Execs’ 10b5-1 Plans Reportedly at Heart of Silicon Valley Bank Investigation

What did Silicon Valley Bank executives know, and when did they know it?

Ever since the financial institution of choice for venture capital-backed startups went bust on March 10, talk in the media and around Washington has focused on the potential for 2008-like contagion across the banking sector. While those fears have subsided, the Department of Justice and Securities and Exchange Commission are now reportedly investigating the bank. Speculation about their inquiries has turned to stock trades by SVB insiders.

In the weeks leading up to the bank’s collapse, executives at the company executed sales of SVB stock that raked in millions of dollars. Not surprisingly, the fortuitous timing of the trades apparently smells fishy to the feds. SEC Chair Gary Gensler did nothing to quell the talk of possible insider trading violations in the days immediately after SVB imploded, maintaining the agency “will investigate and bring enforcement actions if we find violations of the federal securities laws.”

Aside from the fact that the public loves to watch purported masters of the universe take a perp walk, Gensler might take a particular interest in SVB’s downfall because the stock sales in question involve so-called 10b5-1 plans. Corporate executives and board members use the plans to avoid insider trading charges by scheduling securities transactions in advance, and Gensler has made reforming the rules governing them one of his pet causes.

A search of public disclosures using the Intelligize platform shows SVB made multiple Form 4 filings in 2023 documenting transactions by officers under 10b5-1 plans involving shares of company stock. For example, one filing shows CEO Gregory Becker on February 27 completed a transaction that resulted in proceeds in excess of $3 million. A separate disclosure indicates CFO Daniel J. Beck sold 2,000 SVB shares that same day for proceeds of more than $575,000. Both executives established the 10b5-1 plans for the transactions within days of each other in late January. (Meanwhile, SEC Commissioner Caroline A. Crenshaw on March 17 drew attention to reports of retail investors being unable to exercise options on SVB and Signature Bank stock.)

Adding to the intrigue around the stock sales, the Federal Reserve reportedly warned SVB multiple times about the bank’s precarious financial position. After giving SVB six citations that called attention to its lack of cash on hand, the Federal Reserve Bank of San Francisco put the bank in full supervisory review last year, according to The New York Times. That would seem to put the kibosh on any claims that SVB executives didn’t understand the problems the bank was facing.

“Silicon Valley Bank has already become notorious for how obvious its red flags were,” wrote investigative journalist Jesse Eisinger of ProPublica. If true, the DOJ may soon have another indictment involving 10b5-1 plans to tout.