Massachusetts regulators have launched an investigation into sales of company stock by top executives at First Republic Bank (FRC.N) in the weeks leading up to the recent banking turmoil that has roiled the global banking sector.
William Galvin, Massachusetts’ Secretary of the Commonwealth, has told Reuters his office has subpoenaed the First Republic Bank seeking details about the firm’s insider trading policies and how officers handled their stock sales from January 1. A spokesperson for First Republic declined to comment on the matter.
Galvin, who has a reputation for aggressive enforcement as a securities regulator, said his office was particularly interested in examining insiders’ trading activity leading up to the turmoil that has rocked the banking sector.
Due to a regulatory anomaly, executives at banks that do not have holding companies file transaction forms with the banking regulator instead of the Securities and Exchange Commission.
First Republic’s share price plummeted nearly 90% in March in the wake of the collapse of Silicon Valley Bank (SVB), which saw people pull deposits from smaller banks.
First Republic lured high net-worth customers with preferential rates on mortgages and loans, a strategy that also made it more vulnerable than regional lenders with less-affluent customers since US deposit insurance only guarantees $250,000 per savings account.
The Massachusetts probe into First Republic is in the early stages and may not result in regulatory action. Corporate insiders are allowed to buy and sell shares of their companies.
It is illegal for officers and directors to transact on material information that is not yet public. Several First Republic executives have sold shares this year, including founder and Executive Chairman James Herbert.
Herbert sold $4.5 million worth of shares so far this year, according to Federal Deposit Insurance Corporation filings published on First Republic’s website.
First Republic executives not alone
Galvin said his office has also opened a similar probe into insider sales by executives at SVB Financial Group, which owned Silicon Valley Bank until its failure.
The Wall Street Journal previously reported that investigation. Both banks have branches in Massachusetts. California regulators took possession of Silicon Valley Bank on March 10.
Probes such as Galvin’s highlight the mounting scrutiny of bank executives and their risk management amid the recent banking crisis. Banking regulators, federal prosecutors, and the SEC are all probing SVB’s collapse.
“Both entities – their banking strategies were risky. That’s a fair statement. The risk has come home to roost,” said Galvin.
Massachusetts not concerned about other banks in the state
Galvin said he is not yet concerned about other banks operating in his state, though he knows they remain under intense pressure.
“We have no reason to believe they’ve invested in similar strategies,” Galvin said.
As the probe continues, there will be heightened attention on First Republic and SVB Financial Group, with regulators, investors, and customers closely monitoring developments.
The investigation by Massachusetts regulators into First Republic’s stock sales and insider trading policies has put the bank under intense scrutiny.
The bank’s luring of high net-worth customers with preferential rates on mortgages and loans has made it more vulnerable than regional lenders, which could spell trouble for the bank as the investigation continues.
