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 shop Alameda Research.
The California-based lender acknowledged in a US regulatory filing late on Monday that it processed wire transfers for companies and individuals that traded with Alameda.
The statement by Silvergate, which is regulated by the US Federal Reserve and listed on the New York Stock Exchange, highlights the links Bankman-Fried’s crypto firms had with the US financial system.
It comes after Bankman-Fried said in recent public statements that for several years, before FTX established its own banking relationships, clients of the exchange would send money to Alameda instead.
Silvergate chief Alan Lane said in a public letter(opens a new window) filed with the US Securities and Exchange Commission that companies or people dealing with Alameda “would have been instructed by Alameda to send funds to Alameda’s account whether at Silvergate or any of their other banking partners”.
Lane added that, “when Silvergate received payments directed to Alameda Research and credited it to the account of the same name . . . this was consistent with the instructions from the sender of the wire and industry practice”.
FTX’s banking relationships lie at the heart of founder Bankman-Fried’s explanation for how the exchange ended up with a multibillion-dollar shortfall in client funds, which forced the company valued at $32bn into bankruptcy last month in a collapse that has reverberated through the crypto sector.
Bankman-Fried said a failure to properly account for the fact that billions in FTX client funds were sent to Alameda’s accounts left the exchange with a faulty picture of its financial position. He has said Alameda appears to have spent the money, even though it remained credited to customer accounts on FTX.
Alameda had at least eight accounts at Silvergate, according to filings in Delaware bankruptcy court by FTX’s newly appointed management. The bank also operated more than a dozen accounts for Bankman-Fried’s other businesses.
Lane said Silvergate “conducted significant due diligence on FTX and its related entities including Alameda Research” before enrolling them as clients and on an ongoing basis.
Silvergate last month said that its relationship with FTX was limited to deposit accounts, and that the exchange made up less than 10 per cent of the $12bn the bank held for crypto clients at the end of September.
Silvergate monitored for suspicious transactions and the “beneficial owner, the source of funds, and the purpose and expected use of funds” in its accounts. Lane said Alameda received client transfers as part of its over-the-counter crypto trading business.
When it detected suspicious activity, the bank would “confidentially file a suspicious activity report in accordance with federal regulation”, he added.
The bank, which had $13.2bn in customer deposits at the end of September, has actively courted crypto clients. Silvergate’s shares have plunged 84 per cent this year, much worse than the 23 per cent fall for the KBW Bank index. Lane hit out in his letter at “speculation — and misinformation — being spread by short sellers and other opportunists trying to capitalise on market uncertainty”.
However, the Silvergate chief also acknowledged that “it has been a very difficult few weeks for the digital asset industry, as we have all come to terms with the apparent misuse of customer assets and other lapses of judgment by FTX and Alameda Research”.
Lane also said Silvergate retained a “resilient balance sheet and ample liquidity” despite the crypto industry tumult. “While this has been a turbulent time in the digital asset industry, our customers’ deposits are, and have always been, safely held.”