As a result of the failure of the crypto exchange FTX, the cryptocurrency bank Silvergate Capital has come under scrutiny from regulatory authorities due to its history of participation in FTX.
The Stock of Silvergate Capital
According to the data provided by Short Interest Reporting (1), Silvergate Capital is the second-most shorted stock in the United States. More than 72.57% of the company's shares have been sold short.
This substantial short position indicates investors' extremely pessimistic outlook toward the SI stock. Short sellers are investors who bet on a drop in the price of a security.
The Financial Industry Regulatory Authority (FINRA) is responsible for collecting and publishing said data twice per month. This data pertains to short-interest holdings of all equity securities.
The SI stock was hit by significant selling pressure even before the crisis of the crypto market that occurred in 2022. The price of SI stock has dropped by more than 90 percent over the past year.
The failure of FTX and Alameda Research was an additional blow to Silvergate Capital's already precarious financial position.
Because of Silvergate Capital's business dealings with FTX, the United States Department of Justice (DoJ) opened an inquiry into the company last week. The relevant authorities are currently investigating the hosting of accounts belonging to FTX founder Sam Bankman-Fried.
However, this investigation is still in its very early stages, and it is extremely unlikely that any charges will be brought against the crypto currency bank.
During the present investigation, the investigators will look into the possibility that Silvergate was involved in the lengthy fraud plan that FTX used to trick investors.
Never Ending Obstacles Troubling Silvergate
Silvergate Capital, a crypto currency bank, is still seeing an increasing number of difficulties due to the widespread market downturn and the collapse of FTX. The bank's figures for the 2022 fourth quarter showed a net loss of one billion dollars, which was disclosed earlier this month.
According to the report released by the United States Securities and Exchange Commission (SEC), Silvergate Capital had significant withdrawals during the last quarter of the year. Because of this, the firm had no choice but to pursue capital through wholesale channels and sell debt instruments to keep its liquidity.
According to reports, Silvergate Capital obtained a loan for $3.6 billion from the US Federal Home Loan Banks System to lessen the impact of an increase in the number of withdrawals.
In the United States, crypto bank Silvergate Capital is also being sued for its role in helping FTX engage in fraudulent operations. This involves both lending money to other users and mixing their money.
According to some of the company's owners, the 1934 Securities Exchange Act is alleged to have been broken by the crypto bank Silvergate Capital.
Silvergate Capital received a rating of "junk" from Moody's Investors Service as a direct result of the bank's current predicament.