Silvergate’s Delayed Financial Report Sends Stock Crashing

Updated: 02 March 2023

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Crypto-friendly bank Silvergate has filed a notification with the Securities and Exchange Commission (SEC) stating that it will delay the filing of its annual 10-K report, a move that has led its stock shares to spiral down by more than 30% in the after-hours trading on Thursday.

The 10-K annual report is a requirement by securities rules for public companies such as Silvergate. The report, which is filed 60 days after the end of the fiscal year, entails audited financial records, a letter verifying that the results were produced in compliance with accounting standards, and a statement by the chief executive officer and the chief finance officer swearing to the accuracy of the report.

In the notification to the SEC, Silvergate stated it would be unable to meet the March 16 extended deadline and that it was analyzing pending regulatory investigations related to the company. Silvergate added that “the bank is currently in the process of reevaluating its businesses and strategies in light of the business and regulatory challenges it currently faces.”

The bank cited that it had sold additional debt securities in January and February and that it expects to record further losses. The notice stated that:

These additional losses will negatively impact the regulatory capital ratios of the Company and the Company’s wholly owned subsidiary, Silvergate Bank (the “Bank”), and could result in the Company and the Bank being less than well-capitalized.

Silvergate said that it was “evaluating the impact that these subsequent events have on its ability to continue as a going concern for the twelve months following the issuance of its financial statements.” It added that it was in the process of conducting additional procedures and providing documentation that had been requested by its independent registered public accounting firm in order to complete the audit procedures.

Silvergate recorded a $1 billion loss for the fourth quarter of 2022 due to the rushed withdrawals by investors as FTX collapsed. This led to the bank selling billions of dollars worth of securities to cover the customer withdrawals. The bank has also been facing declined deposits of over $14 billion as a result of its “planned reduction in digital asset banking deposits” amidst the crypto industry chaos.

All these in addition to the bankruptcies of notable companies and the stricter regulations on crypto-friendly banks have contributed to the current financial status of the bank which it fears will affect its stability going forward.

Silvergate's death spiral is going to be rough for crypto.

I don't think retail investors realize how much market maker money moved around quickly via SEN, and how many crypto exchanges were/are banking with them.

Stock almost down to its ATL after hours.

— Adam Cochran (adamscochran.eth) (@adamscochran) March 1, 2023

Silvergate under probe for FTX and Alameda dealings

Despite not being accused of any wrongdoing, Silvergate has found itself under intense scrutiny due to dealings with fallen crypto giants FTX and Alameda Research. As federal prosecutors continue to develop their case against Sam Bankman-Fried, Silvergate’s involvement in FTX and Alameda transactions continues to be revealed.

In the most recent court filings by federal prosecutors, which led to additional charges against SBF, prosecutors claim that Bankman-Fried established accounts under the moniker “North Dimension” in an effort to avoid the bank’s stricter due diligence. The bank is referred to as Bank 1 in the paper, and the indictment states that it is located in California.

Interestingly, two North Dimension accounts at Silvergate were revealed in a November petition submitted by FTX Trading in the Delaware bankruptcy case. This encourages the speculation that Bank 1 is Silvergate, which a person familiar with the matter supported.

As much as the bank has not been accused and it is possible that the Justice Department’s investigation into Silvergate could end without charges, the continued scrutiny is shaking customers’ confidence in the firm and leading to tanked stocks and losses that the bank may not survive in the long run.