Former Silvergate Exec Speaks Out After SEC Ends Decades-Old 'Gag Rule'

Silvergate Bank was a California-chartered commercial bank that became one of crypto's main banking partners. The bank began winding down operations in March 2023 following the collapse of FTX and the broader turmoil that spread across the crypto industry. FTX was a major cryptocurrency exchange that collapsed in late 2022.

What happened?

The SEC sued Silvergate, former CEO Alan Lane and Fraher in July 2024, alleging the bank misled investors about the strength of its anti-money laundering (AML) and compliance programme and its monitoring of crypto customers, including FTX.

According to the agency, Silvergate's transaction monitoring system failed to track more than $1tn in customer transactions on the Silvergate Exchange Network and failed to detect nearly $9bn in suspicious transfers involving FTX-related entities.

Silvergate later agreed to pay a $50mn civil penalty to settle the charges, while Fraher agreed to pay a $250,000 penalty and accepted a five-year officer-and-director ban, according to a filing from the SEC.

However, Fraher was unable to publicly challenge the allegations because of the SEC's so-called "gag rule," which prevented people and companies that settled with the agency from publicly denying or criticizing its claims.

'Gag rule' removal

The SEC removed the rule this week, ending a policy that had been in place since 1972. The agency said the change would allow more open discussion and give settling parties greater flexibility.

"Speech critical of the government is an important part of the American tradition," SEC Chair Paul Atkins said in a statement. The change "ends the policy prohibiting such criticism by settling defendants," he added. 

Legal experts say the change could affect how companies and individuals approach SEC settlements, as parties may be more willing to settle cases if they can still publicly challenge the agency's claims afterward.

Fraher's comments also touched on broader debates in the social media sphere around "Operation Chokepoint 2.0" – a term used by some crypto industry participants during the Biden administration to describe alleged regulatory pressure on banks serving digital asset companies.

Fraher's story 

"For the first time since my own settlement, I am free to share my story," Fraher wrote in a post on X. "While I sincerely applaud the SEC for finally ending this unconstitutional policy, a change in rules doesn't erase the lasting damage of the process."

Fraher said Silvergate remained stable after FTX collapsed in late 2022, even after the bank lost around 70% of its deposits. She also revealed no depositors lost money and that the bank had restructured its business by early 2023 to continue operating safely.

"We did not wind down because of the run or the market volatility," she added. "We ultimately chose a responsible, voluntary wind-down because the broader administrative and regulatory pressure levied against the digital asset industry made operating a viable business impossible."

'The human costs are real'

Fraher also criticized the SEC's process and said it placed heavy pressure on people involved in investigations.

"Faced with these options, and advised by wise counsel that a pound of flesh would be taken regardless, I chose to settle so I could move forward," she said. "But the process itself is designed to apply maximum pressure, and the human costs are real." 

Fraher said she was personally cut off from banking services and had credit lines suddenly closed, which she described as actions that disrupted her daily life and added pressure during the investigation.

While the SEC will no longer enforce the rule limiting public criticism, Fraher said she still faces effects from the case, including a large financial penalty and ongoing limits on her career opportunities and executive options.

Fraher argued that the costs of enforcement actions often continue long after legal cases end, even after settlements are reached. 

"I am glad the right to speak the truth has finally been restored, but we must continue to talk about the long-term professional and personal toll exacted on individuals by regulation through enforcement," Fraher concluded.