The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are reportedly investigating the collapse of Silicon Valley Bank (SVB) after it suffered a fatal run on deposits last week.
The DOJ and SEC are leading separate probes into the bank’s failure, which prompted regulators to take it over on Friday, according to The Wall Street Journal. These types of inquiries are often initiated after financial institutions experience unexpected and heavy losses, and the investigations do not necessarily mean that criminal charges will be filed.
Such investigations typically look at the role executives played in the weeks and months leading up to the collapse. Investigators may consider whether SVB properly characterized its financial health and risks to investors before its collapse.
The Federal Deposit Insurance Corporation (FDIC) took over SVB last week after the bank experienced a run from customers that attempted to withdraw roughly $42 billion, about a quarter of the bank’s total deposits, in one day. The run was triggered by SVB’s own attempts to raise equity capital to shore up its finances before an expected credit downgrade, which, when revealed to customers, sent requests for withdrawals pouring in.
The value of shares of SVB Financial Group, which owned SVB before the FDIC took the bank over on Friday, dropped 60% last week. The shares have been frozen from trading since.
SVB Financial Chief Executive Greg Becker and CFO Daniel Beck both exercised stock options and sold large quantities of shares the week before SVB collapsed, according to WSJ. Becker sold 12,451 shares on Feb 27 for about $2.3 million. Beck sold about one-third of his shares for about $575,000 on the same day. The sales had been part of plans filed 30 days earlier.
SVB’s customer base is relatively unstable, according to David Bahnsen, founder of the asset management company The Bahnsen Group.
“How did the bank suffer a large amount of depositor withdrawals in just a 24-hour period merely because of a Moody’s downgrade threat and word of valuation trouble on their bond portfolio? Because the bank almost entirely banks start-up tech companies funded by venture capital, the venture capital sponsors started screaming to withdraw funds. It was a classic run on the bank. And this deposit base was, shall we say, not the epitome of stability and sensibility. IPO proceeds from non-profitable tech companies. SPAC money. Crypto companies. This was a walking who’s who of shiny objects,” Bahnsen wrote in a Monday blog post.