The collapse of Silvergate Bank and Signature Bank created new problems for FTX customers

The collapse of Silvergate Bank and Signature Bank created new problems for FTX customers

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Author: Robert Strickland (crypto expert)
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The collapse of Silvergate Bank and Signature Bank created new problems for FTX customers
The collapse of Silvergate Bank and Signature Bank created new problems for customers of the bankrupt cryptocurrency exchange FTX.
After FTX collapsed, customers of the exchange sued the banks that served the exchange, accusing them of assisting FTX management. Defendants' sudden bankruptcies will now make it difficult to get funds

The collapse of Silvergate Bank and Signature Bank, which handled cryptocurrencies, has created new problems for creditors of the bankrupt FTX, Reuters reports. Some customers of the exchange, created by Sam Bankman-Fried, were hoping for a refund. They have sued those banks, but the sudden bankruptcies may now hinder those plans.

On March 8, Silvergate's parent company, Silvergate Capital Corp, announced it was closing the bank and liquidating its assets. Then on March 12, financial regulators closed Signature Bank to prevent possible negative consequences of the Silicon Valley Bank collapse.

After the FTX exchange went bankrupt last November, its customers filed at least four class action lawsuits. They accuse Silvergate and Signature of helping former FTX executives embezzle customer funds, according to the article. The FTX litigation is in its early stages, and neither the U.S. Department of Justice nor other regulators have charged the banks. Only Silvergate Bank is still under prosecutorial investigation, the paper noted.

Attorneys for FTX clients expect to seek compensation from the banks, as happened in the Bernard Madoff and Allen Stanford proceedings. The victims of these fraudsters received billions of dollars from large banks that allegedly facilitated the creation of pyramid schemes.

However, the Silvergate and Signature bankruptcies, according to the plaintiffs' attorneys, would severely limit the amount of money they could recover if they could prove the banks were involved. According to lawyer Kerry Miller of Fishman Haygood, a firm that represents some FTX clients, things may be limited to getting money from insurance policies that cover the liability of the banks' top executives.

In addition, a large number of lawsuits relating to the collapse of FTX have been filed in court, and the judges have not yet been able to decide how to combine them, and in which court then to consider.

 

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