Silvergate’s former chief risk officer revealed she decided to settle with the US securities regulator in 2024 to avoid a “multi-year battle” in court, where she was accused of misleading investors about anti-money laundering policies and how the bank monitored cryptocurrency customers.
Kate Fraher made her first public comments on the SEC settlement on Wednesday he claimed that neither financial agency had proven that Silvergate’s anti-money laundering controls had failed and that it had merely chosen to “move on”.
Fraher agreed to a civil penalty of $250,000 and was barred from serving as an executive or board director of the company for five years.
“The process itself is designed to exert maximum pressure and the human costs are real. I was personally left bankless and had my lines of credit closed with immediate effect – an aggressive tactic used to disrupt daily life and enforce compliance,” she said.
The comments provide greater insight into the circumstances surrounding the liquidation of Silvergate, a cryptocurrency-friendly bank that voluntarily closed following the collapse of FTX. Fraher said she was able to express her opinion after the SEC on Monday lifted its long-standing “rule of silence.”
Source: Kate Fraher
Fraher said the liquidation was not due to a “bank run” or market volatility caused by the November 2022 collapse of FTX, even though the bank saw deposits decline by about 70%.
Instead, Fraher said the company decided to go out of business because “broader administrative and regulatory pressures on the digital asset industry have made it impossible to operate a profitable business.”
Many cryptocurrency industry experts have referred to it as “Operation Chokepoint 2.0” – an unproven plan in which U.S. financial regulators cut off banking services to crypto companies in an attempt to limit their ability to operate in the broader financial system.
Silvergate wasn’t the only cryptocurrency-friendly bank to face stringent measures, which intensified after the November 2022 collapse of FTX.
Signature Bank and Silicon Valley Bank also closed in early 2023, due in part to panic deposits, liquidity issues and knock-on effects related to FTX and several lending platforms that went bankrupt in 2022.
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However, Fraher said it managed to weather FTX’s collapse in early 2023 by restructuring the company with the “appropriate level of capital” and “right-sized workforce” to continue operating safely.
Fraher argues that the gag policy was unconstitutional
Fraher praised the SEC’s current leadership, led by Paul Atkins, for ending the gag rule, which she described as an “unconstitutional policy.”
“I’m glad the right to tell the truth has finally been restored,” Fraher said, adding: “We must continue to talk about the long-term professional and personal impacts that regulations impose on individuals through law enforcement.”
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