One of the things investors generally don’t like to hear about in connection with their stock of choice is “Department of Justice investigation.” That’s what happened to Silvergate Capital (NASDAQ:SI), which lost big in Friday afternoon trading after a hefty run-up just yesterday, as news emerged that State Street (NYSE:STT) bought in heavily.
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The investigation, reports note, is about the connection between the now-defunct FTX cryptocurrency exchange and Alameda Research. Earlier this week, a group of senators from both sides of the aisle requested details about Silvergate’s risk management practices. The DOJ, however, also has its eye on how Silvergate hosted FTX accounts.
The investigation comes at a difficult time for Silvergate. It recently posted a loss of around $1 billion for 2022’s fourth quarter and also joined the tech sector in mass firings, laying off 40% of its staff. Further, reports suggest that Silvergate took on quite a bit of debt from home-loan banks to address shortfalls in their accounts. The investigation is still in its early stages, and no criminal behavior has been suggested yet.
With all that in play, it’s no surprise that Wall Street is stepping back from the stock a bit. Analyst consensus calls Silvergate Capital stock a Hold. However, thanks to its average price target of $22.80, Silvergate stock has an upside potential of 19.25%
