Core Summary

  • Antonio Martino, former Chief Financial Officer of Silvergate Capital, recently filed a motion with the court requesting that the U.S. Securities and Exchange Commission (SEC) withdraw its allegations that he misled investors following the collapse of cryptocurrency exchange FTX in 2022. According to court documents filed on Tuesday, the collapse ultimately led Silvergate Capital to declare Chapter 11 bankruptcy last year.
  • The motion to dismiss was filed after the SEC brought charges against several former executives of Silvergate last year for allegedly misleading investors, including allegations that Martino misled investors regarding expected securities sale results related to the FTX collapse, as indicated in a press release at the time.
  • However, Martino's lawyers argued in this week's motion that the SEC's allegations lack "any allegation that Mr. Martino had a personal financial motive." Additionally, the motion contends that the former CFO and Silvergate both "disclosed the losses alleged by the SEC in the form of accumulated other comprehensive losses (AOCL) rather than other-than-temporary impairments (OTTI)," according to documents filed with the U.S. District Court for the Southern District of New York.

In-Depth Analysis

Months before Silvergate Capital filed for bankruptcy in September, the SEC announced settled charges against several former executives in July, according to a press release at the time. In addition to the charges against Martino, the SEC also charged Silvergate, its former CEO Alan Lane, and former Chief Risk Officer Kathleen Fraher with "misleading investors about the strength of their Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance programs and their monitoring of cryptocurrency clients, including FTX, at Silvergate Bank, a wholly owned subsidiary of Silvergate," according to the SEC's press release.

At that time, all parties except Martino agreed to settle the charges, the SEC stated.

Martino, a 17-year veteran of Citigroup, served as Chief Financial Officer of Silvergate, based in La Jolla, California, for four years starting in 2019, according to his LinkedIn profile. He currently serves as the head of finance at financial software provider PayZen.

The SEC alleged that Martino "engaged in a fraudulent scheme to mislead investors about the bank's severe financial condition," according to the complaint filed by the agency in July 2024. As the head of finance, Martino was aware that the bank had borrowed billions of dollars in 2022, with the debt scheduled to mature in early 2023, and that the bank's "only viable source of funds to repay the debt would be the sale of billions of dollars in securities in the first quarter of 2023," the complaint stated.

The SEC also alleged in the complaint that Martino subsequently fraudulently approved an earnings report stating that the bank expected to sell only $1.7 billion in securities during the quarter, after having already sold $1.5 billion—implying the bank would sell only an additional $200 million for the remainder of the quarter, "while he knew or recklessly disregarded that the bank was far more likely to be required to sell significantly more than that amount."

However, the SEC's complaint is "not credible" because it "characterizes the fraud as involving alleged false factual statements related to OTTI," the motion stated. "In reality, these statements reflected the opinions and forecasts of the bank and Mr. Martino regarding highly technical OTTI accounting calculations, which were based on forward-looking assessments of the bank's expected future securities sales, and... Mr. Martino and the bank explicitly cautioned investors not to unduly rely on these statements," the motion noted. The former CFO and the company also "simultaneously disclosed in exhaustive detail that the bank was under severe stress," the motion stated.

"In short, 'the market had received the message' that the bank was experiencing a financial and operational crisis," the dismissal request read.

The former CFO's motion to dismiss is an ongoing focus in the aftermath of the FTX collapse, which has had widespread effects on both the cryptocurrency and banking industries. Cryptocurrency-focused Silvergate Bank failed to recover after the FTX collapse in November 2022 and filed for Chapter 11 bankruptcy in March 2023, as previously reported by Banking Dive, a sister publication of Industry Dive.

The FTX collapse triggered a bank run, forcing it to sell assets at a loss in an attempt to cover approximately $8.1 billion in withdrawals. The bank's parent company, Silvergate Capital, subsequently filed its own Chapter 11 petition in September 2024.

Linklaters LLP, the law firm representing Martino, declined to comment beyond the motion. The SEC declined to comment beyond its public filings.