- Silvergate Bank faces three investor lawsuits accusing the bank of facilitating investor fraud for FTX, the now-bankrupt crypto exchange
- The cases will be consolidated by mutual agreement of the litigants, citing overlapping facts and legal causes of action
- New York State’s financial regulator states that Signature Bank’s collapse was not related to crypto, but rather to a run caused by a broad range of depositors across multiple business sectors
In a recent development, the now-bankrupt FTX has brought three investor lawsuits against its partner, Silvergate Bank, who facilitated supposed investor fraud. Four former investors have brought the lawsuits, who accuse Silvergate Bank of aiding and abetting the crypto exchange’s alleged misconduct. It is said that Silvergate had processed illegitimate transfers of FTX’s customer funds to its trading firm, Alameda Research.
The cases have been consolidated by mutual agreement of the litigants. However, the cases will remain separate from other federal claims against FTX and its founder, Sam Bankman-Fried. The plaintiffs’ lawsuits against Silvergate will now be combined.
The United States District Judge, Jacqueline Scott Corley of the Northern District of California, gave the order to consolidate the cases, stating that the lawsuits had common questions of law and fact, as they named common defendants, arose from the same alleged course of conduct, and asserted overlapping causes of action.
The bankruptcy of FTX in November caused the crypto bank liquidity issues, which was revealed through its disclosure of “voluntary liquidation” assets and cessation of operations in early March following a bank run. Moreover, the bank faced a class-action suit in January for securities law violations.
In a separate development, Signature Bank was seized by federal regulators in March. Despite its crypto-friendly nature, New York State’s financial regulator has claimed that the collapse of Signature Bank was caused by a run from a broad base of depositors across business sectors rather than crypto.
During a House Financial Services Committee hearing on stablecoins, the New York State Department of Financial Services (NYDFS) Superintendent, Adrienne Harris, confirmed that “it is a misnomer that the failure of Signature Bank was related to crypto.” The report on April 19 by Bloomberg claimed that depositors, including wholesale food vendors, fiduciaries, trust accounts, and law firms, left the bank, causing the run.
The FTX After-Effect
The FTX downfall and related lawsuits against its partner, Silvergate Bank, continue to mar the reputation of the crypto industry. Amidst the allegations of investor fraud, it is difficult for investors and the general public to trust cryptocurrency and the companies involved in their operations.
While Bitcoin has shown signs of recovery, bouncing back from $16,500 in November 2022 to $31,000 in April 2023, it is uncertain if the possibility of a bull market could draw in more investors. Recent investigations by US authorities suggest that cryptocurrency is a security risk and should not be considered a legitimate investment. Until this security concern is resolved, the trust deficit will linger, negatively impacting the crypto industry’s potential growth.
