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Silvergate Capital Corp., the parent company of digital asset-friendly lender Silvergate Bank, has filed for Chapter 11 bankruptcy protection at a U.S. court.

The bank entered liquidation in March 2023, announcing that it would wind down operations and repay all deposits in the aftermath of the FTX contagion.

In its filing at the United States Bankruptcy Court for the District of Delaware, Silvergate Capital revealed that it has no remaining lines of business and pledged to repay creditors using the remaining cash.

After repaying the depositors, the company will have $163 million in cash. It will use $18 million from this stash to repay bondholders and divide the rest among the stakeholders. However, it doesn’t intend to repay common stockholders.

Silvergate was one of the American banks that capitalized on the rise of digital currency, growing its deposits from less than $2 billion in 2019 to $14 billion two years later. It became the bank of choice for companies like Circle, which held $3.3 billion in USDC reserves at the bank.

By 2021, digital asset deposits at Silvergate Bank accounted for a staggering 98% of the bank’s overall deposits. Then came the FTX collapse in November 2022, which impacted the direct deposits by the exchange and sparked a bank run that saw clients withdraw over $8 billion in weeks.

Silvergate exec: Regulators pushed us out of business

While its tie-up with digital currency has been cited as its downfall, one Silvergate executive has blamed the bank’s collapse on federal regulators.

In an accompanying filing, Chief Administrative Officer Elaine Hetrick narrowed the company’s woes to a push by regulators in early 2023 to tighten their regulatory grip on ‘crypto’ banks.

In February, the U.S. Fed, the OCC, and the FDIC released a joint statement claiming that banks with digital asset exposure may face heightened liquidity risk.

“…the increased supervisory pressure on Silvergate Bank and other banks focused on servicing crypto-asset businesses forced Silvergate Bank to a point where it would have needed to remake its business model away from its focus on crypto-asset businesses, seek to sell itself as a going concern in the shadow of the regulatory overhang or begin winding down its affairs with the goal of preserving as much value as possible for stakeholders,” Hetrick wrote in the filing.

Hetrick insists that, before this statement, Silvergate had been able to absorb the shock of the FTX collapse, including by cutting 40% of its staff and suspending capital-intensive services. However, the statement affected investors’ confidence, and the ensuing bank run dealt a massive blow to the bank, she said.

Hetrick added that Silvergate’s closure indicates the U.S. federal regulators’ anti-digital asset stance. She quoted Barney Frank, a former congressman and director of Signature Bank—yet another defunct crypto-friendly bank—who claimed that “regulators wanted to send a very strong anti-crypto message.”

A year after its collapse, federal regulators filed charges against Silvergate, accusing it of lax KYC and AML structures, which allowed over $1 trillion to be transferred through its 24/7 Silvergate Exchange Network (SEN) without monitoring for suspicious transactions.

The top brass also faced charges for misleading investors about the bank’s compliance with the Bank Secrecy Act and its losses from FTX-related debt securities sales. The SEC proved that the management was aware of the deficiencies, with Kathleen Fraher, the chief risk officer, allegedly infamously stating, “We have known of this issue and either we have established other controls to account for it or we haven’t, and we have to take our lumps.”

To settle the charges with the SEC, Silvergate forked out $50 million in penalties. It also paid $43 million to settle similar charges filed by the Fed and $20 million to the California Department of Financial Protection and Innovation.

Watch: Teranode & the Web3 world with edge-to-edge electronic value system

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