Regulators are taking a harder look at those insider stock sales by SVB execs

The Justice Department and SEC are investigating the stock sales that officers of Silicon Valley Bank made days before the bank failed, according to both the WSJ and the NYTimes. The probes are reportedly in their preliminary phase and both outlets note that it’s common to investigate prearranged stock selling plans when the sales take place shortly before releasing news that could have an adverse impact on a company’s share price.

Securities filings show the bank’s CEO of 12 years, Greg Becker, and its CFO, Daniel Beck, who joined the outfit nearly six years ago from Bank of the West, sold shares two weeks ago ahead of the bank’s abrupt collapse.

Becker exercised options on 12,451 shares on Feb. 27 and sold them the same day, netting roughly $3 million. Beck sold roughly one-third of his holdings in the company, $575,000 worth of shares, on the same day.

The sales were conducted via 10b5-1 plans, which, established by the SEC in 2000, allows insiders of publicly traded corporations to set up a trading plan for selling stocks they own by establishing a predetermined number of shares to be sold at a predetermined time. The laws around such plans are intended to guard against insiders from unfairly profiting from important corporate information that was not yet public.

As the New York Times notes, SEC 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.”

While the probes may not lead to allegations of so-called insider trading, one possible problem for both Becker and Beck ties to the proposed capital raise that SVB announced last Wednesday — the same release that set investors on edge, leading many to begin moving their money out of the bank.

As Dan Taylor, a professor at the University of Pennsylvania’s Wharton School who studies corporate trading disclosures, told Bloomberg last week: “While Becker may not have anticipated the bank run on Jan. 26 when he adopted the plan, the capital raise is material . . .If they were in discussion for a capital raise at the time [their stock-sale plans] was adopted, that is highly problematic.”

Becker also made at least one appearance between the time that plans for his stock sale were put in place and the bank’s implosion. According to the WSJ, at a conference early last week, he talked optimistically about the bank’s business, reportedly telling attendees: “You can look at agtech, you can look at fintech, you can look at clean tech, you can look at medtech, personalized medicine . . .You literally go across the entire stack. There’s exciting things in every single category.” The Journal reports that Beck spoke at a different conference in February where he said the bank was not at risk of being too concentrated on tech outfits.

Beck and Becker were both dismissed from their roles on Friday.

The FDIC sought out a buyer for the business over the weekend without success, though the outfit’s U.K. business was sold separately to the the U.K. subsidiary of HSBC Holdings on Monday morning. (It acquired the unit for £1 and disclosed plans today to inject £2 billion of liquidity into the division.)

The FDIC is now reportedly planning another auction, per the WSJ.

In the interim, it has installed CEO Tim Mayopoulos, a former CEO of Fannie Mae who said on a Zoom call today with some of the bank’s constituents that he hopes to keep much of the bank’s existing management together.

In December, the SEC adopted amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 and new disclosure requirements to enhance investor protections against insider trading, including restricting the use of multiple, overlapping trading plans. The final rules “aim to strengthen investor protections concerning insider trading and to help shareholders understand when and how insiders are trading in securities for which they may at times have material nonpublic information,” per a press release by the agency.