Cryptocurrency exchange Coinbase has announced that it has terminated its relationship with Silvergate Bank as its USD banking partner due to an ongoing investigation. The exchange said in a tweet: “In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate.“
The cryptocurrency exchange will facilitate cash transactions between its main clients and institutional clients of Signature Bank, its other banking partner. Shares of Silvergate Bank, already under pressure due to a delay in filing its annual 10-K report, fell another 40% in premarket trading. Silvergate Capital was also downgraded from "neutral" to "underweight" by JPMorgan Chase & Co in light of the bankruptcy scare.
The 10-K report is a document required by the Securities and Exchange Commission to provide a comprehensive overview of a company's business and financial condition. The cryptocurrency bank has said it will take another two weeks to report for the 2022 fiscal year.
The decision will not affect payment instructions in pounds or euros. The fintech bank's troubles began with the collapse of the FTX cryptocurrency exchange. Silvergate Bank, widely known as the “cryptocurrency bank” for its many cryptocurrency partnerships, is currently facing a U.S. Department of Justice investigation into its involvement in the FTX debacle. The investigation revolved around former FTX CEO Sam Bankman-Fried's account at the bank.
In a separate civil lawsuit, Silvergate Bank and its CEO, Alan Lane, are charged with "aiding and abetting" a "digital fraud orchestrated by Sam Bankman-Fried (SBF) and two of his entities, FTX and Alameda Research." Billion Dollar Fraudulent Scheme".
Given the ongoing investigation and the termination of the partnership, Silvergate is one of the most shorted stocks on the market today. More than 72% of Silvergate Capital's shares were sold short as of the end of January, according to data from the Financial Industry Regulatory Authority.
