• Silvergate’s (SI) stock dropped 28% yesterday after news broke that the bank is under investigation by the U.S. Department of Justice for its ties to FTX and Alameda Research.
• The DOJ is trying to determine if Silvergate knew about the alleged fraud at FTX and Alameda before they filed for bankruptcy.
• Silvergate has lost 90% of its value since its all-time high, and it recently reported a $1 billion loss in Q4 last year due to a massive bank run.
DOJ Investigates Silvergate Over Ties With FTX and Alameda
Silvergate’s (SI) stock crashed 28% yesterday after Bloomberg reported that the bank is facing a probe by the U. S. Department of Justice over its ties with FTX and Alameda Research. SI had erased massive gains from earlier this week when Federal Reserve chairman Jerome Powell made dovish remarks on inflation.
Alameda Opened an Account With Silvergate in 2018
The DOJ investigation centers around whether Silvergate was aware of the situation at Sam Bankman-Fried’s businesses before they went bankrupt. According to reports, Alameda opened an account with Silvergate in 2018 — a year before FTX was launched — but it appears that Silvergate did not conduct enough due diligence or ongoing monitoring of Alameda’s activities which led to fraudulent activity eventually leading up to their bankruptcy filing last November.
Silvergate Experienced Mass Bank Run in Q4 Last Year
When FTX went bust last year, it prompted a mass bank run at Silvergate resulting in over $8 billion being withdrawn from the bank in Q4 alone — leading to losses amounting to $1 billion during that quarter as well as layoffs of 40% staff members and taking out multiple loans including one from the Federal Home Loan Bank (FHLB).
U.S Senators Call Bank Risk To Traditional Banking System
Several U.S senators have called upon regulators and other government entities like FINRA, SEC, FED etc., to look into what risks does SI pose on traditional banking system by allowing crypto related activities on their platform? They also raised concerns about how robots can be used at banks instead of humans, so that these kinds of problems could be avoided in future scenarios?
Investors Remain Cautious Until Probe Concludes
Investors remain cautious until official results come out regarding this investigation, meaning SI may not see any substantial price increase until then even though it has bounced back slightly since crashing initially following news reports about this probe by DOJ..