DOJ & SEC to Investigate Silicon Valley Bank Collapse

March 14, 2023

The Department of Justice and the Securities and Exchange Commission are investigating the collapse of Silicon Valley Bank, the Wall Street Journal reported on Tuesday.

The separate investigations are in their preliminary phases and may not lead to charges or allegations of wrongdoing. According to the Journal, prosecutors and regulators often open investigations after financial institutions suffer big, unexpected losses.

The collapse of Silicon Valley Bank (SVB) was the second largest bank failure in U.S. history after the collapse of Washington Mutual amid the 2008 financial crisis that led to the Great Recession. On Friday the Federal Deposit Insurance Corporation  (FDIC) took over and shut down SVB in an effort to protect deposits.

SVB began its descent into insolvency when its largely tech industry-based customers, many of them start-ups, began withdrawing some $42 billion in deposits—about one-fourth of SVB’s total deposits. The bank had to sell bonds at a loss to cover the withdrawals.

On Sunday, Treasury Secretary Janet Yellen described the Federal Reserve’s raising of interest rates to combat inflation as the core source of SVB’s problems. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates climbed. 

In a joint statement Sunday, the FDIC and the Treasury Department said SVB depositors would have access to “all of their money” starting Monday and that U.S. taxpayers will not have to foot the bill.  

According to the Journal, the DOJ and SEC investigations are examining stock sales that SVB Financial’s officers made days before the bank failed. The DOJ’s fraud prosecutors in Washington and San Francisco have been recruited into its investigation.

Neither SVB’s CEO Greg Becker or its CFO Daniel Beck immediately returned the Journal’s calls for comment. However, the Journal points out that Becker had expressed optimism just days before SVB’s collapse, saying last week that it was “a great time to start a company.”

And yet, according to the Journal, securities filings show that Becker and Beck both sold shares the week before the bank collapsed. Becker exercised options on 12,451 shares on February 27 and sold them the same day, netting about $2.3 million. Beck, meanwhile, sold just over $575,000 worth of shares—roughly one-third of his holdings in the company—that same day.

An SEC spokesperson declined the Journal’s request for comment. But the Journal points out that SEC Chair Gary Gensler signaled over the weekend that his agency would be looking for wrongdoing amid a market rout of regional banks such as SVB, Signature Bank—which also collapsed over the weekend—First Republic Bank and Comerica Bank.

“Without speaking to any individual entity or person, we will investigate and bring enforcement actions if we find violations of the federal securities laws,” Gensler said Sunday.

On Monday morning, President Biden spoke from the White House to reassure the world of the resilience of the U.S. banking system.

“Thanks to the quick action of my Administration over the past few days, Americans can have confidence that the system is safe,” Biden said. “Your deposits will be there when you need them. Small businesses across the country that deposit accounts in these banks can breathe easier knowing they’ll be able to pay their workers and pay their bills.”

Reiterating that “no losses will be borne by the taxpayers,” Biden added that the funding would come from the fees SVB and Signature had paid to the FDIC. The President added that bank management would be fired and that investors who “knowingly took a risk” would not be protected.

PHOTO credit: Tony Webster

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