Silvergate Capital Files for Chapter 11 Bankruptcy

Once a key player in the crypto banking industry, Silvergate Capital faces bankruptcy in the wake of mounting legal and financial troubles.

Silvergate Capital Corporation, the parent company of crypto-friendly Silvergate Bank, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware. The filing, made on September 17, 2024, revealed that Silvergate listed assets between $100 million and $500 million, with liabilities ranging from $10 million to $50 million. This bankruptcy comes 18 months after the company announced it would shut down operations and voluntarily liquidate its crypto-focused subsidiary, Silvergate Bank.

Silvergate's downfall is rooted in several factors, including liquidity challenges, rising interest rates, and a surge in regulatory scrutiny following the collapse of crypto giant FTX in late 2022. The bank was once known for its close ties with the cryptocurrency industry, serving many major crypto firms, including FTX.

In its bankruptcy filing, Silvergate detailed plans to fully repay administrative fees, taxes, and secured loans. However, claims related to common stock and securities lawsuits are expected to be canceled. In addition, debts between Silvergate’s internal companies are set to be reinstated, with preferred stockholders receiving partial payments based on their shares.

Silvergate's liquidity issues became apparent in early 2023, prompting the company to wind down its banking operations. In March 2023, Silvergate Capital announced the voluntary liquidation of Silvergate Bank, citing mounting pressure from rising interest rates and declining confidence after FTX’s failure. The bank faced further regulatory challenges, including a lawsuit from the Securities and Exchange Commission (SEC) in July 2024, accusing it of helping to facilitate fraud at FTX.

Despite the SEC lawsuit, Silvergate made significant strides in winding down its operations. The Federal Reserve Board later dropped all charges against the company, commending Silvergate for reimbursing customers and ceasing to operate as a bank.

Silvergate Capital's bankruptcy case is being managed by legal firms Richards, Layton & Finger and Cravath, Swaine & Moore LLP, with financial advice from AlixPartners.

photo source / Blockonome