- Silvergate Capital filed for bankruptcy on September 18, 2024, in Delaware.
- The institution, shut down in March 2023, has stated it will not provide compensation to common stockholders.
- Factors like regulatory investigations and the collapse of the cryptocurrency market contributed to Silvergate’s financial demise.
In a significant turn of events, Silvergate Capital, the parent company of Silvergate Bank, announced its bankruptcy filing in Wilmington, Delaware. This development represents a critical juncture in the bank’s turbulent trajectory, especially following its unexpected closure in March 2023. The filing for bankruptcy comes as the company seeks to finalize its liquidation process and meet outstanding debt obligations.
With around $163 million in cash reserves, Silvergate Capital is poised to repay bondholders and holders of preferred equity. Sadly, common stockholders will not receive any compensation from this bankruptcy process.
From Rapid Growth to Sudden Decline
Silvergate Bank witnessed remarkable growth during the cryptocurrency boom, with deposits soaring from $1.8 billion at the end of 2019 to a staggering $14.3 billion by the conclusion of 2021. This impressive increase was largely fueled by digital asset exchanges, which contributed approximately 58% of the bank’s total deposits, showcasing Silvergate’s integral role in the expanding crypto sector.
However, the landscape shifted dramatically as the cryptocurrency market entered a significant downturn in 2022.
The catastrophic failure of high-profile entities, including the FTX exchange, resulted in a staggering withdrawal of over $8 billion from Silvergate. This mass exodus compelled the bank to divest long-term debt securities at substantial losses, intensifying its financial challenges.
By March 2023, the cumulative pressures proved unbearable, prompting Silvergate to halt operations and return customer deposits.
Increased Regulatory Examination and Financial Settlements
Further complicating matters, Silvergate faced heightened scrutiny from U.S. regulators, such as the Federal Reserve, California’s banking authority, and the Securities and Exchange Commission (SEC), throughout 2023.
Investigations uncovered serious shortcomings in the bank’s anti-money laundering practices, alongside misleading assertions from senior management. To address these shortcomings, Silvergate reached a $63 million settlement.
In its bankruptcy documentation, Silvergate Capital stressed that it did not fail in fulfilling its customer deposit obligations, which were all honored without imposing costs on the Federal Deposit Insurance Corporation (FDIC).
The company is now focused on completing its liquidation, utilizing its remaining funds to settle creditor claims. Despite these efforts, common stockholders face an uncertain fate, with little hope for recovery of their investments.