Lawsuit Alleges Silvergate, CEO Were Aware Of Sam Bankman-Fried's Multibillion-Dollar Fraud Scheme

Silvergate Bank, a California-based bank that primarily deals in cryptocurrency transactions, and its chief executive officer (CEO), Alan Lane, have been named defendants in a proposed lawsuit alleging them of aiding and abetting a "multibillion-dollar fraudulent scheme orchestrated by Sam Bankman-Fried (SBF)" through two of the crypto businesses he founded, the crypto exchange platform FTX and the hedge fund Alameda Research.

The lawsuit was filed in the United States District Court for the Northern District of California Tuesday by Reiser Law, which represents plaintiff Soham Bhatia, a San-Francisco-based FTX user whose crypto deposits valued at around $20,000 were frozen when the crypto empire crashed in November 2022.

Bhatia alleged that Silvergate Bank, its parent company Silvergate Capital Corporation and its CEO were aware that Alameda Research used funds of FTX customers. Bhatia also accused the California-based bank of hiding from the public the "true nature of FTX."

"At all relevant times, Silvergate, Bankman-Fried and Lane were each co-conspirators of the other," the complaint noted, adding that "Silvergate and Lane aided and abetted, encouraged and substantially assisted Bankman-Fried in jointly perpetrating a fraudulent scheme upon Plaintiff and the class."

The plaintiff also accused the defendants of "assisting the wrongful acts, omissions and other misconduct" as well as acting with an "awareness of their wrongdoing realized that their conduct would substantially aid the accomplishment of their illegal design."

Further, the plaintiff accused the defendants of being "aware of the illegal FTX scheme whereby FTX customer money was embezzled by Alameda."

Despite knowing about Alameda's activities, the defendants allegedly did not take any action to stop the criminal activity or at least report it. Instead, they "continued accepting FTX deposits and executing the transfer and lending transactions upon which the scheme relied."

"Silvergate and Lane knew that FTX investors like Plaintiff were unaware of the FTX/Alameda investment fraud. Silvergate and Lane had superior and exclusive knowledge of the fraud," the plaintiff also alleged.

The proposed lawsuit is just one of the several class-action complaints filed against Silvergate Bank over the past two months.

It is worth noting that the complaint is yet to be evaluated and certified by the district court, a crucial step before it could proceed as a class action.

The plaintiff seeks a combination of damages, restitution and disgorgement of profits with the amount yet to be determined at trial.

Bankman-Fried is currently out on bail but is facing multiple charges including wire fraud, securities fraud, conspiracy, money laundering, campaign finance violations and defrauding investors for $1.8 billion.