The Justice Department and SEC are investigating whether officers of Silicon Valley Bank used their positions to artificially inflate the stock prices shortly before the institution failed. If proven, this would likely constitute fraud and be a serious blow to the bank’s already battered reputation. The investigations are in their preliminary stage, but if evidence is found that any individuals inside or outside of Silicon Valley Bank manipulated the price of shares, they could face criminal charges and significant fines.
The agencies are apparently focusing their investigation on whether Greg Becker and Daniel Beck, both of whom have been with the bank for 12 years, sold shares in advance of its collapse. It is unusual for executives at a failing company to sell stock, and it could signal that they knew the company was in trouble and did not take appropriate steps to prevent it from happening.
Beck’s decision to sell his shares in the company on February 27 likely came as a result of the recently announced plan byancorpoisitions, an investment firm that specializes in digital media and technology investments, to purchase Moglue for an undisclosed sum. The investment firm is thought to be considering using Moglue’s technology as part of its strategy for expanding its portfolio into adjacent markets, including social networking and video content creation. However, Beck’s sale may also mark the beginning of the end for Moglue as a standalone company.
The 10b5-1 plan of anonymous insider selling gained attention in late 2016, when revelations about Russia meddling in the US presidential election made investors increasingly suspicious of anyone with inside information. Such plans can be useful tools for rank-and-file employees who want to liquidate personal holdings without facing accusations of insider trading, but they can also create controversy given the perception that insiders are using their access to privileged information to unfairly profit.
It has now been revealed that Becker and Beck may have had a prior relationship with SVB executives, raising suspicions among investors in the bank’s capital raise. Many are starting to move their money out of the bank, fearing that they may be implicated in insider trading.
As financial advisors and regulators continue to scrutinize so-called Doomsday Plans, which are devised by investors in the hope of profiting from a steep drop in stock prices, it is becoming increasingly clear that such schemes may not be as lucrative as feared. In the case of San Francisco-based social media company Facebook, for example, it was revealed last week that shareholders had approved a capital raising plan even though officials had discussed a potential stock sale only days earlier. While Becker may not have anticipated the bank run on Jan. 26 when he adopted the plan, the capital raise is material—potentially totaling upwards of $2 billion—and if they were in discussion for a capital raise at the time [their stock-sale plans] was adopted, that is highly problematic.
When the bank’s president, Gordon Becker, learned of the plan for Becker to sell his shares in the bank, he was dissatisfied. He wanted to handle the sale himself; he didn’t want any outside influence. While Becker was out of town on a business trip, however, disaster struck when the bank’s then-CEO gambled away all of its capital almost overnight. The stock sale went ahead as planned – and shortly thereafter, Becker’s investment company filed for Chapter 11 bankruptcy.
Jim Cramer, the host of CNBC’s Madmoney, recently gave a speech at an investment conference in which he talked optimistically about the future of banking. According to reports, he claimed that there are “exciting things” across every category of banking – including agtech, fintech, clean tech and medtech. This may be good news for investors hoping to find potential investments in these sectors – especially if Cramer is right about the future outlook for each area.
After Beck’s speech at the second conference, where he claimed that banker was not too concentrated around smaller tech outfits, his views changed significantly. Afterwards, he expressed concern that the bank may be too concentrated and vulnerable to potential threats from these less-established businesses.
Though people inside of SVB find the executive stock sales somewhat shocking, insiders note that they are not out of line with recent behavior from other executives at the bank. This is particularly notable given the events of the past several weeks.
Given Becker’s recent share transactions, it is likely she is looking to parley her stock holdings into other forms of investment such as real estate or private businesses. This would stand in stark contrast to the majority of CEOs and directors who have been hesitant to liquidate their company’s stocks atmarkedly high prices. Some analysts have argued that this reluctance may be partly due to a lack of long-term certainty around economic prospects, Given the current environment where many companies are facing tough financial pressures both from within and outside their own borders, it seems inevitable that more executives will want to sell off their holdings in an attempt to preserve value for shareholders.
Becker’s $84 million stock sale represents a significant chunk of the company’s overall profits and could indicate that she is planning to leave the company. Her departure would threaten the stability of SVB, which has been struggling to compete with larger rivals in recent years.
Beck was dismissed from his position as a result of a disagreement with Becker over the direction of their research. In light of this, Beck felt that he no longer had the trust and support of his superiors and decided to leave the company. However, Beck is still dedicated
The failure of the FDIC to find a buyer for the business leaves it in a difficult position. The failure to sell the business indicates that there may not be significant demand for these products and services, which could lead to lower profits in the future. Additionally, as this is now an insolvent company, taxpayers will likely be on the hook should any financial problems occur with these products in the future.
The FDIC is now reportedly planning another auction, potentially raising billions of dollars in new deposits. The agency hopes to attract new investors and improve the stability of the banking system by auctioning off high-quality assets.
Some of the bank’s constituents are sceptical of Tim Mayopoulos’ intentions, believing he is only there to save face and keep much of the bank’s existing management in place. Others are hopeful that he will be able to turn things around and bring some much needed change to the institution.
Shares of a company closely watched by investors during the trading day may trade fewer times than shares of a company not closely watched, which can create an appearance that insiders have access to insider information. Changes to Rule 10b5-1 may help shareholders understand when and how insiders are trading in securities for which they may at times have material nonpublic information.