Justice Department, SEC Investigating Silicon Valley Bank’s Collapse

WASHINGTON—The Justice Department and the Securities and Exchange Commission are investigating the collapse of Silicon Valley Bank, according to people familiar with the matter, after the California lender was taken over by regulators last week amid a historic run on its deposits. 

The separate probes are in their preliminary phases and may not lead to charges or allegations of wrongdoing. Prosecutors and regulators often open investigations after financial institutions or public companies suffer big, unexpected losses. Shares in

SVB Financial Group,

SIVB -60.41%

which formerly owned the bank, fell 60% last week and have been stopped from trading since Friday. 

The investigations are also examining stock sales that SVB Financial’s officers made days before the bank failed, the people said. The Justice Department probe involves the department’s fraud prosecutors in Washington and San Francisco, the people said. 

SVB Financial’s Chief Executive

Greg Becker

and Chief Financial Officer

Daniel Beck

didn’t respond to requests for comment; spokespeople for the SEC, the San Francisco U.S. attorney’s office and the Justice Department’s criminal division declined to comment.

SVB Financial Chief Executive Greg Becker expressed optimism days before the bank collapsed.


patrick t. fallon/Agence France-Presse/Getty Images

Massachusetts regulators are also investigating the executives’ trading and what they knew or said about the bank’s business in the 90 days before its demise, according to Secretary of the Commonwealth William Galvin, who oversees the state’s securities division. 

Before SVB failed last week and was taken over by the Federal Deposit Insurance Corp., it catered mainly to the insular world of startups and the investors who fund them. Its deposits boomed alongside the tech industry, rising 86% in 2021 to $189 billion. 

The bank fell victim last week to a run on deposits. Customers tried to withdraw $42 billion—about a quarter of the bank’s total deposits—on Thursday alone. The flood of withdrawals destroyed the bank’s finances. It had poured large amounts of deposits into U.S. Treasurys and other government-sponsored debt securities whose market value declined as the Federal Reserve raised interest rates over the past year. 

SVB Financial cautioned in its latest annual report to investors that its business was heavily focused on lending to newer companies in the technology, life-science and healthcare industries. “Our loan concentrations are derived from our borrowers engaging in similar activities that could cause those borrowers to be similarly impacted by economic or other conditions,” it said. 

Mr. Becker expressed optimism days before the bank collapsed, saying at a conference last week that it was “a great time to start a company.” He said at a different conference last month that the bank’s focus on those industries didn’t create the risk of too much concentration, citing clients’ different specializations and the bank’s business overseas.  

Securities filings show Mr. Becker and Mr. Beck, the chief financial officer, both sold shares the week before the bank collapsed. Mr. Becker exercised options on 12,451 shares on Feb. 27 and sold them the same day, netting about $2.3 million.

Mr. Beck sold just over $575,000 worth of shares on Feb. 27, roughly one-third of his holdings in the company.

Both sales were done under so-called 10b5-1 plans filed 30 days earlier. These plans allow insiders to schedule share sales in advance to deter any liability for trading on nonpublic information. The SEC recently tightened rules for the plans, which include a 90-day waiting period before sales can be executed. The new rules went into effect on Feb. 27, the same day the executives sold. 

Insiders can generally benefit from the older, less strict rules—including avoiding the 90-day waiting period—as long as they traded under plans adopted before the new rules took effect, according to the SEC’s final rule.

Massachusetts regulators asked for detailed information about the executives’ trading plans through a subpoena issued Monday, according to a copy of the document request. Silicon Valley Bank operated several branches in Massachusetts stemming from its 2021 purchase of Boston Private Bank.

“We owe it to our Massachusetts banking customers and the businesses that might be adversely affected” to investigate, Mr. Galvin said. “I don’t think we have appraised the full damage yet, so that is what we are in the process of trying to do.”

The abrupt collapse of the Silicon Valley Bank, the second-biggest bank failure in U.S. history, prompted regulators to impose emergency measures to stem the fallout. WSJ’s Rachel Ensign explains how the crisis unfolded and what could happen next. Photo: Preston Gannaway for The Wall Street Journal

SVB was the 16th-largest bank in the U.S., with some $209 billion in assets as of Dec. 31, according to the Federal Reserve. Its collapse, the second-biggest bank failure in U.S. history, set off a cascade that threatened to take down startups and other companies that had parked their money at the bank and didn’t foresee having access to much of their cash.

That changed when the Treasury Department and banking regulators announced they would guarantee all of SVB’s deposits, a move designed to shore up wavering confidence in the banking system. 

SVB Financial no longer controls Silicon Valley Bank after regulators took control of the bank on Friday. SVB Financial still has three other operating segments, including investment banking and venture-capital arms that it is seeking to sell or restructure, according to a securities filing Monday. 

The SEC’s enforcement probes often involve examining whether a firm accurately disclosed financial risks or business uncertainties before a negative event. Enforcers typically examine the company’s regulated, periodic disclosures as well as management’s statements to investors or analysts on conference calls and in other forums.

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, First Republic Bank and Comerica Bank. Signature Bank also failed over the weekend. Shares in some regional banks such as First Republic rallied on Tuesday after suffering sharp declines on Monday.

“In times of increased volatility and uncertainty, we at the SEC are particularly focused on monitoring for market stability and identifying and prosecuting any form of misconduct that might threaten investors, capital formation, or the markets more broadly,” Mr. Gensler said in a statement issued Sunday. “Without speaking to any individual entity or person, we will investigate and bring enforcement actions if we find violations of the federal securities laws.”

Write to Dave Michaels at dave.michaels@wsj.com

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2023-03-14 20:10:00