Silvergate Becomes Wall Street's second-most shorted stock

By: Dickson Arinze

February 13, 2023 8:21 AM

As of January 31st, 2018, the Financial Industry Regulatory Authority reported that over 72% of Silvergate Capital Corp. stock was being shorted.

According to the most recent data from the Short Interest Reporting Service (SIRS), as of February 9th, crypto bank Silvergate Capital Corp. was the second most shorted stock in the United States, with approximately 72.5% of its shares shorted.

FINRA, the Financial Industry Regulatory Authority, compiles and publishes short interest positions in all equity securities twice a month. When investors and traders take what is known as a "short position," they bet that the value of a security, such a stock, will fall. When the price of a security falls, the seller of shorts makes money.

Silvergate stock (SI) has fallen by more than 87% in the past year as of this writing. Silvergate's recent earnings report and court disputes over its relationship with bankrupt enterprises FTX and Alameda Research have contributed to the pessimistic market outlook.

On January 17th, the bank disclosed a fourth-quarter 2022 net loss to common stockholders of $1 billion. The United States Securities and Exchange Commission (SEC) claims that Silvergate had a considerable decline in deposits over the time, necessitating the issuance of debt securities and the pursuit of wholesale finance.

When the cryptocurrency exchange FTX went down in November, withdrawals spiked, causing Silvergate to purportedly borrow $3.6 billion from the U.S. Federal Home Loan Banks System to cover the shortfall.

There are investigations and lawsuits pending in the United States against the bank for allegedly helping FTX engage in fraudulent operations include financing to the company and mixing customer monies with its own. Shareholders allege that Silvergate violated the 1934 Securities Exchange Act, and the company has been accused of "furthering FTX's investment fraud." The bank's involvement in FTX enterprises is the subject of an active Justice Department investigation.

Silvergate claims that Alameda signed up for an account with the financial institution in 2018, well before FTX became live. The firm maintains it did its homework at the time and has been keeping an eye on developments ever since.

Due to the ongoing banking crisis, Moody's Investors Service recently lowered Silvergate Capital and its bank's ratings to "junk," with a negative outlook.