San Diego Federal Court Denies Silvergate’s Dismissal Motion in FTX Fraud Case
The San Diego federal court has ruled that Silvergate Bank must face a class-action lawsuit filed by FTX users which alleges that the bank aided fraud at the exchange and its associated trading firm, Alameda Research.
Despite Silvergate’s attempt to dismiss the case in June, a federal court judge denied the motion on Wednesday in the US District Court for the Southern District of California.
In a court order on March 20, Judge Ruth Bermudez Montenegro denied Silvergate’s motion to dismiss the lawsuit. The judge ruled that the FTX users allegations were sufficient, asserting that Silvergate was aware of FTX’s fraud but benefited from it and unjustly enriched itself at the expense of FTX users. However, all these allegations were denied by the bank.
The court found that Silvergate had a duty of care to FTX customers, mainly because of its Silvergate Exchange Network (SEN) which was designed to facilitate fund transfers to crypto exchanges. The judge emphasized that a crypto exchange like FTX was virtually impossible before establishing SEN.
However, in its motion to dismiss, Silvergate argued that it did not owe FTX customers a duty of care and that its dealings, as alleged in the lawsuit, were not a substantial factor in the exchange customers’ inability to withdraw funds. The bank further stated that any alleged harm was primarily the fault of FTX and its co-founder, Sam Bankman-Fried; the judge found these claims unconvincing.
Notably, Silvergate provided banking services to FTX and Alameda, processing transfers and accepting deposits that directed FTX customer funds to Alameda’s account since FTX initially lacked a bank account. The judge noted Silvergate’s strong incentive to continue these operations due to its
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