San Francisco Chronicle

Feds opening investigat­ion in Silicon Valley Bank failure

- By Matthew Goldstein and Katie Benner

The Justice Department has opened an investigat­ion into the collapse of Silicon Valley Bank, the California lender that was taken over by federal regulators Friday after its depositors rushed to pull their money out of the bank, two people with knowledge of the matter said.

The investigat­ion is in its early stages, and it is unclear just what federal prosecutor­s are focused on, the person said. A Justice Department spokesman declined to comment.

One focus could be sales of company shares by several bank executives in the weeks before the bank’s failure, several legal experts said.

The sales generated millions of dollars in proceeds, although some of the bank’s executives sold stock pursuant to insider selling plans that set the timing of such sales in advance. Such plans are set up by corporate executives to avoid the appearance of trading on confidenti­al informatio­n.

For example, under a prearrange­d plan, Silicon Valley Bank’s former chief executive, Gregory Becker, exercised options in late February that permitted him to sell shares worth about $3 million for around $287 a share; the sales were disclosed in a regulatory filing on March 1. The filing also shows the stock trading plan was set up on Jan. 26 when shares of the bank closed at $296.

Some politician­s have said the bank executives should return any money they made from those stock sales.

Becker could not be reached for comment. The investigat­ion was first reported by the Wall Street Journal.

It is not uncommon for investigat­ors to look into prearrange­d stock selling plans when the sales take place shortly before bad news that tanks a company’s stock.

The SEC also has opened an investigat­ion led by the commission’s office in San Francisco, said a person briefed on the matter. Prosecutor­s in the criminal division in Washington and the U.S. attorney’s office in San Francisco are working on the Justice Department probe, according to the two people familiar with the inquiry.

Andrew Calamari, a lawyer for Finn Dixon & Herling and a former director of the New York office of the Securities and Exchange Commission, said insider sales were an obvious issue for prosecutor­s to investigat­e. He also said any SEC investigat­ion would look at the insider sales as well as the disclosure­s by the bank about its financial health.

The SEC did not respond to a request for comment. But Gary Gensler, the SEC chair, issued a statement on Sunday in response to the trouble in the banking sector.

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

The collapse of Silicon Valley Bank was precipitat­ed by a bank run by customers who had so-called uninsured deposits — accounts that exceeded the $250,000 limit on federally guaranteed deposit insurance — and tried to withdraw those funds.

The Federal Deposit Insurance Corp. seized the bank Friday and two days later seized another bank, Signature Bank, that was facing a similar problem. The FDIC and the Federal Reserve also said all depositors of both banks would be made whole, avoiding concerns the business customers of the banks might not be able to pay their employees.

The bank failures raised widespread fear of depositors pulling their money out of regional lenders — a move that could destabiliz­e the banking system. But the actions taken by federal regulators over the weekend appeared to stem some of that fear, pushing stocks of regional banks higher Tuesday.

 ?? New York Times file photo ?? The investigat­ion is in its early stages, and it is still unclear just what federal prosecutor­s are focused on.
New York Times file photo The investigat­ion is in its early stages, and it is still unclear just what federal prosecutor­s are focused on.

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