Cryptocurrency exchange Coinbase announced that it had terminated its partnership with Silvergate Bank as its United States dollar banking partner, citing an ongoing investigation. In a tweet, the exchange said:
“In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate.“
The crypto exchange will facilitate institutional client cash transactions for its prime customers with its other banking partner, Signature Bank.
The stocks of Silvergate Bank, which were already under stress due to a delay in filing its annual 10-K report, dropped another 40% in pre-market trading. Silvergate Capital was also downgraded to “underweight” from “neutral” by JP Morgan in light of the insolvency scare.
A 10-K report is a document required by the U.S. Securities and Exchange Commission that provides a comprehensive overview of a company’s business and financial condition. The crypto bank had said it would need an additional two weeks to complete the report for the 2022 fiscal year.
The decision will not impact payment instructions in pounds or euros.
Troubles for the fintech bank began along with the downfall of the FTX crypto exchange. Silvergate Bank, also popularly known as the “crypto bank” for its slew of crypto partners, is currently facing an investigation from the U.S. Department of Justice over its involvement in the FTX collapse. The investigation revolves around former FTX CEO Sam Bankman-Fried’s account with the bank.
In another civil lawsuit, Silvergate Bank and its CEO Alan Lane were accused of “aiding and abetting” a “multibillion-dollar fraudulent scheme orchestrated by Sam Bankman-Fried (SBF)” and two of his entities — FTX and Alameda Research.
In light of the ongoing investigations and termination of partnerships, Silvergate became one of the most shorted stocks in the current market. Over 72% of Silvergate Capital stock was shorted by the end of January, according to the Financial Industry Regulatory Authority.
This is a developing story, and further information will be added as it becomes available.