U.S. Sens. Elizabeth Warren (D-MA), Roger Marshall (R-KS), and John Kennedy (R-LA) are seeking answers from Silvergate Bank, the bank that reportedly facilitated the transfer of FTX customer funds to Alameda Research, which is also owned by the FTX founder.
Silvergate caters to digital asset clients, with some 90 percent of its overall deposit base coming from crypto firms. The senators note that Silvergate’s average deposits are down over $2 billion since the end of September, and in just the past month, two of Silvergate’s digital assets clients – FTX and its affiliates and BlockFi – have declared bankruptcy.
In September, Silvergate officials said that its “relationship with FTX [and its related entities] is limited to deposits.” The senators point out that documents from FTX’s bankruptcy case confirmed that the bank had relationships with several firms controlled by FTX’s former CEO Sam Bankman-Fried, including Alameda. Alameda is a crypto trading firm that Bankman-Fried claimed was a “wholly separate entity” from FTX, the lawmakers said.
“Your bank’s involvement in the transfer of FTX customer funds to Alameda reveals what appears to be an egregious failure of your bank’s responsibility to monitor for and report suspicious financial activity carried out by its clients. The public is owed a full accounting of the financial activities that may have led to the loss of billions in customer assets and any role Silvergate may have played in these losses,” the senators wrote in a letter to Silvergate officials.
They further explain that the arrangement between FTX and Alameda relied on Silvergate’s depository services, noting that Alameda’s depository account with Silvergate appears to be at the center of improper transfers of customer funds.
“Mr. Bankman-Fried has, himself, admitted that FTX customer funds were improperly transferred to Alameda’s bank accounts. When asked how FTX customer deposits ended up in Alameda’s accounts, Mr. Bankman-Fried told Vox that the company did not originally have a bank account, and so it directed customers to wire money to Alameda’s account with Silvergate in exchange for assets on FTX. According to Mr. Bankman-Fried, executives at the company ‘forgot’ about this scheme until the company imploded,” the senators added.
The senators said that Silvergate’s failure to notice and report this scheme could constitute violations of the law – including a failure to implement or maintain an effective anti-money laundering (AML) program as required under the Bank Secrecy Act. It could also be seen as a failure to report suspicious transactions to the Financial Crimes Enforcement Network.
Given these concerns, the senators have asked Silvergate to answer a series of questions designed to provide the public with a full accounting of its relationship with FTX and Alameda.