Silvergate Capital Corp., former CEO Alan Lane and former chief risk officer Kathleen Fraher, were charged by the Securities and Exchange Commission with misleading investors about the strength of its bank secrecy act and AML compliance programme and the monitoring of crypto customers.

In addition, the company and former executives were charged with misleading investors about the company’s losses from expected securities sales following the collapse of FTX.

Silvergate and Martino misrepresented the company’s bleak financial condition during a liquidity crisis and bank run following FTX’s collapse, alleges the SEC. Last year, the firm announced it would wind down its banking operations, and its stock eventually plummeted to near $0.

Gurbir Grewal, director, SEC division of enforcement, says: “Rather than coming clean to investors about serious deficiencies in its compliance programmes in the wake of the collapse of FTX, one of Silvergate’s largest banking customers, they doubled down in a way that misled investors about the soundness of the programmes.

"In fact, because of those deficiencies, Silvergate allegedly failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities. Silvergate’s stock eventually cratered, wiping out billions in market value for investors.”

Silvergate will pay a $43 million penalty to the Federal Reserve System and another $20 million to the California Department of Financial Protection and Innovation. Another $50 million penalty has been levied by the SEC but this will be offset by the Fed and DFPI payments.

Lane and Fraher also settled their charges without admitting or denying the allegations, agreeing to permanent injunctions, five-year officer-and-director bars, and civil penalties of $1 million and $250,000 respectively.

Martino, the former chief financial officer, denied the allegations through a statement from his attorneys.

All the settlements are subject to court approval.