US prosecutors probing collapse of SVB; Signature Bank faced criminal probe ahead of collapse

SVB Financial Group and two top executives were sued this week by shareholders. PHOTO: REUTERS

WASHINGTON – United States prosecutors are investigating the collapse of Silicon Valley Bank (SVB), according to a source familiar with the matter, as scrutiny mounts over its sudden failure and regulators scramble to contain the fallout.

The Justice Department is probing the demise of SVB, which was shuttered last Friday following a bank run, the source said, declining to be named as the inquiry is not public.

The US Securities and Exchange Commission (SEC) has launched a parallel investigation, according to The Wall Street Journal (WSJ), which first reported the probes.

Spokesmen for the SEC, SVB and Justice Department declined to comment.

The investigation is in its early stages and may not result in allegations of wrongdoing or charges being filed, the source said.

Officials are also examining stock sales by officers of SVB Financial Group, which owned the bank, the WSJ reported, citing sources familiar with the matter.

SEC chairman Gary Gensler on Sunday said in a statement that the agency is particularly focused on monitoring for market stability, and identifying and prosecuting any form of misconduct that might threaten investors during periods of volatility.

The rapid demise of SVB and the fall of the New York-based Signature Bank on Sunday have left regulators racing to contain risks to the rest of the sector.

On Tuesday, ratings agency Moody’s cut its outlook on the US banking system to “negative” from “stable”.

SVB Financial Group and two top executives were sued this week by shareholders, who accused them of concealing how rising interest rates would leave the group’s bank unit susceptible to a bank run.

Separately, US prosecutors were also investigating Signature Bank’s work with crypto clients before regulators suddenly seized the lender this past weekend, according to people familiar with the matter.

Justice Department investigators in Washington and Manhattan were examining whether the New York bank took sufficient steps to detect potential money laundering by clients – such as scrutinising people opening accounts and monitoring transactions for signs of criminality, the people said.

The Securities and Exchange Commission also was taking a look, two people said, asking not to be named because the inquiries are confidential.

Remote video URL

Spokesmen for the failed bank’s remaining operations and the Federal Deposit Insurance Corp (FDIC), which took control of the firm, did not respond to messages seeking comment. Representatives for the Justice Department, US Attorney’s Office in Manhattan and SEC declined to comment.

But a spokesman for SEC, which brings only civil cases, pointed to the statement from chairman Gensler on Sunday, when the authorities took steps to bolster US lenders and shut Signature Bank.

“We will investigate and bring enforcement actions if we find violations of the federal securities laws,” the SEC chief said at the time.

The bank and its staff have not been accused of wrongdoing, and the investigation could end without further action.

It is unclear when the probes involving Signature Bank were opened and whether they had any effect on the decision by state regulators to close the bank on Sunday.

State regulators have said they lost faith in management after the bank failed to provide “reliable and consistent data”.

The FDIC has since started looking for a buyer. BLOOMBERG, REUTERS

Join ST's Telegram channel and get the latest breaking news delivered to you.