Silvergate Bank parent company Silvergate Capital Corp. filed for Chapter 11 bankruptcy Tuesday in Delaware, court documents show.
The filing comes 18 months after Silvergate Bank, best known for its ties to cryptocurrency, wound down “in light of recent industry and regulatory developments.” Crypto exchange FTX had collapsed in spectacular fashion just a few months beforehand, and regulators had taken to looking at the crypto world under a microscope.
La Jolla, California-based Silvergate Capital had no remaining lines of business. Its roughly $163 million in cash will be divided among stakeholders, according to court documents. The firm expects to fully repay bondholders and make payments to those who hold preferred equity, but doesn’t expect to repay those who hold common stock.
Chief Administrative Officer Elaine Hetrick said in a related Wednesday filing that Silvergate Capital’s bankruptcy is the “culmination of a successful process led by the Debtors' directors and management to repay all of Silvergate Bank's depositors and wind down its operations as a result of headwinds within the digital asset industry followed by a shift in regulatory approach that made Silvergate Bank's business model untenable.”
Silvergate’s challenges reached an “inflection point” in early 2023 when, in the midst of the FTX fallout, federal bank regulators issued their joint statement on crypto-asset risks to banking organizations, advising for the first time of their “significant safety and soundness concerns with business models that are concentrated in crypto-asset-related activities or have concentrated exposure to the crypto-asset sector.”
Silvergate Bank’s deposit base had for years been highly concentrated with crypto-related funds. Silvergate Bank’s business contracted “rapid[ly]” during that time, but the bank had stabilized and was able to both meet regulatory capital requirements and continue to serve customers, Hetrick wrote.
But “the increased supervisory pressure on Silvergate Bank and other banks focused on servicing crypto-asset businesses forced Silvergate Bank to a point where it would have needed to remake its business model away from its focus on crypto-asset businesses, seek to sell itself as a going concern in the shadow of the regulatory overhang or begin winding down its affairs with the goal of preserving as much value as possible for stakeholders,” she wrote.
The bank was closed and sold to Flagstar Bank in March 2023, illustrating “the intense regulatory pressure faced by banks in the digital assets industry at that time,” she wrote.
Silvergate Capital settled with regulators in July for allegedly failing to monitor more than $1 trillion in Silvergate Bank customer transactions between 2021 and 2023, while misleading investors about the efficacy of its anti-money laundering controls. The company neither admitted nor denied guilt in the settlement, which came at the same time as regulatory penalties for an allegedly lackluster AML program. All told, Silvergate paid $63 million in penalties at the time.
