A class action lawsuit against Silvergate Bank, Silvergate Capital Corporation, and Silvergate CEO Alan Lane was filed Wednesday in the U.S. District Court for the Southern District of California, alleging the defendants directly aided and abetted FTX’s fraudulent activities.
Per court filings, plaintiff Joewy Gonzalez and “all others similarly situated” entrusted their investments to the now-bankrupt crypto exchange FTX, which promised investors that they would be able to "store assets securely as they gained in value, cash them out or trade them for other assets or financial products.”
However, with the collapse of FTX last month, the plaintiff and other FTX investors are unable to recover their investments, facing “years of uncertainty and catastrophic losses.”
Silvergate, a publicly traded and federally regulated bank, maintained accounts of both FTX and its affiliated company Alameda Research, with the plaintiff asserting that it was engaged in “first-hand participation in the commingling of funds, improper transfers, and lending out of customer money.”
Silvergate’s actions 'integral' to SBF’s enterprise
The lawsuit also alleges that the defendants made misleading statements, failing to disclose that the company’s platform lacked sufficient controls and procedures to detect instances of money laundering.
“FTX/Alameda was one of Silvergate’s most important customers, and their business operations and interests were tightly entwined. Silvergate profited from deposits by digital-asset customers, which grew exponentially as FTX’s own business Expanded,” reads the filing.
It also added that “Silvergate’s actions and inaction were integral to Bankman-Fried’s enterprise,” with all financial dealings occurring “in plain sight” of the La Jolla-based firm.
News of a class action lawsuit against Silvergate comes in the wake of Morgan Stanley's move last week to downgrade the firm’s stock from "equal weight" to "underweight," which sent the price of its shares tumbling.
To add more pressure on the firm, a group of senators, including the long-time crypto critic Elizabeth Warren, sent a letter to Silvergate CEO Alan Lane, requesting to disclose information about the bank’s relationship with FTX and the Bankman-Fried entities.
“Your bank’s involvement in the transfer of FTX customer funds to Alameda reveals what appears to be an egregious failure of your bank’s responsibility to monitor for and report suspicious financial activity carried out by its clients,” the letter said.
Silvergate has until December 19 to respond to the lawmakers.