Silvergate to face lawsuit over alleged FTX exchange fraud


  • Silvergate Bank is set to face a class-action lawsuit over its alleged role in facilitating fraud at FTX and Alameda Research.
  • The lawsuit gained momentum when a federal court in San Diego ruled against Silvergate’s dismissal motion.
  • Judge Ruth Bermudez Montenegro found substantial allegations of Silvergate’s awareness and involvement in FTX’s fraudulent activities.

In a significant development within the cryptocurrency banking sector, Silvergate Bank is set to face a class-action lawsuit. This follows allegations from FTX users that the bank played a role in facilitating fraud at the exchange and its affiliate, Alameda Research. The lawsuit received a boost when, on March 20, a federal court in San Diego, under Judge Ruth Bermudez Montenegro, dismissed Silvergate’s motion for dismissal filed in June. The court found that the plaintiffs had sufficiently alleged Silvergate’s awareness of FTX’s fraudulent activities. Moreover, they argued the bank unjustly enriched itself at the expense of FTX users, a claim Silvergate vehemently denies.

Judge Montenegro’s ruling emphasized that Silvergate’s Exchange Network, primarily designed to facilitate fund transfers to crypto exchanges, played a pivotal role in FTX operations. This network, the court noted, was instrumental in the functionality of crypto exchanges like FTX, making Silvergate’s involvement critical to the allegations. The judge highlighted that Silvergate processed transfers and accepted deposits, channeling FTX customer money to Alameda. This, according to the court, was a clear indication of Silvergate’s deep entanglement in the operations and alleged fraudulent activities of FTX and Alameda Research.

Court’s findings and Silvergate’s defense

The lawsuit against Silvergate outlines the bank’s integral role in the operational dynamics between FTX and its users. According to the court’s findings, Silvergate not only processed financial transactions but also accepted deposits that facilitated the alleged fraud. The court pointed out that FTX customers were initially directed to wire money to Alameda’s account due to FTX’s lack of a bank account, further implicating Silvergate in the alleged scheme. The judge underscored that Silvergate had a vested interest in continuing to service FTX and Alameda, given its business model’s reliance on the adoption of the FTX exchange platform and app.

In response to the allegations, Silvergate had argued that it did not owe a duty of care to FTX customers, suggesting that its actions were not a substantial factor in the customers’ financial losses. The bank posited that any refusal to process FTX’s transfers would not have prevented the exchange from finding alternative banking services, a claim the judge deemed speculative. This defense was part of Silvergate’s unsuccessful attempt to dismiss the lawsuit, which the court found lacked sufficient merit to warrant dismissal at this stage.

Silvergate faces scrutiny after FTX bankruptcy

The lawsuit against Silvergate emerged against the backdrop of the bank’s collapse in March 2023, which occurred approximately five months after FTX declared bankruptcy in November 2022. The legal battle underscores the intricate relationships and dependencies within the cryptocurrency banking sector. It also highlights the potential for financial institutions to face legal scrutiny for their roles in facilitating or enabling the operations of crypto exchanges, especially those later found to be involved in fraudulent activities.

This case gains further significance with the conviction of FTX co-founder Sam Bankman-Fried in November on charges of fraud and money laundering. With his sentencing scheduled for March 28, the lawsuit against Silvergate adds another layer to the complex narrative of legal and financial fallout following FTX’s collapse. As the legal proceedings against Silvergate proceed, the case is set to offer critical insights into the responsibilities and liabilities of banks in the burgeoning cryptocurrency industry.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Mutuma Maxwell

Maxwell especially enjoys penning pieces about blockchain and cryptocurrency. He started his venture into blogging in 2020, later focusing on the world of cryptocurrencies. His life's work is to introduce the concept of decentralization to people worldwide.

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