

Silvergate and FTX

According to BNN Bloomberg, the senators sent a letter to Silvergate on Monday questioning the bank over its ties to FTX. The bipartisan group includes Democrat Elizabeth Warren – a renowned crypto skeptic – and Republicans Roger Marshall and John Kennedy.

Within the letter, the politicians said Silvergate had declined to answer similar questions in December due to “confidential supervisory information.” For the senators, this justification was unacceptable. 

“This is simply not an acceptable rationale,” the senators wrote back to Silvergate Chief Executive Officer Alan Lane. “Both Congress and the public need and deserve the information necessary to understand Silvergate’s role in FTX’s fraudulent collapse, particularly given the fact that Silvergate turned to the Federal Home Loan Bank as its lender of last resort in 2022.”

Yet Silvergate may not be out of line: Sultan Meghji, former chief innovation officer for the Federal Deposit Insurance Corp, said banks could be held criminally liable for disclosing confidential supervisory information  He said Congress ought to work with regulators to find the information it desires, finding Silvergate’s reluctance to open up in this situation “not surprising.”

During its previous question period, Silvergate said it opened an account with Alameda back in 2018, which was before FTX’s founding. It also claimed to have conducted ongoing due diligence checks on both Alameda and FTX while it worked with the companies. 

The senators’ Monday letter asked for details on Silvergate’s due diligence practices, and results of the Federal Reserve’s annual examinations and other independent audits. 

Kevin O’Leary, a previous spokesperson for FTX, has said that he and other investors “relied on each other’s due diligence” when getting involved with the company, and that they feel foolish in hindsight. 

Silvergate After FTX

When FTX filed for bankruptcy in November, its collapse sent shockwaves throughout the market impacting numerous major firms, including both BlockFi and Genesis. Silvergate claimed its deposit relationship with BlockFi was less than $20 million, and that it hadn’t invested in the company. 

But that doesn’t mean Silvergate isn’t feeling the heat: the bank announced a 40% staff layoff in early January while scrapping its planned $196 million purchase of Facebook’s collapsed stablecoin project, Diem. It disclosed a $1 billion net loss in Q4 2022. 

Silvergate is the bank that MicroStrategy worked with to take out a $205 million Bitcoin collateralized loan in March of last year. Bitcoin fell over 50% since that time and forced MicroStrategy to post more collateral to prevent liquidation.