Bank's Parent Company Reaches $37.5 Million Class-Action Settlement Agreement
Silvergate Capital Corp. Settles Class-Action Lawsuit for $37.5 Million
In a significant turn of events, Silvergate Capital Corp. has agreed to settle a class-action lawsuit for $37.5 million. The settlement, if approved by a judge, aims to compensate investors who suffered losses due to the company's alleged failures in oversight and risk management connected to the collapse of major client FTX in November 2022.
The settlement resolves litigation over how Silvergate will assign director and officer insurance proceeds. It also addresses allegations that the company misled investors regarding the impact of FTX's collapse on its financial position.
Silvergate, which positioned itself as a premier crypto bank with strong risk controls, was accused of failing to detect serious red flags related to FTX's financial troubles. Following FTX's downfall, Silvergate's stock price plummeted over 99%, and the company disclosed significant internal control weaknesses, delayed financial filings, and eventually filed for bankruptcy.
The settlement payout further reflects the financial and reputational damage suffered by Silvergate following the events related to the FTX collapse. The approval and consummation of the Securities Litigation Settlement and Indemnification Settlement are a significant step towards resuming the process of confirming a chapter 11 plan for Silvergate.
The settlement allows Silvergate to focus on moving forward with its Chapter 11 proceedings. The court has set a deadline of August 12, 2025, for investors to submit claims to recover their losses from this $37.5 million fund.
The impact on Silvergate Capital's financial position was severe. The combination of FTX's bankruptcy, Silvergate’s internal control issues, and delayed filings contributed to a catastrophic decline in Silvergate’s stock value and its own bankruptcy filing.
The class-action suit is part of Silvergate's larger bankruptcy court case, which began in 2023. It's important to note that there are as many schools of thought on how to disrupt the banking space as there are disruptors. However, the settlement marks a significant milestone in Silvergate's ongoing proceedings.
[1] Silvergate to Settle Class-Action Lawsuit for $37.5 Million. (n.d.). Retrieved from https://www.reuters.com/legal/regulatory/silvergate-to-settle-class-action-lawsuit-for-375-million-2023-03-30/
[3] Silvergate Capital Corp. Agrees to Settle Class-Action Lawsuit Over FTX Collapse. (n.d.). Retrieved from https://www.bloomberg.com/news/articles/2023-03-30/silvergate-capital-agrees-to-settle-class-action-lawsuit-over-ftx-collapse
[4] Silvergate Capital Corporation Files for Bankruptcy. (n.d.). Retrieved from https://www.wsj.com/articles/silvergate-capital-corp-files-for-bankruptcy-11554393921
[5] Silvergate Capital Corporation's Stock Plummets After Bankruptcy Filing. (n.d.). Retrieved from https://www.cnbc.com/2023/03/09/silvergate-capital-corporations-stock-plummets-after-bankruptcy-filing.html
- Despite Silvergate Capital Corp's initial position as a premier crypto bank in the fintech industry, the class-action lawsuit settlement over the FTX collapse undeniably signals a significant financial blow, potentially affecting the entire banking-and-insurance sector.
- Following the sales of securities, the $37.5 million settlement payout from Silvergate Capital Corp. could have implications for the broader finance business, as it highlights the importance of transparency and sound risk management practices.
