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California judge combines FTX-related Silvergate lawsuits

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Three investor lawsuits against collapsed tech bank Silvergate have been combined by a California judge, thanks to a shared connection to bankrupt exchange FTX.

On Wednesday, U.S. District Judge for the Northern District of California Jacqueline Scott Corley ruled that three lawsuits against Silvergate Bank could be combined due to the cases’ shared allegations that it aided FTX in defrauding its customers.

The request to consolidate the cases was filed jointly by plaintiffs’ and defendants’ counsel and based on Judge Corley’s previous ruling of March 8 that the Silvergate cases in question—Bhatia v Silvergate Bank, Magleby v Silvergate Bank, and Keane v Silvergate Bank—are related to another of her cases, Lam v Bankman-Fried, as well as other actions before the Court involving the collapse of FTX.

In Lam v Bankman-Fried, filed November 21 and over which Judge Corley is also presiding, Elliot Lam accused Sam Bankman-Fried, along with the head of Alameda Research Caroline Ellison and the NBA Basketball Team the Golden State Warriors, of “fraudulent and deceitful conduct” in their promotion and marketing of FTX Entities’ trading platform.

One of the original complaints against Silvergate, brought by plaintiff Bhatia on February 14, accused the bank of “aiding and abetting a multibillion-dollar fraudulent scheme orchestrated by Sam Bankman-Fried.” This mirrors the complaints of both the Magleby and Keane cases against Silvergate, which also point the finger of blame at the bank’s connection to FTX.

Under Rule 42(a) of the Federal Rules of Civil Procedure, “if actions before the court involve a common question of law or fact, the court may… consolidate the actions.”

Therefore, Judge Corley agreed to the joint application that the three cases could be combined, stating her reasoning that all parties agreed: “The Silvergate Cases involve common questions of law and fact, as they name common defendants, arise from the same alleged course of conduct, and assert overlapping causes of action, such that the Silvergate Cases are appropriate for consolidation.”

The next steps will be for the combined plaintiffs to file a Consolidated Amended Complaint (CAC), Silvergate, as the defendant, will then have 30 days in which to respond to the new complaint.

Silvergate and FTX’s disastrous partnership

Silvergate formally entered liquidation on March 8, announcing its intention to “wind down operations and voluntarily liquidate the Bank in an orderly manner and in accordance with applicable regulatory processes.”

The tech bank was one of the most prominent dominoes to fall after November’s collapse of digital asset exchange FTX, which was among Silvergate’s most active users.

After the collapse of FTX, depositors hurried to withdraw their funds from Silvergate, sparking a bank run. Silvergate was unprepared and had much of its capital tied up in long-term U.S. bonds and securities, positions it was forced to redeem at a roughly $1 billion loss to meet withdrawal obligations.

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