DOJ, SEC pressed to investigate whether executives broke any laws

DOJ, SEC pressed to investigate whether executives broke any laws

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WASHINGTON — Top Democratic lawmakers have urged the Justice Department and the Securities and Exchange Commission to open an investigation into whether officials were involved in the failure Silicon Valley Bankthe biggest bank collapse since the 2008 financial crisis, violated civil or criminal law.

The letter, sent Tuesday by Sens. Elizabeth Warren, D-Mass., and Richard Blumenthal, D-Conn., calls for a full investigation into the Federal Deposit Insurance Corp.’s takeover of the failing bank, along with “whether Senior bank executives and other key officials involved in the collapse failed to comply with their legal and regulatory duties or violated any civil or criminal law.”

“This was a ‘colossal failure in asset-liability risk management,'” lawmakers wrote to SEC Chairman Gary Gensler and Attorney General Merrick Garland. “However, a series of reports revealed that key SVB officials exhibited a pattern of risky and questionable decision-making that may have contributed to the bank’s instability and collapse, and its impact on the broader economy.”

The collapse of SVB, the country’s 16th largest bank, was anticipated after it failed to adequately hedge against rising interest rates. The company’s turning point came last Wednesday when SVB announced it had sold its $21 billion worth of securities at a loss of around $1.8 billion and said it needed $2.25 billion -Raise dollars to meet customers’ withdrawal needs and fund new loans. The news sent the share price plummeting, triggering a panic-driven wave of withdrawals from VCs and other depositors. Within a day, SVB stock had plummeted 60%, leading to a global loss of more than $80 billion in bank stocks.

California banking regulators shut down the SVB on Friday and the FDIC set up an intermediary bank to take over the bank’s insured deposits. On Sunday, New York state banking regulators and the FDIC did the same signature bankwhich was a major source of credit for the cryptocurrency industry.

The letter followed a joint announcement by the Justice Department and the SEC of the pending investigation into the SVB failure. The investigation will take place in separate and preliminary phases and will look at share sales conducted by SVB executives prior to the bank’s collapse.

“One of the enduring failings in the aftermath of the 2008 financial crisis was the inability or unwillingness of the Justice Department and banking regulators to hold bank executives accountable for behavior that has cost millions of lives and trillions of dollars in wealth,” said Warren, a member of the Senate Banking Committee, and Blumenthal, chair of the Standing Subcommittee on Investigations of the Senate Judiciary Committee, wrote. “The country’s banking regulators cannot make the same mistake twice.”

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Warren and Blumenthal urged authorities to investigate whether SVB executives violated proprietary trading rules, disclosure requirements, fiduciary duties or insider trading rules prior to the collapse.

SEC Chairman Gary Gensler, who referred to “the events of the past week” without mentioning specific companies or executives, reiterated at the helm of an agency meeting Wednesday that his staffers were focused squarely on “finding wrongdoing and… to track the investors, capital formation, or the markets more broadly.”

Lawmakers accused SVB executives of preferential treatment for the bank’s founders, including low-interest mortgage loans and excessive salaries and bonuses. Bank officials also lobbied in Congress for exemptions from federal oversight regulations.

SVB employees reportedly received annual bonuses on Friday — hours before the bank was seized by the FDIC. Warren wrote Tuesday in a separate letter urging Federal Reserve Chair Jerome Powell to withdraw from an investigation into SVB’s business practices that former bank chief Gregory Becker had persuaded lawmakers to exempt the bank from certain exempt protections under the Dodd-Frank Act.

“I am not, and am not in a position to, prejudge this matter,” lawmakers wrote to Gensler and Garland. “But your authorities have broad investigative powers and should use them appropriately.”

— CNBC’s Natasha Turak contributed to this article.