Investors are worried that Silvergate might file for bankruptcy protection soon. Long-time critic and short-seller Marc Cohodes predicts the bankruptcy filing could arrive before Monday and that its CEO Alan Lane should face federal charges.
The publicly traded bank has delayed the release of its 2022 annual report. It admitted a “going concern” regarding its ability to survive financially. Silvergate has requested an extension of time from the Securities and Exchange Commission (SEC) in order to evaluate “internal controls over financial reporting.” Crowe LLP, auditors of Silvergate’s finances, have not signed their audit of the bank’s fourth quarter finances.
If the bank collapses, the Federal Deposit Insurance Commission (FDIC) might overtake the bank in order to protect depositors, liquidate assets, and facilitate its orderly dissolution.
The digital asset-friendly bank faces severe losses, a bank run, and numerous regulatory issues after Sam Bankman-Fried’s (SBF) empire collapsed. Alameda Research and FTX were once Silvergate’s biggest customer duo. FTX allegedly routed customers’ deposits through Alameda Research’s account at Silvergate. Several digital asset companies are actively terminating their relationship with Silvergate.
- Customers withdrew over $8 billion in deposits from Silvergate after FTX collapsed. The withdrawals contributed to Silvergate’s nearly $1 billion loss in the final quarter of 2022.
- USDC issuer Circle recently announced it was “unwinding” its relationship with Silvergate, which could impact some of its services.
- Meanwhile, Coinbase said it would no longer use Silvergate to process deposits and withdrawals.
Shares traded down 57% on March 2nd alone. Zooming out, shares are 97% below all-time highs in November 2021. State Street, Blackrock, and Citadel Securities hold significant stakes in Silvergate. EOS co-creator Brendan Blumer bought a 9.3% stake in Silvergate last November — enough to warrant a regulatory filing and making him its largest shareholder.
Possible bankruptcy talks at Silvergate
Silvergate also faces class-action lawsuits. Harmed investors allege Silvergate failed to warn them about its deficiencies in anti-money laundering protocols. The lead plaintiffs, which include a teachers’ pension fund and state-managed retirement funds, claim to have lost millions on their investments in Silvergate shares. US District Judge Cathy Ann Bencivengo appointed two law firms to serve as special counsel representing the plaintiffs.
Silvergate is systemically important to the crypto industry. According to David Gerard and Amy Castor, The Bank for International Settlements’ Basel III bank monitoring report for February 2023 indicates that 61.7% of total, worldwide, cryptoasset prudential exposures were “almost certainly” held by Silvergate. Gerard and Castor estimate this based on Silvergate’s bitcoin-secured loans to MicroStrategy and bitcoin miners.
Naturally, politicians did not let a good crisis go to waste. Three senators, including Elizabeth Warren, sent a letter to Silvergate CEO Alan Lane expressing concern about introducing “crypto market risk into the traditional banking system.” Warren separately called on banking regulators to scrutinize banks doing business with digital asset firms more closely.