Justice Department, SEC investigates Silicon Valley Bank collapse

The investigation also looks into share sales made by SVB Financial officials days before the bank collapsed, the people said. The Justice Department investigation involves the department’s fraud prosecutors in Washington and San Francisco, the people said.

SVB CFO Greg Becker did not respond to a phone message asking for comment. The company’s chief financial officer, Daniel Beck, did not immediately respond to a request for comment. Spokesmen for the US Attorney’s Office in San Francisco and the Justice Department’s Criminal Division in Washington declined to comment. A spokesman for the Justice Department in Washington did not immediately respond to a request for comment. An SEC spokeswoman declined to comment.

Before the SVB failed last week and was replaced by the Federal Deposit Insurance Corp. was taken over, it mainly served the isolated world of startups and the investors who financed them. Its deposits boomed alongside the tech industry, rising 86% to $189 billion in 2021.

The bank fell victim to a rush for deposits last week. On Thursday alone, customers attempted to withdraw $42 billion — about a quarter of the bank’s total deposits. The flood of withdrawals wrecked the bank’s finances. She had invested large amounts of deposits in US Treasuries and other government-sponsored debt securities, the market value of which fell when the Federal Reserve raised interest rates last year.

SVB Financial warned investors in its latest annual report that its business is heavily focused on lending to newer companies in the technology, life sciences and healthcare sectors. “Our credit concentrations derive from our borrowers engaging in similar activities that could result in those borrowers being similarly affected by economic or other conditions,” it said.

Mr Becker expressed optimism days before his bank collapsed, telling a conference last week that it was “a great time to start a business”. He said at another conference last month that the bank’s focus on these industries does not create the risk of becoming too concentrated, citing the different specializations of customers and the bank’s international operations.

Securities records show that Mr. Becker and Mr. Beck, the chief financial officer, both sold shares in the week before the bank collapsed. Mr. Becker exercised options on 12,451 shares on February 27 and sold them the same day for a net gain of approximately $2.3 million.

Mr. Beck sold just over $575,000 worth of stock on Feb. 27, about a third of his stake in the company.

Both sales were made as part of so-called 10b5-1 plans filed 30 days earlier. These plans allow insiders to plan stock sales in advance to allay suspicions of trading non-public information. The SEC recently tightened rules on the plans, which include a 90-day waiting period before sales can be executed. The new rules went into effect on February 27, the same day the executives were sold.

According to the Federal Reserve, SVB was the 16th largest bank in the US with assets of approximately $209 billion as of December 31. Its collapse, the second largest banking collapse in US history, set off a cascade that threatened to take down startups and other companies that had their money parked in the bank and didn’t anticipate having access to much of their money.

That changed when the Treasury and Banking Supervisors announced they would guarantee all SVB deposits to bolster faltering confidence in the banking system.

SVB Financial no longer controls Silicon Valley Bank after regulators took control of the bank on Friday. SVB Financial still has three other operating segments, including investment banking and venture capital businesses, that it plans to sell or restructure, according to a securities filing filed on Monday.

The SEC’s enforcement investigations often include examining whether a company has properly disclosed financial risks or business uncertainties prior to an adverse event. Enforcers typically review the company’s required periodic disclosures and statements made by management to investors or analysts on conference calls and other forums.

SEC Chairman Gary Gensler signaled over the weekend that his agency would look into wrongdoing amid a market crisis in regional banks including SVB, Signature Bank, First Republic Bank and Comerica Bank. The Signature Bank also failed at the weekend. Shares in some regional banks like First Republic rallied on Tuesday after suffering sharp falls on Monday.

“During times of heightened volatility and uncertainty, we at the SEC have a particular focus on overseeing market stability and identifying and prosecuting any form of wrongdoing that could jeopardize investors, capital formation, or markets generally,” Mr. Gensler said in a Sunday statement. “Without speaking to any single entity or individual, we will investigate and take enforcement action if we find violations of federal securities laws.”

Write to Dave Michaels at dave.michaels@wsj.com