The Justice Department has opened an investigation into the failure of Silicon Valley Bank, a California lender that was taken over by federal regulators on Friday after its depositors rushed to get 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 what federal prosecutors are targeting, the person said. A Justice Department spokesman declined to comment.
One potential target could be sales of company stock by several bank executives in the weeks before the bank’s collapse, several legal experts said.
The sales generated millions of dollars in proceeds, although some bank executives sold shares in accordance with insider sales plans that predetermined the timing of those sales. Such plans are set up by company executives to avoid the appearance of insider trading.
For example, according to a prearranged plan, former Silicon Valley Bank CEO Gregory Becker exercised options in early March that allowed him to sell about $3 million worth of stock.
Some politicians have said that bank managers should return any money they made from selling shares.
Mr. Becker could not immediately be reached for comment. Lawyers from Sullivan & Cromwell, which is acting for the bank, did not return requests for comment. The investigation was first reported by The Wall Street Journal.
It is not uncommon for investigators to look into prearranged plans to sell stock when the sell-off occurs shortly before bad news fills the company’s stock.
Andrew Calamari, an attorney at Finn Dixon & Herling and former director of the New York office of the Securities and Exchange Commission, said insider selling is an obvious problem for prosecutors to investigate. He also said that if the SEC were to open an investigation, it would also look at insider sales and the bank’s information about its financial health.
A number of lawyers said they expected the SEC to open an investigation as well.
“Without speaking to any individual entity or person, we will investigate and initiate enforcement action if we find violations of the federal securities laws,” Gary Gensler, the SEC chairman, said in a statement over the weekend in response to the banking woes. sector.
The collapse of Silicon Valley Bank was precipitated by a bank run by customers who held 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 Corporation seized the bank on Friday, and two days later it seized another bank, Signature Bank, which faced a similar problem. The FDIC and the Federal Reserve also said all depositors of both banks would be fined to avoid concerns that the banks’ business customers would not be able to pay their employees.
The sudden collapse of Silicon Valley Bank sparked widespread fear of depositors pulling their money from regional lenders — a move that could destabilize the banking system. But actions taken by federal regulators over the weekend appeared to partially quell that fear, pushing regional bank stocks higher on Tuesday.
