(New York) The US Department of Justice has opened an investigation into the collapse of Silicon Valley Bank, which was taken over by federal regulators last Friday after its depositors rushed to withdraw their money from the bank, said two people with knowledge of the case.
The investigation is still in its early stages and it’s unclear what federal prosecutors are focusing on, one of those people said. A Justice Department spokesman declined to comment.
According to several legal experts, the sales of shares in the company by several bank executives in the weeks leading up to the institution’s bankruptcy could constitute one of the potential targets of the investigation.
These sales generated millions of dollars, although some bank executives sold shares under insider selling plans that pre-fixed the timing of these sales.
These plans are put in place by company executives to avoid the appearance of negotiating confidential information.
For example, as part of a pre-arranged plan, former Silicon Valley Bank CEO Gregory Becker exercised options at the end of February that allowed him to sell shares worth about $3 million at a price of approximately US$287 per share; the sales were disclosed in a regulatory filing on 1er March. The statement also said the share swap plan was put in place on Jan. 26 when the bank’s shares closed at US$296.
Some politicians have said bank executives should return all the money they made from these stock sales.
Becker could not immediately be reached for comment. The survey was first reported by the wall street journal.
It is not uncommon for investigators to look into pre-arranged stock sale plans, when the sales take place shortly before bad news is announced that sends the stock down a Company.
The Securities and Exchange Commission (SEC) has also opened an investigation led by the commission’s office in San Francisco, a person briefed on the matter said.
Andrew Calamari, an attorney at Finn Dixon & Herling and a former director of the SEC’s New York office, said insider selling is an obvious area of investigation for prosecutors. He also said any SEC investigation would focus on insider selling as well as the bank’s disclosures about its financial health.
The SEC did not respond to a request for comment. SEC Chairman Gary Gensler, however, issued a statement on Sunday in response to the difficulties experienced by the banking industry.
Regardless of any particular entity or individual, we will investigate and take enforcement action if we find violations of federal securities laws.
Gary Gensler, Chairman of the SEC
Silicon Valley Bank’s collapse was precipitated by a rush of customers who had so-called uninsured deposits — accounts that exceeded the federally backed deposit insurance cap of US$250,000 — and attempted to withdraw these funds.
The Federal Deposit Insurance Corporation (FDIC) seized the bank on Friday and, two days later, Signature Bank, which faced a similar problem. The FDIC and Federal Reserve also said all depositors at both banks would be compensated, helping to prevent the banks’ corporate clients from being unable to pay their employees.
These bank failures have raised fears that depositors will withdraw their money from regional banks, which could destabilize the banking system. But action by federal regulators over the weekend appeared to allay some of those fears, pushing regional bank stocks higher on Tuesday.
This article was originally published in the New York Times.