Mar 14, 2023
Signature Bank Faced Criminal Probe Ahead of Firm’s Collapse
(Bloomberg) -- US prosecutors were investigating Signature Bank’s work with crypto clients before regulators suddenly seized the lender this past weekend, according to people familiar with the matter.
Justice Department investigators in Washington and Manhattan were examining whether the New York bank took sufficient steps to detect potential money laundering by clients — such as scrutinizing people opening accounts and monitoring transactions for signs of criminality, the people said. The Securities and Exchange Commission also was taking a look, two people said, asking not to be named because the inquiries are confidential.
The Federal Deposit Insurance Corp., which took control of the firm, declined to comment. A representative for the entity that was set up by the government after the seizure also declined to comment.
Representatives for the Justice Department, US Attorney’s Office in Manhattan and SEC declined to comment. But a spokesperson for the agency, which brings only civil cases, pointed to a statement from Chair Gary Gensler on Sunday, when authorities took steps to bolster US lenders and shut Signature.
“We will investigate and bring enforcement actions if we find violations of the federal securities laws,” the SEC chief said at the time.
The bank and its staff haven’t been accused of wrongdoing, and the investigation could end without further action. It’s unclear when the probes involving Signature Bank were opened and whether it had any effect on the decision by state regulators to close the bank on Sunday. States regulators have said they lost faith in management after the bank failed to provide “reliable and consistent data.”
The FDIC has since started looking for a buyer.
Read more: ‘Old-school’ Signature Bank’s crypto foray ends in collapse
Financial watchdogs and Justice Department officials have repeatedly warned that firms handling crypto or related cash must be vigilant in identifying customers and ensuring money flows are for legitimate purposes. Banks in particular are obligated to flag any suspicious transactions to federal authorities.
“The FBI and our partners remain steadfast in our commitment to keeping cryptocurrency markets – as with any financial market – free from illicit activity,” Michael Driscoll, the assistant director in charge of the FBI New York field office, warned after the US brought charges against the owner of a crypto exchange in January.
Regulators have been pressuring banks and other regulated firms to pull back from digital currencies and other assets to head off potential risks to the financial system. Signature’s collapse follows last week’s demise of Silvergate Capital Corp, which also catered to the crypto industry, and SVB Financial Group’s Silicon Valley Bank.
All three banks now face US scrutiny. Silvergate is being investigated by the Justice Department over dealings with Sam Bankman-Fried’s defunct FTX exchange and Alameda Research, Bloomberg has reported. Federal prosecutors and the SEC also are examining the collapse of Silicon Valley Bank, including whether stock sales by executives violated trading rules.
Signature didn’t disclose the inquiries in its most recent filings.
After the collapse of FTX in November, Signature executives said they intended to shed as much as $10 billion in deposits from digital asset clients, which at the time represented more than a fifth of its deposit base. But they still planned to keep some.
“We’re not exiting the space,” Eric Howell, then the bank’s chief operating officer, said in December. “We’re going to be involved but we’re going to be involved in a much more thoughtful way moving forward.”
--With assistance from Katanga Johnson.
(Updates with decline to comment in third paragraph.)
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