- Silvergate receives a court order to give back $9.85 million to BlockFi as the crypto lender’s bankruptcy proceedings continue.
- The funds are part of a reserve that BlockFi set up at Silvergate as a result of an agreement.
- Silvergate’s financial health deteriorates as the bank continues to lose crypto clients.
Silvergate Bank has been directed to return $9.85 million to BlockFi as part of the crypto lender’s continuing bankruptcy proceedings.
Based on the court order, Silvergate and BlockFi entered an agreement in August 2020 to have Silvergate serve as a depository entity “concerning credit and debit entries initiated by BlockFi through Silvergate to accounts maintained at Silvergate and other depository financial institutions” through Automated Clearing House Network (ACH). Hence, by the agreement, BlockFi agreed to establish a reserve for $10 million in November 2021.
According to the agreement, the Silvergate Reserve Account would terminate 90 business days after receiving the last ACH transfer. After the termination, BlockFi would then have unrestricted access to the funds in the reserve account.
Based on those stipulations, the court order stated that:
” Silvergate shall immediately release $9,850,000 from the Silvergate Reserve Account to an account designated by the Debtors.” adding that “Silvergate shall be entitled to hold the remaining $150,000 in the Silvergate Reserve Account to cover any ACH originations that are returned.”
BlockFi was the first firm to file for bankruptcy in November 2022 after the FTX collapse and has been having bankruptcy proceedings resulting in this court order. The crypto lender has over 100,000 debtors to whom it owes between $1 billion and $10 billion.
Silvergate in Trouble
Silvergate Bank received this court order amid chaos as its shares have fallen more than 55% since it announced that it would delay submitting its 10-K report. Silvergate told the SEC in a filing that it would be unable to meet the 16th March extended deadline. It was conducting additional procedures and providing documentation requested by its independent registered public accounting firm to complete the audit procedures.
In the wake of the FTX collapse, Silvergate suffered an $8.1 billion bank run due to its relations with the exchange. This led to the bank selling billions of dollars worth of securities to cover the sudden customer withdrawals. The bank later reduced crypto-related deposits to distance itself from the industry, which led to a $14 billion decline in deposits.
Furthermore, Sillvergate suffered a $1 billion loss in last year’s last quarter alone. All these, in addition to the losses the bank is continuing to incur, place the bank in critical financial health, so much so that it stated:” the Company is evaluating the impact that these subsequent events have on its ability to continue as a going concern for the twelve months following the issuance of its financial statements.
Aside from fallen stock values, the announcement has also caused crypto clients to end operations at the bank led by high-profile companies, including Kraken, Coinbase, Gemini, Circle, and Tether, among others. The firms cite caution as their reason for migration, as many move their operations to Silvergate’s rival, Signature Bank.
