The Justice Department has opened an investigation into the collapse of Silicon Valley Bank, the California lender that was taken over by federal regulators on Friday after its depositors rushed to pull 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 just what federal prosecutors are focused on, the person said. A Justice Department spokesman declined to comment.
One focus could be sales of company shares by several bank executives in the weeks before the bank’s failure, several legal experts said.
The sales generated millions of dollars in proceeds, though some of the bank’s executives sold stock pursuant to insider selling plans that set the timing of such sales in advance. Such plans are set up by corporate executives to avoid the appearance of trading on confidential information.
For example, under a prearranged plan, Silicon Valley Bank’s former chief executive, Gregory Becker, exercised options in late February that permitted him to sell shares worth about $3 million for around $287 a share; the sales were disclosed in a regulatory filing on March 1. The filing also shows that the stock trading plan was set up on Jan. 26 when shares of the bank closed at $296.
The Downfall of Silicon Valley Bank
One of the most prominent lenders in the world of technology start-ups collapsed on March 10, forcing the U.S. government to step in.
Some politicians have said the bank executives should return any money they made from those stock sales.
Mr. Becker could not be reached for comment. The investigation was first reported by The Wall Street Journal.
It is not uncommon for investigators to look into prearranged stock selling plans when the sales take place shortly before bad news that tanks a company’s stock.
The S.E.C. also has opened an investigation led by the commission’s office in San Francisco, said a person briefed on the matter. Prosecutors in the criminal division in Washington and the U.S. attorney’s office in San Francisco are working on the Justice Department probe, according to the two people familiar with the inquiry.
Andrew Calamari, a lawyer for Finn Dixon & Herling and a former director of the New York office of the Securities and Exchange Commission, said insider sales were an obvious issue for prosecutors to investigate. He also said any S.E.C. investigation would look at the insider sales as well as the disclosures by the bank about its financial health.
The S.E.C. did not respond to a request for comment. But Gary Gensler, the S.E.C. chair, issued a statement on Sunday in response to the trouble in the banking sector.
“Without speaking to any individual entity or person, we will investigate and bring enforcement actions if we find violations of the federal securities laws,” he said.
The collapse of Silicon Valley Bank was precipitated by a bank run by customers who had 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 seized another bank, Signature Bank, that was facing a similar problem. The F.D.I.C. and the Federal Reserve also said all depositors of both banks would be made whole, avoiding concerns the business customers of the banks might not be able to pay their employees.
The bank failures raised widespread fear of depositors pulling their money out of regional lenders — a move that could destabilize the banking system. But the actions taken by federal regulators over the weekend appeared to stem some of that fear, pushing stocks of regional banks higher on Tuesday.