Silicon Valley Bank’s CEO sold US$3.6 million in stocks days before its fall – here’s what you need to know
Over the weekend, Silicon Valley Bank tanked and was taken over by the FDIC.
The backstory: Over the weekend, Silicon Valley Bank tanked and was taken over by the FDIC. This week, US regulators have been stepping in to support the financial system and prevent contagion that might lead to a banking crisis. Some folks are worried that SVB's collapse, followed by Signature Bank's collapse, could lead to a domino effect impacting the entire banking system.
More recently: One interesting fact popped up this week – SVB's CEO sold a hefty chunk of shares less than two weeks before the bank failed. It's not illegal or even unusual for CEOs to offload shares in their company. But, there are rules in place to prevent insider trading. In 2000, the US Securities and Exchange Commission (SEC) limited execs to selling shares on predetermined dates. But, some said there were loopholes in the system, like not having a mandatory cooling-off period. So the SEC added new rules last December, which go into effect on April 1. It will now require a 90-day cooling-off period for execs before trading on a new schedule.
The development: It turns out that SVB's CEO Greg Becker sold around US$3.6 million of company stock in late February under one of these trading plans – just about two weeks before SVB's epic fallout. That same day, Becker acquired the same number of shares using stock options at a lower price.
This was Becker's first time selling company shares in over a year. He filed the plan in January, so the timing may be coincidental. But, it certainly has gotten some people's attention, with some saying it would be problematic if Becker knew about the bank's capital raise announcement before filing for the sale. Others even say he should return the money to be given to depositors.
"While Becker may not have anticipated the bank run on Jan. 26 when he adopted the plan, the capital raise is material," said Dan Taylor, a professor at the University of Pennsylvania's Wharton School. "If they were in discussion for a capital raise at the time the plan was adopted, that is highly problematic."
"There should be a clawback of any of that money," said Democratic California Rep. Ro Khanna to the Washington Post. "It should be going to the depositors."
"About 20 years ago, the SEC established Exchange Act Rule 10b5-1. This rule provided affirmative defenses for corporate insiders and companies to buy and sell company stock as long as they adopted their trading plans in good faith — before becoming aware of material nonpublic information," said SEC Chair Gary Gensler in a statement in December announcing the new rules for executive trading plans. "Over the past two decades, though, we've heard from courts, commenters, and members of Congress that insiders have sought to benefit from the rule's liability protections while trading securities opportunistically on the basis of material nonpublic information. I believe today's amendments will help fill those potential gaps."