Silvergate Capital Delays Annual Report Pending Investigation, Stock Tanks 45%

Shares of cryptobank Silvergate Capital (SI) sank as much as 45% Thursday morning after the company said it would delay filing its annual report.

In an SEC filing Wednesday, Silvergate said it needed more time to analyze the impact of regulatory inquiries and investigations as well as to let an independent auditor complete an audit.

Key Takeaways

  • Silvergate said it is unable to file its annual Form 10-K report before the March 16 deadline.
  • Coinbase and Paxos suspend payment transfers from Silvergate.
  • Silvergate says it is at risk of investigation by the U.S. Department of Justice and other regulators.
  • The bank had exposure to the collapsed FTX, which may be one of the motivations for the investigations.

Coinbase, Paxos Drop Silvergate As Investigations Loom

This admission has prompted many crypto-industry players to cut ties with Silvergate. Coinbase (COIN) said it “is no longer accepting or initiating payments to or from Silvergate,” while Paxos said it has “discontinued all SEN transfers and wires to our Silvergate account.” Paxos will continue to process outbound transfers.

Silvergate was unable to submit its annual report on Form 10-K to the SEC for the fiscal year that ended on Dec. 31, 2022. A deadline extension was granted until March 16, and Silvergate is set to miss that as well.

“The Company is currently analyzing certain regulatory and other inquiries and investigations that are pending with respect to the Company. The Company’s independent registered public accounting firm is also requesting detailed information relating to such matters and the Company is responding to such requests. The Registrant is still preparing analyses and providing documentation requested by its independent auditors in connection with their review,” it said in its SEC Form 12b-25.

In the forward-looking statements section, Silvergate said that it runs the risk of facing inquiries and investigations from banking regulators, Congress, and the Department of Justice.

Silvergate’s FTX Ties May Be Key To Investigations

Silvergate had exposure to the now-bankrupt FTX. In a statement made in November 2022, it stated that the total deposits from all customers associated with FTX amounted to less than 10% of the $11.9 billion held. It had no outstanding loans or investments in the exchange.

In January this year, Silvergate shares dropped by 45% in one day after a reported $8 billion run on the bank as investors scrambled to pull their funds. A little later that month, the crypto-bank reported a $1 billion loss for the fourth quarter of 2022.

Silvergate’s stock took a hit again in February, on the news of a DoJ investigation related to its FTX and Alameda Research exposure. Authorities are reportedly examining Silvergate for potential fraud, though it hasn’t faced any accusations of wrongdoing.

Silvergate’s Stock Woes

Since the collapse of FTX in November, Silvergate shares have lost more than 80% of their value. That’s interesting because major hedge funds such as Citadel and Soros Fund reported investments into Silvergate in the fourth quarter of 2022. Ken Griffin’s Citadel, in fact, has a 5.5% stake in the company.

Silvergate is one of the most shorted stocks and MarketWatch data shows that more than 71.3% of the stock’s free float is shorted. The deck, quite frankly, is stacked against price recovery.

On Wednesday, shares of Silvergate closed at $13.53, down 2.73% over the prior 24 hours. In after-hours trading, they plunged by a massive 31.71%, down to $9.24. The decline continued as markets opened, with shares opening for trade at just a little over $7.6 per share before plunging to a low of $6.8 at the time of this writing.

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