Crypto bank Silvergate Capital Corp. ranks second as the shortest stock in the United States, with more than 72.5% of its shares short, according to the last short-term interest report on February 9.
The Financial Industry Regulatory Authority (FINRA) collects and publishes interest short positions on all equity securities twice a month. A short position means that investors and traders believe that the price of a security, such as a stock, will decline in value. A short seller profits from a security's falling price.
At the time of writing, Silvergate (SI) shares are below more than 87% in the last twelve months. The bearish sentiment on Silvergate stems from its recent earnings report and the legal battles the company is facing over its relationship with bankrupt firms FTX and Alameda Research.
On January 17, the bank announced a net loss of $1 billion attributable to common stockholders in the fourth quarter of 2022. According to a report of the United States Securities and Exchange Commission (SEC), Silvergate experienced significant deposit outflows during the period, forcing the company to seek wholesale financing and sell debt securities to maintain liquidity.
Related: Banks under pressure from US authorities to cut ties with crypto companies
According to reports, Silvergate borrowed $3.6 billion from the US Federal System of Home Loan Banks to mitigate the effects of a surge in withdrawals following the collapse of the FTX cryptocurrency exchange in November 2022.
The bank is facing investigations and lawsuits in the US for allegedly assist FTX in fraudulent activities, including borrowing and mixing of user funds. The company has been accused of "promoting FTX investment fraud" while shareholders claim that Silvergate violated the Stock Exchange Act of 1934. A Department of Justice investigation is currently underway into the the bank's role in FTX's business.
According to Silvergate, Alameda opened an account with the bank in 2018, before the launch of FTX. The company claims to have conducted due diligence at the time and continuously monitored the situation.
Moody's Investors Service recently reacted to the banking situation, low grades of Silvergate Capital and its bank to "junk", with a negative outlook for both organizations.
Silvergate did not immediately respond to Cointelegraph's request for comment.
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