Former Silvergate Capital Corp. chief financial officer Antonio Martino wants the Securities and Exchange Commission’s fraud case against him dismissed.
The SEC filed its case in July alleging that Martino, after the November 2022 fall of crypto exchange FTX, “engaged in a fraudulent scheme to mislead investors about the Bank’s dire financial condition.”
FTX was among Silvergate’s largest clients, and the fallout from FTX’s bankruptcy resulted in contagion that rippled through crypto firms and crypto-tied banks like Silvergate. Silvergate wound down operations in March 2023.
The SEC alleged in July that Martino “knew that the Bank had borrowed billions of dollars in 2022, which was scheduled to mature in January and February 2023, and he knew that the Bank’s only viable source of funding to repay that debt would be to sell billions in securities in the First Quarter of 2023.”
The SEC said Martino approved false information in an earnings release which “understated the Bank’s losses … and overstated a key leverage metric” for the bank and its parent company; that he made false and misleading statements on an earnings call; and that he “falsified the Bank’s financial statements and failed to devise and maintain important accounting controls.”
But Martino’s attorney Linklaters partner Adam Lurie, in court documents filed Tuesday, denies those claims, calling the SEC’s complaint “implausible.”
The SEC complaint, according to Lurie, accuses Martino of “engaging in a narrow fraud to misstate an other than temporary impairment (‘OTTI’) charge and related information, purportedly to conceal the Bank’s precarious financial position.”
But Lurie said it lacks allegations that Martino had a personal financial motive to do so; and that Martino and the bank disclosed “in voluminous detail” that Silvergate was under severe stress. Lurie also wrote that Martino and Silvergate disclosed the losses the SEC considers at issue, but just as accumulated other comprehensive loss (AOCL) instead of as OTTI.
The SEC’s complaint also characterizes Martino’s alleged fraud as involving false statements of fact. Lurie, however, asserted that the statements Martino made reflected his opinions and predictions, and that Martino and Silvergate “expressly cautioned investors not to unduly rely upon” them.
Lurie, in the documents, invoked the bespeaks caution doctrine, under which “forward-looking statement accompanied by sufficient cautionary language is not actionable because no reasonable investor could have found the statement materially misleading.”
Martino’s SEC charges came at the same time as the commission’s lawsuit against, and settlement with, Silvergate. The SEC fined Silvergate $50 million.
Two executives, the bank’s former CEO Alan Lane and former Chief Risk Officer Kathleen Fraher, settled for $1 million and $250,000, respectively, and agreed to a five-year ban on holding officer or director positions at another public company.
Martino solely declined to settle. Neither Lurie nor Martino responded to a request for comment. The SEC also didn’t respond to a request for comment.
