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- FTX was directing customers’ funds to Alameda-controlled accounts at crypto bank Silvergate.
- Silvergate Bank’s exposure to the FTX collapse has seen its share price plunge.
New details of events that led to the FTX empire’s unraveling have continued to emerge with the latest being severe abuse of customer funds carried out between the crypto exchange and its sister-firm Alameda Research.
Per Bloomberg’s report, FTX had accessed regulated banks otherwise out of reach to the crypto exchange through Alameda Research. The scoop, which cited anonymous persons close to the matter, revealed that FTX directed some customers to wire transfers meant for the exchange to Alameda’s account at crypto bank Silvergate Capital.
According to the report, the situation arose because banks were reluctant to do business with crypto companies including FTX while Alameda was allowed to have an account at Silvergate. The arrangement has allegedly been in place for years with Alameda receiving wire transfers meant for FTX even this year.
Alma Angotti, a former enforcer with the U.S. Securities and Exchange Commission (SEC), told Bloomberg that determining if there was wrongdoing would depend on facts including if Silvergate Bank knew of the setup. However, he added that the arrangement was a very bad practice and portrays poor risk management.
It’s very bad practice and risk management in any book to mingle your customer funds with counterparty funds and other funds. This is a complicated set of facts and it’s hard to say at this point what was violated. It’s bad risk management and it’s sloppy at the very least,
Silvergate to be the latest victim of the FTX contagion?
The La Jolla, California-based Silvergate Bank is one of the few Federal Reserve member banks that has been acting as a fiat on-ramp for the crypto market with over $11.9 billion in deposits from crypto users as of Sept. 30. The company’s Silvergate Exchange Network has also been a key offering for crypto exchanges and firms that operate in the crypto market.
Significantly, Silvergate’s exposure to FTX and other FTX-related entities has caused some upheaval in the crypto market of recent. The crypto bank said in a press release that its total digital asset deposit relationship with crypto lender BlockFi, which filed for Chapter 11 bankruptcy protection earlier this week, is less than $20 million of its total deposits from digital asset customers.
Silvergate also implored users to ignore false and misleading statements about its business and only go directly to its website for accurate information in the release. Despite this, the price of Silvergate’s shares has dropped 11 percent in the last 24 hours to currently be trading at $25.09 on the NYSE as investor confidence has taken a hit.
