Legal Victory: Class Action Against Silvergate Bank Over FTX Fraud Gets Go-Ahead From Judge

Silvergate Bank is set to face a class-action lawsuit filed by FTX users, who allege that the defunct bank facilitated fraudulent activities at the exchange and its affiliated trading entity, Alameda Research.

In a ruling on Mar 20, Judge Ruth Bermudez Montenegro of the San Diego federal court rejected Silvergate’s motion to dismiss filed in June. The judge determined that the class action group had sufficiently claimed that Silvergate was aware of FTX’s fraudulent activities, profited from them, and unfairly enriched itself at the expense of FTX users. However, Silvergate denies these allegations.

The court said Silvergate had to care for FTX customers because its Silvergate Exchange Network was mainly for them. The network helps move money to crypto exchanges. The court also mentioned that before the SEN, it was nearly impossible to have a crypto exchange like FTX.

Silvergate banked for both FTX and Alameda. The judge said they handled transfers and took deposits that moved FTX customer money to Alameda. At first, FTX had no bank account, so customers were told to wire money to Alameda’s account.

“Silvergate wanted to keep taking deposits and moving money for FTX and Alameda customers. This made sense because Silvergate’s whole deal was about getting more people to use the FTX platform and app.”

The order said it was easy to see that letting FTX customers put their money into accounts not run by FTX could cause fraud and hurt those who own that money.

Silvergate Profits Soar With FTX

Silvergate earned money from translating stuff and the interest put into FTX-linked accounts. The thing says Silvergate used to make $7.6 million a year before FTX, but now they make $75.5 million since they started banking for the exchange.

In its dismissal motion, Silvergate argued that it doesn’t owe FTX customers a duty of care. The bank stated that its actions, as alleged in the lawsuit, didn’t significantly contribute to FTX customers’ difficulty in withdrawing funds. Instead, Silvergate’s attributed this problem to FTX and its co-founder, Sam Bankman-Fried.

Silvergate said if they didn’t let FTX move money, FTX would’ve just gone to another bank. But the judge didn’t buy it, saying it’s just guessing because not many banks are okay with handling crypto stuff.

The judge gave the go-ahead more than a year after folks filed the lawsuits in Feb 2023. In April, they merged three different lawsuits against Silvergate’s.

Silvergate,s went under around a month later, in Mar 2023, just a few months after FTX went bankrupt in Nov 2022.

Bankman-Fried was convicted last Nov on seven fraud and money laundering charges. He’s scheduled for sentencing on Mar 28.

The author’s views are for reference only and shall not constitute any investment advice. Please ensure you fully understand and assess the products and associated risks before purchasing.