The US prosecutors were looking into Signature Bank’s dealings with crypto clients when regulators abruptly shut down the institution on March 12. The regulators said that keeping the bank open would pose a threat to the stability of the entire financial system.
The Department of Justice investigators in Washington and Manhattan were investigating whether Signature bank took enough precautions to stop clients’ possible money laundering, such as screening account applicants and checking for suspicious activity.
Two persons who asked to remain anonymous privately claimed that the US SEC was also looking into the situation.
Officials for the Justice Department, US Attorney’s Office in Manhattan and SEC declined to comment. The SEC chief stated they would investigate and undertake enforcement proceedings if they found violations of the federal securities laws.
The bank and its staff haven’t been accused of wrongdoing and could not face any action during the investigation. The regulators said they lost faith in the bank because it failed to provide reliable and consistent data.
Financial watchdogs and representatives of the Justice Department have repeatedly cautioned businesses handling cryptocurrency or related cash to be careful in identifying customers and ensuring money flows are for legal purposes. Banks are obligated to flag any suspicious transactions to federal authorities.
Signature’s failure comes after Silicon Valley Bank’s shortcomings by SVB Financial Group and Silvergate Capital Corp., both of which catered to the cryptocurrency industry.
To reduce potential risks to the financial system, regulators have pressured banks and other regulated companies to reduce their exposure to digital currencies and other assets.
According to Bloomberg, the Justice Department looked into Silvergate’s interactions with Sam Bankman-now-defunct Fried’s FTX exchange and Alameda Research. The SEC and federal prosecutors are also investigating Silicon Valley Bank’s demise, including any possible violations of trading regulations by executives’ stock sales.