Crypto powerhouse Silvergate Capital bank files for bankruptcy after 18-month wind-down

Silvergate Capital Corporation, the parent company of crypto-focused Silvergate Bank, filed for Chapter 11 bankruptcy on September 18 in the US Bankruptcy Court for the District of Delaware. This action concludes an 18-month period of operational wind-down that began in March 2023.

The bankruptcy petition details assets between $100 million and $500 million and liabilities ranging from $10 million to $50 million. Affiliates Silvergate Liquidation Corporation and Spring Valley Lots LLC are included in the filing. The move follows the company’s announcement to voluntarily liquidate and cease operations on March 8, 2023.

Between March 2023 and September 2024, Silvergate concentrated on returning deposits to clients and navigating regulatory challenges. In court documents, the company asserted that it repaid all customer deposits without any cost to the FDIC, emphasizing that the bank “did not fail,” according to Reuters.

Silvergate was a prominent institution within the crypto sector, offering banking services to over 1,600 crypto firms. Notable clients included Coinbase, Circle, Gemini, Paxos, Binance.US, Kraken, and BlockFi. The bank operated the Silvergate Exchange Network (SEN), a 24/7 payment platform facilitating real-time transactions between crypto companies, which was integral to industry operations.

The institution also provided Bitcoin-collateralized loans through its SEN Leverage program. As of September 2022, it held $302 million in such loans, backed by $769.9 million in Bitcoin collateral. In January 2022, Silvergate acquired assets from Diem—Facebook’s discontinued crypto project—with plans to develop its own stablecoin, a venture that was ultimately shelved.

By late 2021, deposits from crypto firms accounted for more than 90% of Silvergate’s total deposits, highlighting the bank’s deep integration with the crypto market. This heavy concentration exposed the bank to significant risks amid market volatility. The collapse of several crypto companies in 2022, including the notable failure of exchange FTX, led clients to withdraw over $8 billion from Silvergate, compelling the bank to liquidate long-term debt securities at a loss.

In 2023, Silvergate agreed to pay $63 million to settle investigations by the Federal Reserve, California’s Department of Financial Protection and Innovation, and the US Securities and Exchange Commission (SEC). Regulators identified shortcomings in the bank’s compliance with anti-money laundering laws, and the SEC alleged that Silvergate and three senior executives made misleading statements.

In its bankruptcy filing, Silvergate Capital reported holding approximately $163 million in cash to distribute among stakeholders. The company anticipates fully repaying bondholders owed $18 million and making payments to holders of preferred equity but does not expect to provide recoveries to common stockholders.

Silvergate’s bankruptcy adds to a series of US bank failures, including Silicon Valley Bank, First Republic Bank, and Signature Bank.

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