Those affected by the intervention of Silicon Valley Bank have begun taking steps to avoid a total loss of all the money invested in the bank. On the one hand, an SVB investor has filed a lawsuit against the bank and the company's senior management. The bank's creditors have also mobilized, forming a group to contemplate their next moves in anticipation of its possible bankruptcy. In addition, the Department of Justice and the Securities and Exchange Commission have opened investigations into the actions of the bank's board of directors that led to its collapse, and will be looking closely at the sale of shares by executives in the last hours before the intervention. The Federal Reserve announced that it will independently conduct its own inquiries.
The investor who filed the first complaint, to which he has invited other affected parties to join in order to convert it into a class action lawsuit, alleges that the SVB "violated the rights of shareholders by not disclosing its exposure to the Federal Reserve's interest rate hikes," which have severely affected the technology sector. The complaint names Chief Executive Officer Greg Becker and Chief Financial Officer Daniel Beck as defendants.
Creditors bought SVB bonds during the weekend
The Wall Street Journal reported that the entity's creditors are also mobilizing together to recover their money. A group of them, including Centerbridge Partners LP, Davidson Kempner Capital Management LP and Pacific Investment Management Co. (Pimco), hired PJT Partners Inc. to coordinate their joint actions. At the moment, according to WSJ, these companies took advantage of the plunge in the value of the stock of the banks parent company, SVB Financial Group, over the weekend (they were trading at 30 cents) to take over much of the bank's current $3.4 billion face value.
In the event that the restructuring committee appointed to study alternatives to the bank's future opts for a bankruptcy declaration, the company's non-banking businesses would be auctioned off under court supervision. If these assets obtain a sufficiently high valuation, the proceeds from the sale usually go to pay off debts to creditors. According to the WSJ, authorities tried to sell the SVB, unsuccessfully over the weekend. Additionally, the possibility that they may attempt to auction it off again in the coming days has not been excluded.
Three investigations open for SVB executives
SVB's management is facing three investigations by the authorities. Sources close to the case, who requested anonymity, told the WSJ that both the DOJ and the SEC have opened an investigation to clarify the facts that led to the collapse of the entity and whether there has been embezzlement or other irregularities. Among these, the entities will pay special attention to a suspicious sales of shares made by managers in the days prior to the intervention. For the time being, the researchers declined to make assessments as the analyses are at too early a stage.
These investigations are in addition to the one announced last Monday by the Fed. It will be led by the agency's Vice President for Oversight, Michael Barr. Jerome Powell, chairman of the Federal Reserve, noted that "The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review." Barr, for his part, called for humility and reflection on how this could have happened, as well as to "learn from this experience": "We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience."
@federalreserve announces that Vice Chair for Supervision Michael S. Barr is leading a review of the supervision and regulation of Silicon Valley Bank, in light of its failure. The review will be publicly released by May 1: https://t.co/wQ39KLiwHE
— Federal Reserve (@federalreserve) March 13, 2023