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Silvergate Bank Faces Class-Action Lawsuit Over FTX Fraud Allegations
The San Diego federal court has ruled that Silvergate Bank must face a class-action lawsuit filed by FTX users which alleges that the bank aided fraud at the exchange and its associated trading firm, Alameda Research.
Judge Denies Silvergate’s Motion to Dismiss Lawsuit
Despite Silvergate’s attempt to dismiss the case in June, a federal court judge denied the motion on Wednesday in the US District Court for the Southern District of California. In a court order on March 20, Judge Ruth Bermudez Montenegro denied Silvergate’s motion to dismiss the lawsuit.
Silvergate’s Alleged Involvement in FTX Fraud
The judge ruled that the FTX users’ allegations were sufficient, asserting that Silvergate was aware of FTX’s fraud but benefited from it and unjustly enriched itself at the expense of FTX users. However, all these allegations were denied by the bank.
The court found that Silvergate had a duty of care to FTX customers, mainly because of its Silvergate Exchange Network (SEN) which was designed to facilitate fund transfers to crypto exchanges.
Silvergate’s Banking Services to FTX and Alameda
Silvergate provided banking services to FTX and Alameda, processing transfers and accepting deposits that directed FTX customer funds to Alameda’s account since FTX initially lacked a bank account. The judge noted Silvergate’s strong incentive to continue these operations due to its reliance on the exchange for business growth.
Consolidation of Lawsuits Against Silvergate
The judge’s approval came more than a year after the lawsuits were initially filed in February 2023. In April 2023, United States District Judge Jacqueline Scott Corley of the Northern District of California decided to consolidate the three lawsuits against Silvergate. Each lawsuit accuses Silvergate of aiding investor fraud by the collapsed crypto exchange FTX.
Four former investors brought these cases and remain separated from other federal cases against FTX and its founder, Sam Bankman-Fried. However, they will be combined by the litigants’ mutual agreement.
FTX Bankruptcy and Legal Issues
FTX filed for bankruptcy in November of the previous year, causing liquidity problems for Silvergate. Bankman-Fried was found guilty of seven fraud and money laundering charges last November as part of the FTX court case.
Bankman-Fried’s sentencing date is March 28.
Ian is a cryptocurrency enthusiast blending humor with professionalism. With an engineering background and a storyteller's heart, he simplifies the blockchain world with sharp analysis and a touch of wit. At Cryptowire, he brings his unique perspective to make digital financial innovation accessible to all.
