According to a new lawsuit, Signature Bank was aware of the FTX fraud since June 2020.

For its alleged knowledge of funds being mixed between insolvent exchange FTX and Alameda Research, crypto-friendly Signature Bank was sued in a putative class-action lawsuit by algorithmic trading business Statistica Capital.

Statistica claims that beginning in June 2020, Signature Bank used its Signet payments network to transfer funds meant for FTX to Alameda’s bank accounts in defiance of its recommendations. A permissioned blockchain network called Signet makes it possible to send money at any time by creating and burning “signet tokens” that comply with ERC-20 standards.

According to Statistica, Signature Bank violated its fiduciary duty.

In accordance with Statistica’s court document, FTX moved client deposits from Alameda accounts using “e-money,” a “nonlegal tender.” Customers of FTX could verify that money had been deposited into their accounts, however, Statistica claims that money had not been transferred out of Alameda’s accounts. Alameda was reportedly given loans from FTX and Sam Bankman-Fried using client deposits; they even extended the insolvent hedge fund a $65 billion credit line.

Sam Bankman-Fried, the former CEO of FTX, is accused of eight crimes in the United States, including money laundering and wire fraud. The criminal case against him centers on the mixing of Alameda’s money with monies from FTX customers. The SEC has filed a second civil lawsuit against Sam Bankman-Fried for misleading investors about FTX’s partnership with Alameda.

Statistica claims that Signature breached its fiduciary duty to clients by processing transactions that intentionally broke FTX’s terms and conditions.

On February 8, 2023, Binance will stop allowing bank USD transactions for an unspecified reason. It gave credibility to rumors that suspensions were connected to Signature Bank earlier by informing clients that Signature Bank would only enable SWIFT transactions of $100,000 or more between itself and Binance customers.

Fewer options are left for centralized exchanges to perform a crucial role.

The world’s biggest centralized exchanges are progressively losing ground as banks strive to remove themselves from the sector after being alarmed by regulatory warnings and crypto failures. For cryptocurrency traders and investors, centralized exchanges are essential on-ramps from fiat to cryptocurrency. Exchanges’ capacity to withstand continuous market stress may be impacted by the widespread departure of banking partners.

Early in December 2022, Signature Bank said that it will reduce its crypto-related deposits by $8 to $10 billion. The CEO of the company emphasized that “we are not only a crypto bank.” Later, it took out a loan from Federal Home Loan Banks for $3.8 billion.

In order to reduce its portfolio of digital assets by 50% last year, the Massachusetts bank Provident Bancorp unloaded faulty loans it had issued to cryptocurrency miners. The business cut its portfolio of loans secured by mining rigs by 40% in Q4 2022 compared to Q3, and it anticipates cutting it further in 2023.

On January 9, 2023, the Metropolitan Bank of New York said it will shut down its cryptocurrency vertical because to “significant changes in the legal environment.” Customers of Voyager Digital, a Canadian cryptocurrency brokerage that declared bankruptcy last year, had to receive their money back from Metropolitan.

Silvergate Wants to Survive, but Will Crypto Benefit from That?

US investigators are looking into the part that cryptocurrency-friendly Silvergate Bank played in the FTX scheme. Large financial transfers reportedly were permitted by Silvergate over its Silvergate Exchange Network without sufficient oversight. In order to facilitate fiat-crypto transactions between cryptocurrency companies and investors, Silvergate Capital created the Silvergate Exchange Network in 2017.

In order to bolster its financial position, Silvergate recently withstood a $8.1 billion run on deposits by selling assets and derivatives and borrowing $10 billion from home lending institutions. Alan Lane, the CEO of Silvergate, who changed the bank’s focus from real estate to cryptocurrencies in 2013, wants to reassure the crypto community that the bank would not soon succumb.

CEO Alan Lane stated in late January 2023, “What we’re trying to signal is that we are here, and we are here for the long haul.” Analysts have also predicted that Signature Bank may lose market share to Silvergate due to limits on Binance transfers.

But in order to lessen the likelihood of a single failure point, cryptocurrency exchanges will hope that additional banks join the program.