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Silvergate Bank Faces Trial for FTX Scam Allegations

Silvergate Bank Faces Trial for FTX Scam Allegations

A class action complaint alleges Silvergate Bank assisted false activities at FTX and Alameda Research. It faces legal action.
In rejecting Silvergate’s motion to dismiss the lawsuit, the court determined that the allegations presented were adequate to continue.
The dispute revolves around Silvergate’s critical banking services to FTX and Alameda, which facilitated the misappropriation of customers’ funds.

Presently, Silvergate Bank is being sued as part of a class action. The legal proceedings are in response to allegations that the bank significantly facilitated fraudulent operations linked to the FTX, a defunct cryptocurrency exchange, and its subsidiary, Alameda Research. The federal court’s ruling occurred after Silvergate Bank’s June motion to dismiss the litigation, which Judge Ruth Bermudez Montenegro rejected on March 20.

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The legal action initiated by the FTX customers centres on the allegation that Silvergate Bank was complicit in the deceit. This is because the bank, having provided crucial banking services to FTX and Alameda Research, was cognizant of its responsibility for their failure. As mentioned above, the service is provided at a fee by the participating partners, who then redirect the customers’ funds.

The court rejected the bank’s claims and expressed that they were serious, which was one of the rationales for the case’s ongoing proceedings. The judge was unconvinced by the bank’s defence that it obliged FTX customers with no duty of care and was attributing the damage to FTX and its co-founder, Sam Bankman-Fried.

The Silvergate Bank SEN Network Is Under Legal Examination.

The Silvergate Exchange Network (SEN) facilitates swift and effortless exchange transfers among exchanges and is at the centre of every accusation. The court determined that such a network was FTX’s operational backbone, allowing it to cover items and positions that it had yet to do so in the past.

Silvergate Bank asserts that its implementation of SEN’s operations did not significantly affect customers’ inability to retrieve digital currency for fiat. However, the bank effectively contested this assertion because the judge noted the limited number of other financial institutions eager to augment their cryptocurrency-related operations—thereby depriving the void left by this bank’s failure of any viable competitors to fill the void.

The court observed, in addition to the exchange’s legal complications, the bank’s financial motivations in maintaining its relationship with FTX. Reports indicate that the bank’s yearly revenue surged significantly from $7.6 million to $75.5 million before the downfall of FTX. This was primarily attributable to fees and interest on accounts participating in the exchange. The decision delivers a verdict on the bank’s substantial financial gains, linked to what fund owners view as unfavorable contract terms. This situation raises concerns about the bank’s actions and their impact on the involved parties.

Judgment Consolidation Amid FTX Repercussions

The legal ramifications for Silvergate Bank extend well beyond the confines of this class action lawsuit. United States District Judge Jacqueline Scott Corley consolidated the three lawsuits against Silvergate into a single lawsuit on April 26, 2023. The lawsuit alleged that Silvergate aided and abetted criminal activity in the FTX investor fraud. The onerous legal scrutiny on Silvergate Bank reflects broader repercussions following FTX’s bankruptcy. Bankman-Fried’s conviction led to new laws. The eagerly anticipated sentencing date of March 28 is rapidly approaching, signalling the imminent conclusion of the legal proceedings concerning the FTX and its associates. The Silvergate Bank trial, akin to a prominent celestial body, will undoubtedly emerge as a pivotal subject of discourse within the ongoing discourse concerning the involvement of financial institutions in the realm of cryptocurrencies.

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