Silvergate may be poorly capitalized, reevaluating strategy in light of ‘regulatory challenges’

Silvergate Capital Corporation told the U.S. Securities and Exchange Commission that it may be “less than well-capitalized" and said it was “reevaluating its business” in a filing with the agency. Shares plummeted after the close.

Silvergate, a large bank for fintech and crypto, said it would not be able to file its annual financial report on time. It noted that it expected to “record further losses related to the other-than-temporary impairment on the securities portfolio.”

“The company is currently in the process of reevaluating its businesses and strategies in light of the business and regulatory challenges it currently faces,” Silvergate said.  It also told the SEC it could not file its annual financial report on time because it needed more time for analysis, auditing and to “record journal entries related to subsequent events.” 

Silvergate said it does not think it can complete all the information required by March 16 for the report due for the fiscal year that ended on Dec. 31.

Shares fall

Shares in the crypto-friendly bank traded down after hours, dipping over 30% to $9.10 by 5:45 p.m. EST, according to TradingView data. Shares have been falling since the beginning of the year, as links to the collapsed FTX exchange and a run on deposits in the fourth quarter damaged the bank’s reputation. 

KBW analysts led by Michael Perito downgraded the stock to market perform from outperform this week, citing "increasingly limited visibility." 

"Our market perform rating reflects increased patience, particularly after the bounce back in the shares off the lows of nearly $10," the analysts said. The expected 10-K "could possibly include some incremental year-end commentary.” 

Silvergate remains one of the most shorted stocks on Wall Street, according to NYSE data via MarketWatch. Around 71% of outstanding shares were sold short as of Feb. 15.

Moody’s said on Feb. 17 that the bank was well capitalized, although it faced "the potential for further unanticipated shocks to erode capital given elevated regulatory and legal risks and constrained profitability."

"The company is also facing challenges in preserving its funding and liquidity profile as it looks to reduce its reliance on brokered deposits and Federal Home Loan Bank funding," Moody’s wrote. "In addition, continued large outflows of deposits from crypto centric firms could further adversely impact the bank’s financial condition."

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

SEC served subpoena to Robinhood shortly after FTX debacle

The U.S. Securities and Exchange Commission subpoenaed trading app and brokerage Robinhood over its cryptocurrency services, the company disclosed in an annual financial filing posted on Monday. 

The high-profile fintech company also acknowledged that SEC legal action could lead to it ceasing digital asset trades on its platform, as part of its required listing of risks to its business. 

“To the extent that the SEC or a court determines that any cryptocurrencies supported by our platform are securities, that determination could prevent us from continuing to facilitate trading of those cryptocurrencies (including ceasing support for such cryptocurrencies on our platform),” Robinhood said.  

Robinhood said it received that subpoena shortly after crypto exchange FTX filed for bankruptcy in November. The subpoena is for information around topics such as “cryptocurrency listings, custody of cryptocurrencies and platform operations.” 

Robinhood facilitates customer trades for certain crypto that have been “analyzed under applicable internal policies and procedures and that we believe are not securities under U.S. federal and state securities laws,” the firm said later on in the filing.  

Growing business

Crypto trading on Robinhood has been a growing business line over the past 12 months, despite the market downturn. The investing platform launched its crypto wallet to 10,000 iOS users in September, which uses Circle’s USDC stablecoin as the primary fiat-representative token. 

The firm’s CEO, Vlad Tenev, noted in December the collapse of FTX led to Robinhood gain increased market share. Despite that, crypto trading revenue was down in the fourth quarter, dipping 24% – in line with most revenue lines. Crypto trading volumes on the platform recovered in January, jumping 95% as crypto prices rose across the board. 

If the SEC does take legal action with Robinhood, it would not be the first time the markets regulator has taken the company to court. The agency charged Robinhood in 2020 with misleading customers about revenue sources. Robinhood agreed to pay $65 million to settle those charges in December of 2020. Robinhood was also hit with a $30 million fine in August as part of a settlement with the New York Department of Financial Services for allegedly failing to comply with anti-money laundering and cybersecurity regulations. 

Robinhood declined to comment beyond what was in the filing.  

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.