The senators, including Elizabeth Warren, Roger Marshall, and John Kennedy, have sent a letter to the bank asking whether it knew about FTX’s alleged misuse of customer funds, which the lawmakers have deemed the firm’s previous responses to be evasive and incomplete.

Senators Press Silvergate on FTX Response

The senators have accused Silvergate of declining to fully answer their questions in December, citing restrictions on disclosing confidential supervisory information. They have also criticized this justification, stating that both Congress and the public need and deserve information about Silvergate’s role in FTX’s collapse, especially since the bank turned to the Federal Home Loan Bank as its lender of last resort in 2022.

In response to the senators’ original letter, Silvergate said it conducted due diligence on FTX and related entities and that it is subject to annual exams by the US Federal Reserve and independent audits. The bank also said it was reviewing transactions involving accounts associated with FTX and Alameda Research.

Still, Elizabeth Warren, Roger Marshall, and John Kennedy have accused Silvergate of leaving out crucial information in their previous response.

In their latest letter, they have asked Silvergate to answer a new set of questions about its awareness of FTX directing customers to wire funds to Alameda’s account at Silvergate and whether it flagged any transactions as suspicious. The senators have also requested information about Silvergate’s due-diligence practices, the results of its audits, and how it plans to use the proceeds from its Federal Home Loan Bank loan.

Time Is Running Out

The former CEO of FTX, Sam Bankman-Fried, and other high-level executives have been accused of carrying out a fraudulent scheme involving the diversion of billions of dollars of FTX’s customer assets to Alameda Research. Some of these funds were reportedly routed through Silvergate accounts.

A representative for Silvergate stated that the firm has a comprehensive compliance and risk management program and conducted significant due diligence on FTX and Alameda Research. Still, former chief innovation officer for the Federal Deposit Insurance Corp, Sultan Meghji, affirmed that banks cannot disclose confidential supervisory information and that Congress should work with the banking regulators to obtain this information.

The senators have given Silvergate a deadline of February 13 to respond to their inquiries. The outcome of this investigation will provide crucial insight into the extent of Silvergate’s responsibility for the improper transfer of FTX customer funds. It will also help determine any compliance failures by the bank or auditors that may have enabled the alleged fraud.

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Feb 1, 2023
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