On a legal level, there is no problem a priori.
But in terms of optics, it does not look good, and Greg Becker will have a hard time finding support.
The CEO of Silicon Valley Bank (SVB) (SIVB) sold shares on Feb. 27. SVB was shut down by regulators on March 10, after a run on the bank, due to a surprise announcement of a $1.8 billion loss following the sale of part of its investments.
According to regulatory filings, Becker sold 12,451 SVB shares for $3.6 million on Feb. 27. The sale was in line with a rule set up in 2000 by the U.S. Securities and Exchange Commission (SEC), called Rule 10b5-1, to avoid insider trading.
To avoid insider trading, the regulator has limited the sale of shares by the executives of a company to dates set in advance. Executives must notify in advance that they are going to sell shares. Becker respected this rule: he had indicated on Jan. 26 that he intended to sell shares, according to regulatory filings.
In this case, the sale was made by a trust he controlled. In addition to the share sale, regulatory filings also show that Becker acquired options worth $1.3 million.
The transactions were completed less than two weeks before SVB announced it was planning to raise $2.25 billion by issuing new common and convertible preferred shares, to shore up its finances, after it sold some bonds in its portfolio of investments at a $1.8 billion loss.
New Rules Against Insider Trading
This decision caused panic and a run on the bank. About $42 billion of deposits were withdrawn by the end of March 9, according to a regulatory filing. By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing.
As a result, the regulators shut down the bank on March 10, making SVB the second-largest bank failure in U.S. history, after Washington Mutual in 2008.
Was Becker aware of the company's plans to raise capital when he filed his plan to sell shares?
SVB didn't immediately respond to a request for comment.
Faced with criticism that executives are abusing Rule 10b5-1, Gary Gensler, the current SEC Chairman, proposed new rules last year. These require executives using Rule 10b5-1 to sell shares, to wait 90 days between the plan filing and the actual sale.
These rules will become effective on April 1.
Becker could not have sold his SVB shares if these rules had already been in place.
