Silvergate short seller predicts crypto bank’s demise within a week

Marc Cohodes spent part of his Friday afternoon playing the conquering victor.

The veteran short seller posted pictures of a seemingly deserted Silvergate office on Twitter, while telling The Block that, ”Silvergate is a publicly traded crime scene and Alan Lane belongs in prison.”

A spokesperson for the bank and its CEO Lane did not respond to multiple requests for comment. 

The California-based bank has taken a beating recently over its ties to FTX and Alameda Research. Shares are down around 95% over the past six months. The company’s long-term issuer rating was downgraded by Moody’s on Friday, which warned further rating cuts were on the table after the bank disclosed it was poorly capitalized and had failed to file its annual report on time. Shortly after the rating downgrade, the bank announced it was closing its 24-hour money transfer system known as the Silvergate Exchange Network.

”I would be very surprised if the bank is open next week,” Cohodes said.

By his own admittance, Cohodes likes a fight and can be difficult and even a little crazy. Many short sellers, people who make money betting against companies, are thought to be slightly paranoid, even conspiratorial, and Cohodes is no exception. 

He made money shorting Wirecard, a German money lender that collapsed in 2020 amid massive fraud allegations, and saw parallels with Silvergate.

Cohodes first warned investors about Silvergate on Nov. 14, telling market analysis site Hedgeye he had learned about the bank from Porter Collins, co-founder of Seawolf Capital, and famed for shorting the market ahead of the 2008 financial crisis. It is a ”dogshit” company, Cohodes said. ”I think SI is garbage and they need to be called out just like FTX needs to be called out,” he told Hedgeye, using a reference to the firm’s stock code.

By then, Cohodes had already spent several months warning his followers about FTX. Little about the crypto exchange giant and its financials made sense to him. Plus, he had grown suspicious, after Wirecard, of pop-up companies with massive offshore fund flows, as these were often a cover for money laundering, he said.

”So when FTX is your largest customer and you listen to FTX talk about Silvergate and say that without Silvergate they wouldn’t have a business … that is when you dig into Silvergate,” he said. Cohodes was referring to a quote from FTX co-founder Sam Bankman-Fried that once appeared on the Silvergate website. “Life as a crypto firm can be divided up into before Silvergate and after Silvergate,” Bankman-Fried had said.

Cohodes in that November Hedgeye video also told listeners that he was shorting the stock, meaning he would profit if the shares fell in price. He continues to short the stock, he said on Friday, and his position is bigger now than it was in November, as he expects the shares to collapse even more.

The bank is now under multiple investigations and being sued by investors. One class-action lawsuit accused Silvergate of improperly handling money that belonged to FTX customers and of having ”plain sight” of crimes being committed at the exchange and sister hedge fund Alameda Research.

Cohodes said he might file a few of his own after the stock made several ”outsized moves” upwards in recent weeks that cost him money. He suspects the bank’s management failed to disclose bad news about the firm when they first learned about it, and that someone was manipulating the shares.

Upon hearing that the Silvergate Exchange Network had shuttered, Cohodes tweeted. ”THERE WILL BE A CANNON FIRING … The SEN NETWORK has been SHUT FUCKING DOWN”