December 06, 2022

Warren, Marshall, Kennedy, Call on Silvergate, Bank that Handled Bankrupt Crypto Firm FTX’s Funds, to Release All Records on Improper Transfer

Silvergate Reportedly Facilitated Transfer of FTX Customer Funds to Alameda Research, which Resulted in Loss of Billions of Dollars

Bipartisan Letter Seeks Information on Massive Crypto Scandal

Text of Letter (PDF)

Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.), Roger Marshall (R-Kan.), and John Kennedy (R-La.) wrote to Silvergate, the bank that reportedly facilitated the transfer of FTX customer funds to Alameda Research, seeking answers about the bank’s role in the loss of billions of dollars in customer funds. 

“Your bank’s involvement in the transfer of FTX customer funds to Alameda reveals what appears to be an egregious failure of your bank’s responsibility to monitor for and report suspicious financial activity carried out by its clients. The public is owed a full accounting of the financial activities that may have led to the loss of billions in customer assets, and any role that Silvergate may have played in these losses,” wrote the senators. 

Silvergate caters to digital asset clients – as of September 30, 90% of its overall deposit base came from crypto firms operating in a highly volatile market. The senators note that Silvergate’s average deposits quarter-to-date are down over $2 billion since the end of September, and in just the past month, two of Silvergate’s digital assets clients – FTX and its affiliates, and BlockFi – have declared bankruptcy. In September, Silvergate asserted that its “relationship with FTX [and its related entities] is limited to deposits,” and while Silvergate failed to explain what it meant by “related entities,” documents from FTX’s bankruptcy case confirmed that the bank had relationships with several firms controlled by FTX’s former CEO Sam Bankman-Fried, including Alameda, the crypto trading firm that Bankman-Fried claimed was a “wholly separate entity” from FTX. 

“Mr. Bankman-Fried has, himself, admitted that FTX customer funds were improperly transferred to Alameda’s bank accounts. When asked how FTX customer deposits ended up in Alameda’s accounts, Mr. Bankman-Fried told Vox that the company did not originally have a bank account, and so it directed customers to wire money to Alameda’s account with Silvergate in exchange for assets on FTX. According to Mr. Bankman-Fried, executives at the company ‘forgot’ about this scheme until the company imploded,” continued the senators. 

This arrangement between FTX and Alameda relied on Silvergate’s depository services, and Alameda’s depository account with Silvergate appears to be at the center of improper transfers of customer funds. The senators note that Silvergate’s failure to take notice of and report this scheme could constitute violations of the law – including a failure to implement or maintain an effective anti-money laundering (AML) program as required under the Bank Secrecy Act, and a failure to report suspicious transactions to the Financial Crimes Enforcement Network. 

Given these concerns about Silvergate’s failure to apply extensive review processes to FTX and Alameda, and the possible role the bank may have played in the loss of billions of dollars-worth of customer funds, the senators are asking Silvergate to answer a set of questions to provide the public a full accounting of its relationship with FTX and Alameda and information about its safety and soundness by December 19, 2022. 

Senator Warren has been an outspoken advocate for regulation and oversight of crypto to protect the environment, consumers, the energy grid, and the safety and stability of the financial system. Since the collapse of FTX, she has worked to hold all responsible parties responsible for possible crimes:

  • On November 30, 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to keep crypto out of the banking system following FTX’s collapse.
  • On November 23, 2022, Senators Warren and Sheldon Whitehouse (D-R.I.) sent a letter to the Department of Justice requesting personal accountability for former FTX CEO Sam-Bankman Fried and any complicit FTX executives for wrongdoing following the exchange’s collapse. 
  • On November 22, 2022, Senator Warren published an op-ed in the Wall Street Journal urging federal regulators to use their expansive authorities to crack down on crypto fraud and hold the industry to the same basic standards as other financial activities. 
  • On November 17, 2022, Senator Warren, along with Senator Dick Durbin (D-Ill.), sent a letter to Sam Bankman-Fried, founder and former CEO of FTX Trading Ltd. (FTX), and John Jay Ray III, the newly appointed CEO of FTX, seeking information on the reported misuse of billions of dollars of customer funds and other disturbing allegations that continue to emerge about the company’s fraudulent and illicit practices.
  • On October 25, 2022, Senators Warren and Whitehouse and Representatives Alexandria Ocasio-Cortez (D-N.Y.), Jesús “Chuy” García (D-Ill.), and Rashida Tlaib (D-Mich.) sent a letter to the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission, the U.S. Department of Treasury, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, seeking information about the steps each regulator is taking to stop the revolving door between financial regulatory agencies and the cryptocurrency industry.
  • In September 2022, Senator Warren sent a letter to Treasury Secretary Janet Yellen calling on the Treasury Department and the Financial Stability Oversight Council to build a strong regulatory framework for the crypto market
  • In July 2022, Senator Warren and her colleagues released the findings from an investigation into seven large cryptomining companies – showing extraordinarily high energy use and climate impacts from cryptomining – and called on the EPA and DOE to take action.
  • In May 2022, Senators Warren and Tina Smith (D-Minn.), sent a letter to Fidelity, asking the company to explain its decision to allow Bitcoin investments for 401(k) plans, despite the Department of Labor’s warnings about 401(k) crypto investments.
  • In March 2022, Senator Warren, Senate Armed Services Committee Chair Jack Reed (D-R.I.), Senate Intelligence Committee Chair Mark Warner (D-Va.), and Senate Defense Appropriations Subcommittee Chair Jon Tester (D-Mt.) introduced the Digital Asset Sanctions Compliance Enhancement Act to ensure that Vladimir Putin and Russian elites don't use digital assets to undermine the international community’s economic sanctions against Russia following its invasion of Ukraine.
  • In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren highlighted the various cryptocurrency tools that could make it easier for sanctioned individuals to hide their wealth and lessen the impact of Russian sanctions.
  • In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren warned that cryptocurrency may allow Russia to dodge sanctions and urged stronger regulation of the crypto market to ensure that countries, drug traffickers, cyber criminals, and tax cheats can’t evade economic pain.
  • In March 2022, Senators Warren, Warner, Reed, and Sherrod Brown (D-Ohio), Chair of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Treasury Secretary Janet Yellen, asking about the Treasury Department’s plans to enforce sanctions-compliance guidance for the cryptocurrency industry to ensure that economic sanctions remain an effective tool for achieving foreign policy goals.
  • In December 2021, during a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren raised concerns over the growing risks presented by stablecoins. 
  • In September 2021, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to step up to address crypto's regulatory gaps and ensure an inclusive financial system. 
  • In July 2021, Senator Warren sent a letter to SEC Chair Gary Gensler requesting information about the agency's authority to regulate cryptocurrency exchanges and protect consumers from risks posed by the highly volatile cryptocurrency market.
  • In June 2021, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Committee's Subcommittee on Economic Policy, Senator Warren delivered remarks on the opportunities and risks that digital currencies present. 
  • In a June 2021 interview, Senator Warren called the market for crypto the “wild west,” and said digital currency is “not a good way to buy and sell things and not a good investment and an environmental disaster.”