Mar 03, 2023

Coinbase Cuts Ties with Silvergate Bank Amid Investigation

Coinbase, a leading cryptocurrency exchange, recently announced that it has terminated its partnership with Silvergate Bank as its U.S. dollar banking partner. This decision comes in light of an ongoing investigation into the bank, and in an abundance of caution. Coinbase will instead facilitate institutional client cash transactions for its Prime customers with Signature Bank, its other banking partner.

The termination of the partnership has caused a significant drop in the stocks of Silvergate Bank, which were already under stress due to a delay in the filing of their annual 10-K report. JPMorgan (JPM) has downgraded Silvergate Capital (SI) to “Underweight” from “Neutral” due to insolvency fears.

A 10-K report is a document required by the Securities and Exchange Commission that provides a comprehensive overview of a company’s business and financial condition. Silvergate Bank had announced that it would need an additional two weeks to complete the report for the 2022 fiscal year.

The decision will not impact payment instructions in GBP or euro.

The troubles for the fintech bank began with the downfall of FTX crypto exchange. Silvergate Bank, which is popularly known as the crypto bank due to its many crypto partners, is currently the subject of an investigation from the U.S. Department of Justice over its involvement in the FTX collapse. The investigation is centered around the former FTX CEO Sam Bankman-Fried’s account with the bank.

In another civil lawsuit, Silvergate Bank and its CEO Alan Lane have been accused of “aiding and abetting” a “multibillion-dollar fraudulent scheme orchestrated by Sam Bankman-Fried (SBF)” and two of his entities, FTX and Alameda Research.

The ongoing investigations and termination of partnerships have caused Silvergate to become one of the most shorted stocks in the current market. According to the Financial Industry Regulatory Authority, over 72% of Silvergate Capital Corp stock was shorted by the end of January.

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