Silvergate Capital Corp., which has more than 72.5% of its shares shorted, is the second-most-shorted stock in the United States.
All equities securities’ short interest positions are compiled and published twice a month by the Financial Industry Regulatory Authority (FINRA). A short position indicates that traders and investors anticipate a decline in the value of the price of a security, such as a stock.
Profiting from a security’s price drop is the goal of a short seller. In the last 12 months, Silvergate stock (SI) has decreased by more than 87% as of this writing.
The company’s most recent earnings report and legal disputes it has with insolvent businesses FTX and Alameda Research are the main causes of the adverse mood surrounding Silvergate.
On January 17, the bank disclosed a $1 billion net loss for the fourth quarter of 2022 that was attributable to common stockholders. The United States Securities and Exchange Commission (SEC) said that Silvergate experienced large deposit outflows throughout the time period, forcing the company to look for wholesale funding and sell debt securities to maintain liquidity.
After the collapse of the cryptocurrency exchange FTX in November 2022, Silvergate reportedly borrowed $3.6 billion from the U.S. Federal Home Loan Banks System to lessen the impact of a spike in withdrawals.
For allegedly assisting FTX on fraudulent activities, such as lending and commingling user funds, the bank is under investigation and is being sued in the United States.
Silvergate has been charged with “furthering FTX’s investment fraud,” and shareholders have accused the corporation of breaking the 1934 Securities Exchange Act.
The bank’s involvement with FTX enterprises is currently the subject of an investigation by the Justice Department. Alameda created a bank account in 2018, prior to the start of FTX, claims Silvergate.
The business asserts that it did its due diligence at the time and continued to keep an eye on the matter. In response to the bank crisis, Moody’s Investors Service recently downgraded Silvergate Capital and its bank to “junk,” with a poor outlook for both businesses.
