US DOJ and SEC Launch Investigation into SVB Bankruptcy...Including Executive Stock Sales

U.S. President Joe Biden has warned that he will hold accountable those responsible for the collapse of Silicon Valley Bank (SVB), which plunged financial markets into fears of a 'systemic crisis,' and the Department of Justice and the Securities and Exchange Commission (SEC) have launched full-scale investigations. The probe also includes controversy surrounding the parent company’s executives who sold shares before the bankruptcy and pocketed billions.

[Image source=Reuters Yonhap News]

The Wall Street Journal (WSJ) reported on the 14th (local time), citing sources, that the DOJ and SEC’s individual investigations are in preliminary stages. There is also a possibility that these investigations may not lead to indictments or charges. Typically, prosecutors and regulatory authorities initiate such investigations when financial institutions or publicly traded companies suffer unexpected large-scale losses.

Especially since President Biden stated in a public address the day before that "those responsible will be held fully accountable," a large-scale investigation and enforcement actions are expected. SVB, with total assets amounting to $209 billion (277 trillion KRW), faced a bank run after it was revealed that it incurred massive losses by selling bonds at a discount before maturity to respond to recent deposit withdrawals, and was shut down by financial authorities on the 10th.

The investigation also includes the controversy over SVB Financial’s executives selling shares before the bankruptcy. According to disclosure documents, CEO Greg Becker exercised options on 12,451 shares of SVB Financial stock on the 27th of last month and immediately sold them, netting $2.3 million (approximately 300 million KRW) in profit. On the same day, CFO Daniel Beck sold about one-third of his holdings, approximately 2,000 shares, for $575,000 (approximately 75 million KRW).

Whether these executives accurately informed customers and investors in advance about the financial risks and business uncertainties is also expected to be part of the authorities’ investigation. Earlier, shareholders filed a class-action lawsuit seeking damages against the executives. CEO Becker and CFO Beck have been criticized for management mistakes, such as heavily investing customers’ deposits in U.S. Treasury securities while canceling interest rate hedges, which are typically done through interest rate swaps, thereby increasing risk exposure.

According to sources, the DOJ investigation involves prosecutors specializing in fraud cases from Washington and San Francisco. The SEC’s investigation covers regular mandatory disclosure documents, as well as statements and public remarks made by executives to investors or analysts. In its recent annual report, SVB Financial mentioned that it is heavily focused on lending to startups in the tech, life sciences, and healthcare sectors, noting that "our bank’s borrowers operate in similar fields and may be similarly affected by economic or other conditions." Additionally, CEO Becker expressed optimism at a conference last week, just before SVB’s collapse, stating that "it is a good time to start a company."

Earlier, SEC Chair Gary Gensler indicated the possibility of investigations not only into SVB but also into several regional banks facing risks, including Signature Bank, First Republic Bank, and Comerica Bank. In a statement on the 12th, he said, "During this period of increased volatility and uncertainty, the SEC will focus on monitoring market stability and identifying and prosecuting violations that could threaten investors and the overall market," adding, "We will take enforcement actions against violations of federal securities laws."

The U.S. Federal Reserve Bank (Fed) is also conducting an evaluation of SVB. The Fed will release the results of its self-assessment regarding related regulations and supervision on May 1.

This content was produced with the assistance of AI translation services.