US bank Silvergate has defended its role in accepting deposits for Sam Bankman-Fried’s conglomerate, saying it conducted “extensive due diligence” on crypto exchange FTX and trading firm Alameda Research.
The California-based lender admitted in a U.S. regulatory filing late Monday that it processes remittances for companies and individuals that have traded with Alameda.
The statement from Silvergate, which is regulated by the U.S. Federal Reserve and listed on the New York Stock Exchange, highlights the ties Bankman-Fried’s crypto companies had with the U.S. financial system.
It comes after Bankman-Fried said in recent public statements that several years before FTX established its own banking relationships, customers of the exchange would wire funds to Alameda instead.
Silvergate CEO Alan Lane said in a public letter to the Securities and Exchange Commission that companies or individuals involved with Alameda “would have been directed by Alameda to transfer funds to Alameda’s account, be it at Silvergate or one of their other banking partners”.
Lane added: “When Silvergate received payments destined for Alameda Research and these were credited to the account of the same name . . . this was in accordance with the email sender’s instructions and industry practice.”
FTX’s banking relationships are at the heart of founder Bankman-Fried’s explanation of how the exchange led to a multibillion-dollar shortage of client funds that forced the $32 billion company into bankruptcy last month, in a Collapse reverberating through the cryptocurrency sector.
Bankman-Fried said a failure to properly account for the fact that billions of FTX client funds were transferred to Alameda’s accounts left the exchange with a flawed view of its financial health. He said Alameda appeared to have spent the money, although it remained credited to customer accounts at FTX.
Alameda had at least eight accounts with Silvergate, according to filings with FTX’s newly appointed management in the Delaware bankruptcy court. The bank also maintained more than a dozen accounts for Bankman-Fried’s other businesses.
Lane said Silvergate conducted “extensive due diligence of FTX and its affiliates, including Alameda Research” prior to enrolling them as clients and on an ongoing basis.
Silvergate said last month that its relationship with FTX was limited to deposit accounts and that the exchange accounted for less than 10 percent of the $12 billion the bank held for crypto customers at the end of September.
Silvergate monitored its accounts for suspicious transactions and the “beneficial owner, the source of the funds, and the purpose and expected use of the funds.” Lane said Alameda received client transfers as part of its over-the-counter crypto trading business.
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If it found suspicious activity, the bank would “confidentially file a suspicion report in accordance with federal regulations,” he added.
The bank, which had $13.2 billion in customer deposits at the end of September, has been actively courting crypto customers. Silvergate shares are down 84 percent this year, much worse than the 23 percent drop in the KBW bank index. Lane’s letter criticized “speculation – and misinformation – circulated by short sellers and other opportunists trying to capitalize on market uncertainty.”
However, the Silvergate boss also acknowledged that “it’s been a very difficult few weeks for the digital asset industry as we all come to terms with the apparent misuse of client assets and other misjudgments by FTX and Alameda Research.”
Lane also said Silvergate has maintained a “robust balance sheet and ample liquidity” despite the turmoil in the crypto industry. “While this has been a turbulent time in the digital asset industry, our clients’ deposits are and have always been safe.”
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