While the collapse of Silicon Valley Bank (SVB) will not impact depositors’ ability to access and withdraw their funds from the bank, it appears that SVB shareholders and unsecured creditors may lose their investments. As a result, and the abrupt nature of SVB’s collapse itself, government investigations into and civil lawsuits against SVB and its officers have commenced this week.
Government Investigations
Reports have surfaced that U.S. authorities, including the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC), have launched parallel investigations into SVB. While these investigations may not result in any charges or allegations of wrongdoing, there are reports that, among other potential inquires, the DOJ and SEC are examining stock sales made by officers of SVB Financial Group, SVB’s parent company. For example, SVB’s Chief Executive Officer, Greg Becker, sold $3.6 million of company stock under a trading plan less than two weeks before the firm disclosed extensive losses that led to its failure according to Becker’s March 1, 2023, filing with the SEC. We anticipate that the DOJ and SEC will make formal announcements regarding these investigations in the coming days. This investigation comes on the heels of the Department of Justice’s recent insider trading indictment against Terren S. Peizer, the CEO and Chairman of the Board of Directors of publicly traded health care company Ontrak, Inc., for allegedly engaging in an insider trading scheme pursuant a Rule 10b5-1 trading plan. This indictment made clear that the DOJ will not hesitate to prosecute insiders who establish 10b5-1 plans if the government believes those plans are being used to cloak unlawful trading while in possession of material nonpublic information.
Shareholder Suit
Further, on Monday, March 13, 2023, a SVB shareholder filed a securities-fraud class action against the SVB Financial Group, SVB’s Chief Executive Officer, Greg Becker and SVB’s Chief Financial Officer, Daniel Beck in the Northern District of California. The lawsuit asserts violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and alleges that SVB made false and misleading statements in its quarterly and annual reports. For example, the complaint asserts that SVB’s 2022 Annual Report understated risks and failed to disclose to investors that “interest rate hikes had the potential to cause irrevocable damage to the Company.” The case is Vanipenta v. SVB Financial Group et al., Case No. 5:23-cv-01097.
We are continuing to monitor the situation closely, and anyone who has questions or concerns should contact their Withers representative.
For further information, please contact:
Christopher N. LaVigne, Partner, Withersworldwide
christopher.lavigne@withersworldwide.com
