In a recent development, Silvergate Bank faces a class action lawsuit brought forth by FTX users, who accuse the bank of aiding and abetting fraud in the stock market, particularly through its association with Alameda Research, an affiliated trading company. On March 20, Judge Ruth Bermudez Montenegro of the San Diego federal court denied Silvergate’s request to dismiss the lawsuit filed in June. The decision underscores the allegations that Silvergate was aware of FTX’s fraudulent activities but still profited from them, unjustly enriching itself at the expense of FTX users.
The court’s decision highlighted the significance of the Silvergate Exchange Network (SEN), designed to facilitate fund transfers to crypto exchanges, which greatly benefited FTX customers. According to the judge, Silvergate had an obligation to FTX customers due to its integral role in facilitating FTX’s operations. Notably, Silvergate provided banking services to both FTX and Alameda, processing transfers that directed FTX customer funds to Alameda. The decision emphasized that Silvergate’s business interests were closely tied to the adoption and success of the FTX exchange platform, suggesting that it had a vested interest in continuing to accept FTX and Alameda customer deposits despite the potential risks.
Silvergate reportedly earned substantial income from transaction fees and interest on accounts related to FTX, with its annual revenue significantly increasing after the launch of the FTX exchange. The decision refutes Silvergate’s argument that it had no duty of care to FTX customers, pointing out that rejecting FTX’s transfers might not have deterred the exchange from finding another bank, given Silvergate’s prominent role in serving the crypto industry.
The lawsuits against Silvergate were consolidated after being filed in February 2023, and the recent decision marks a significant milestone in the legal proceedings. Silvergate’s bankruptcy declaration in March 2023, following FTX’s bankruptcy in November 2022, adds complexity to the case. Furthermore, Sam Bankman-Fried, co-founder of FTX, faces charges of fraud and money laundering, with his sentencing scheduled for March 28.
