Crypto bank Silvergate Capital Corp. stands in second place as the most shorted stock in the United States, with over 72.5% of shorted shares, according to the latest Interest Reporting from February 9.
The Financial Industry Regulatory Authority (FINRA) compiles and publishes short interest positions twice a month of all equity securities. A short position means that investors and traders believe that the price of a security, such as a stock, will decrease in value. Short sellers profit from the decline in security prices.
At the time of writing, shares of Silvergate ( SI ) are down more than 87% over the past twelve months. Bearish sentiment on Silvergate stems from recent earnings reports and 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 due to common shareholders in the fourth quarter of 2022. According to a report from the United States Securities and Exchange Commission (SEC), Silvergate saw a significant outflow of deposits during the period, which forced companies seek wholesale financing and sell debt securities to maintain liquidity.
Related: Banks under pressure from US authorities to cut ties with crypto companies
Silvergate reportedly borrowed $3.6 billion from the US Federal Reserve Bank System to mitigate the effects of a surge in withdrawals following the collapse of crypto exchange FTX in November 2022.
The bank is facing probes and lawsuits in the US for allegedly helping FTX with fraudulent activities, including loans and user funds. The company was charged with “perpetuating the FTX investment fraud”, while shareholders alleged Silvergate violated the Securities Exchange Act of 1934. A Justice Department investigation is currently underway into the bank’s role in the FTX business.
According to Silvergate, Alameda opened an account with the bank in 2018, before the launch of FTX. The company claims to have done its due diligence at the time and is monitoring the situation on an ongoing basis.
Moody’s Investors Service recently reacted to the bank’s situation, downgrading Silvergate Capital and the bank to “junk”, with a negative outlook for both organizations.
Silvergate did not immediately respond to Cointelegraph’s request for comment.