U.S DOJ Probes Silvergate For Fraud Over FTX Dealings, Stock Drops 22%

• The fraud unit of the Department of Justice has launched a probe into Silvergate Bank. 
• The prosecutors are looking into the bank’s dealings with FTX and Alameda Research.
• The bank was recently grilled by U.S. Senators for its role in the mismanagement of customer funds in FTX. 
• News of the probe led to the company’s share price tanking 20% in after-hours trading.   

Silvergate, the notorious crypto-friendly bank that got caught up in the fallout from FTX’s collapse, has become the subject of a criminal investigation by American authorities. The United States Department of Justice has reportedly launched a probe into the banks’ dealings with the bankrupt crypto exchange and its sister firm Alameda Research. 

Silvergate faces probe from DOJ’s fraud unit

According to a report by Bloomberg, the fraud unit of the Justice Department is heading the investigation into Silvergate. People familiar with the matter revealed that the investigation is currently in the early phases and prosecutors are looking into the bank’s hosting of accounts associated with Sam Bankman-Fried’s failed crypto empire. 

The report stated that the bank had not been accused of any wrongdoing and that the inquiry may end without the prosecutors filing any charges against the company. This investigation adds to the heap of legal trouble that the bank has been facing since FTX’s collapse, including two class action lawsuits. 

The DoJ’s probe led to a drop of more than 22% in Silvergate Capital’s share price during after-hours trading. The stock was worth $20.97 at market close. This was just hours after the stock rallied nearly 50% thanks to asset management giant State Street increasing its stake in the company by a whopping 75%. 

News of the criminal investigation comes just days after U.S Senators Elizabeth Warren, John Kennedy, and Roger Marshall penned a strongly worded letter to Silvergate Capital’s CEO seeking answers about the bank’s role in FTX’s reckless handling of customer funds and the failure of the company’s risk management and due diligence measures.