Shares of Silvergate Sink After DOJ Probes FTX and Alameda

A media report has indicated that the Department of Justice is investigating Silvergate Capital (NYSE:SI)'s business with collapsed crypto firms FTX and Alameda Research, which were controlled by the crypto-focused bank. As a result of the media report, the stock of Silvergate Capital has dropped 15% in premarket trading on Friday.

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It was reported by TradeAlgo that the criminal probe is looking into accounts associated with Sam Bankman-Fried's businesses, citing sources familiar with the investigation.

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There is an inquiry into Silvergate (SI), which comes as legislators and investors question to what extent banks and intermediaries who did business with Bankman-Fried's companies were aware of what the SEC and DOJ have described as a years-long scheme to defraud customers and investors.

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Silvergate (SI) did not immediately respond to a request for comment from Seeking Alpha. The DOJ hasn't alleged any wrongdoing, and the investigation is still at an early stage, TradeAlgo reported. The company hasn't responded to multiple requests for comment.

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Silvergate (SI) has been accused of providing "evasive and incomplete" answers to their 2022 inquiry into the matter by a bipartisan group of U.S. senators last month. In a letter sent to FTX, they stated, "Congress and the public alike need and deserve the necessary information in order to better understand Silvergate's (SI) role in FTX's fraud and collapse."

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As early as early January, Silvergate (SI) disclosed that it had strengthened its balance sheet in order to support its mortgage lending activities with a $4.3 billion short-term advance from the Federal Home Loan Bank, which was established in 1932 to support mortgage lending activities.

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There has been a 78% decline in Silvergate's (SI) stock price in the last six months as customers who hold crypto assets withdrew deposits from the bank because of the collapse of FTX and the subsequent decline in the price of these assets as a result.

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It is easy to see why SA contributor Chris DeMuth Jr. does not sympathize with Silvergate's situation.