The US Securities and Exchange Commission (SEC) has initiated an investigation into allegations of insider trading involving executives of First Republic Bank. The probe focuses on the conduct of these executives before the bank’s seizure and subsequent sale to JP Morgan Chase & Co.
SEC is examining whether the bank’s executive team traded improperly using inside information. However, no details have been provided regarding which executives are under scrutiny in the ongoing probe.
Both JP Morgan and the SEC have declined to comment on the matter. Following its seizure by the US government, First Republic was sold to JP Morgan Chase & Co. after experiencing significant losses.
SEC probe follows Senator Warren’s accusations against First Republic executives
The revelation of the SEC investigation into First Republic Bank executives came just one day after Senator Elizabeth Warren accused them of ‘mismanagement’ in a letter addressed to the bank’s former CEO, Michael Roffler. Senator Warren’s letter raised concerns about the bank’s risk management, as well as executive pay and bonuses.
In her letter, the Democratic Senator demanded an explanation from Roffler, stating that the bank’s collapse appeared to be the result of “complacency, incompetency, and mismanagement” by him and other bank executives. Roffler has been given until May 17 to submit his responses but was unavailable for comment on Friday.
Although no specific First Republic executive has been named a target in the SEC’s insider trading probe, several top executives’ stock sales have previously attracted media attention. According to the Wall Street Journal, First Republic Bank executives sold almost $12 million worth of company stock in the past three months.
Executive Chairman James Herbert II sold the most shares, worth $4.5 million, since the beginning of the year. Also, four top executives of the struggling bank sold a total of $11.8 million in stocks this year, with prices averaging just below $130 per share.
These sales occurred just days before the bank faced liquidity issues, as investors rushed to withdraw their funds following the collapse of Silicon Valley Bank and Signature Bank.
Executives’ sales lacked 10b5-1 plans
It is essential to know that none of the executives’ sales filings indicated that they were executed under 10b5-1 plans, which are pre-scheduled sales designed to protect business executives from accusations of insider trading.
However, these trades went largely unnoticed, as First Republic is not required to report insider sales to the SEC due to a provision in the Securities Act of 1933. Instead, the executives’ trades were reported to the Federal Deposit Insurance Corporation, which periodically discloses them on its website.
First Republic Bank’s collapse is among numerous bank failures observed this year, including Silicon Valley Bank and Signature Bank. These failures highlight the current financial instability within the banking sector. The SEC is also investigating trading activity at Silicon Valley Bank, specifically concerning the bank’s collapse in March.
