by Pam Martens and Russ Martens, Wall St On Parade:
On August 1 of this year, we penned this headline at Wall Street On Parade: Brace Yourself for Federally-Insured Bank Failures Caused by Crypto. Our research for that article was so stomach-churning and frightening that we emailed the article to key staff for the Senators who sit on the Senate Banking Committee. One of the banks we researched for that article was Silvergate Bank. We wrote:
TRUTH LIVES on at https://sgtreport.tv/
“FDIC-insured Silvergate Bank is part of the publicly-traded Silvergate Capital Corp., (ticker SI). Silvergate’s website says this about its hot pursuit of crypto: ‘We began pursuing digital currency customers in 2013 and have been deliberate in our approach to serving this community since then. Today, we have 1,300+ digital currency and fintech customers that are using our platform daily to grow and scale their businesses.’
“Silvergate Capital’s 10-K (annual report) for the year ending Dec 31, 2021 that it filed with the Securities and Exchange Commission acknowledged this about the crypto market that it has so deliberately decided to pursue:
‘The characteristics of digital currency have been, and may in the future continue to be, exploited to facilitate illegal activity such as fraud, money laundering, tax evasion and ransomware scams; if any of our customers do so or are alleged to have done so, it could adversely affect us…’
“Silvergate’s 10-K also states that ‘Deposits from digital currency exchanges represent approximately 58.0% of the Bank’s overall deposits and are held by approximately 94 exchanges.’
“Let’s pause for a moment to digest that last statement: More than half of a federally-insured bank’s deposits are tied to crypto while federal regulators are twiddling their thumbs and letting it happen. This news comes despite the fact that legendary investor Warren Buffet has called the largest cryptocurrency, Bitcoin, ‘rat poison squared’; global economist, Nouriel Roubini, told the Senate Banking Committee in 2018 that ‘Crypto is the Mother of All Scams and (Now Busted) Bubbles While Blockchain Is The Most Over-Hyped Technology Ever, No Better than a Spreadsheet/Database.’ More recently, Bill Gates, co-founder of Microsoft, one of the most valuable tech companies in the world, stated that cryptocurrencies are ‘100% based on greater fool theory.’ And just this past June 1, more than 1,600 scientists and software engineers wrote to Committee chairs in Congress to warn that both crypto and blockchain are shams.”
On November 11 the crypto exchange, FTX, announced it was filing for Chapter 11 bankruptcy, along with its related hedge fund, Alameda Research – which had been using (and losing) billions of dollars of customer funds from FTX to trade without the knowledge of customers. More than 100 opaque affiliates of FTX, many headquartered in offshore locations, also filed for bankruptcy.
Headlines swirling around the world are comparing the management of FTX to that of Madoff, Enron, and blood-testing fraud, Theranos. (Sam Bankman-Fried, the co-founder and now-fired CEO of FTX, learned from news headlines last Friday that the founder and CEO of Theranos, Elizabeth Holmes, was sentenced to 11 years in prison.)
On the same day that FTX made its filing in bankruptcy court in Delaware, the FDIC-insured Silvergate Bank released a statement which included this nugget from its CEO, Alan Lane:
“In light of recent developments, I want to provide an update on Silvergate’s exposure to FTX. As of September 30, 2022, Silvergate’s total deposits from all digital asset customers totaled $11.9 billion, of which FTX represented less than 10%. Silvergate has no outstanding loans to nor investments in FTX, and FTX is not a custodian for Silvergate’s bitcoin-collateralized SEN Leverage loans. To be clear, our relationship with FTX is limited to deposits.”
Why Alan Lane thinks the public would be comforted to know that his bank is connected to FTX – and its potentially wiped-out customers – to the tune of more than $1 billion raises questions about his own mental processes. (Perhaps Lane doesn’t recall that JPMorgan Chase was hit with two felony counts by the U.S. Department of Justice for its role in the Bernie Madoff fraud and forced to pay $1.7 billion to settle the case.) Federally-insured banks must follow “Know Your Customer” rules and report any suspected cases of money laundering to the federal agency, FinCEN. It has been credibly reported that as much as $10 billion was transferred from customer funds at the FTX crypto exchange to Bankman-Fried’s hedge fund, Alameda Research, with a large chunk of that now missing. Federal prosecutors might find that Silvergate Bank’s compliance personnel should have reported the suspicious movement of customer funds to FinCEN.
Shareholders of Silvergate have responded by dumping the stock. On November 18, 2021, Silvergate’s stock closed at $198.60 on the New York Stock Exchange. Last Friday, November 18, 2022, exactly one year later, Silvergate closed at $24.90. The stock has lost 28 percent since FTX filed bankruptcy on November 11 and 87 percent of its market value in one year.
How many more FDIC-insured banks are spread across the United States with significant ties to crypto-related firms and the potential to see their share prices sink and/or reputational damage? We know of four FDIC-insured banks whose share prices have already been hit: Silvergate Bank, Customers Bank, Signature Bank and Metropolitan Bank. (See chart below.)
But there may also be very large banks that have slithered below the radar with their involvement in crypto. For example, on June 21 we reported on the shocking ways that State Street has become involved in crypto. State Street is not some little bank that could go under without causing ripples. As of March 31, it was custodian and/or administrator to $41.7 trillion in assets and held $176 billion in deposits.
Allowing crypto to get anywhere near the federally-insured banking system could not have happened without the flow of money from the crypto industry into the campaign coffers of some members of Congress, including some of the members who sit on the Senate Banking and House Financial Services Committees. This reality screams for reform of corporate financing of political campaigns as well as overhaul of banking regulations. (See After Crypto Money Piled into Campaign Coffers of Senators Lummis and Gillibrand, They Introduced a Sweetheart Legislative Bill for Crypto.)
Read More @ WallStOnParade.com
