UPDATED 11:55 EDT / MARCH 02 2023

a bitcoin "coin" sitting amid a bunch of copper colored coins strewn in a hazy closeup image BLOCKCHAIN

Coinbase, Paxos break ties with embattled crypto-friendly Silvergate Bank

Major cryptocurrency exchange Coinbase Global Inc. said today it would no longer use Silvergate Bank to facilitate dollar payments for its institutional partners after it was revealed that the bank may be in financial trouble.

Stablecoin issuer Paxos Trust Co. LLC also announced that it would break ties with Silvergate. The company said this would not affect customers because the company uses a “diverse network of banking partners.”

Citing a recent investigation and the delay Wednesday of a U.S. Securities and Exchange Commission filing by Silvergate Capital Corp., the parent company of Silvergate Bank, Coinbase said it would switch to other banking partners to secure cash transactions.

“Coinbase will be facilitating institutional client cash transactions with our other banking partners and have taken proactive action to help ensure that clients experience no impact from this change,” Coinbase said on Twitter. The company added that it has minimal exposure to Silvergate.

Silvergate stated in the filing that a “number of circumstances” existed that would “negatively impact” the timing of the release. The company added that additional losses would also lead to the bank being “less than well capitalized.”

The company also noted that it was examining the impact of these events on “its ability to continue as a growing concern.”

Upon the news, the value of Silvergate Bank stock fell by over 40% in early morning trading, to $7.60. Coinbase’s shares fell by 8%, to $59.47.

Silvergate already posted $1 billion in losses in the last quarter after being caught up in the fallout from the collapse and bankruptcy of Sam Bankman-Fried’s crypto exchange FTX Trading Ltd. That event plunged the entire crypto industry into turmoil and Silvergate went on to lay off 40% of its workforce in January, citing economic pressures.

The company was also targeted with a class action lawsuit as a result of its dealings with FTX, alleging that the company abetted the crypto exchange’s fraudulent activities. Silvergate maintained accounts for FTX and its sister company Alameda Research, which were caught up in fraud schemes that ultimately brought down both in a financial implosion that wiped out customer funds.

Prosecutors in the Department of Justice fraud unit are also reportedly investigating the bank for its involvement in the FTX scandal as well, according to a report from Bloomberg. Although the bank is not accused of wrongdoing, investigators are focusing on what the bank may have known about dealings behind the scenes.

Silvergate stated in its SEC filing that it’s now in the process of “reevaluating its business strategies in light of the business and regulatory challenges it currently faces.”

Image: Pixabay

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