What happened

It's bad when your company is the target of an analyst downgrade. It's even worse when it lands on the radar of skeptical, high-powered politicians. Unfortunate financial services company Silvergate Capital (SI 15.46%) suffered both indignities this week. As a result, the company's share price plummeted by more than 19% over the past five trading days, according to data compiled by S&P Global Market Intelligence.

So what

It probably goes nearly without saying that Silvergate's downgrade and the unwanted political attention stem from the potential fallout of the FTX collapse. Monday morning before market open, Morgan Stanley analyst Manank Gosalia dropped his recommendation one peg to underweight (sell, in other words) from his previous equalweight (neutral), citing the "ongoing stress in the crypto ecosystem" due to FTX's swoon.

The next pain point came later that day when Senators Elizabeth Warren, John Kennedy, and Roger Marshall wrote a letter to Silvergate's CEO Alan Lane. The politicians requested information on the company's relationship with FTX and other entities -- such as Alameda Research -- associated with its founder Sam Bankman-Fried.

In the letter, Warren, Kennedy, and Marshall cited numerous alleged instances of malfeasance by FTX, Bankman-Fried, and affiliates. They added that

We are concerned about Silvergate's role in these activities because of reports suggesting that Silvergate facilitated the transfer of FTX customer funds to Alameda.

Now what

Monday night, following the publication of Morgan Stanley's downgrade, Lane attempted to do some damage control with his own letter, disseminated to the public.

Saying that there has "been plenty of speculation -- and misinformation," about Silvergate and FTX and other Bankman-Fried entities, Lane stressed that his company operates in strict accordance with U.S. banking laws. He also said that Silvergate conducted "extensive" due diligence on FTX and its affiliates.

While at this early stage it doesn't seem as if Silvergate's business will be knocked badly off course by the FTX debacle, in the minds of many investors the company is guilty by association. This does, however, make Silvergate a bit of a bargain given its generally good performance and unique business profile.