FDIC Sues 17 Former Silicon Valley Bank Execs Over Collapse (cnn.com) 31
"The FDIC sued 17 former executives and directors of Silicon Valley Bank on Thursday, seeking to recover billions of dollars for alleged gross negligence and breaches of fiduciary duty," reports Reuters. The move comes almost two years after Silicon Valley Bank's March 2023 collapse, which shocked financial markets and ended up benefiting big players like JPMorgan Chase. From the report: In a complaint filed in San Francisco federal court, the FDIC, in its capacity the bank's receiver, said the defendants ignored fundamental standards of prudent banking and the bank's own risk policies in letting the bank take on excessive risks to boost short-term profit and its stock price. The FDIC faulted the bank's overreliance on unhedged, interest rate-sensitive long-term government bonds such as US Treasuries and mortgage-backed securities, as rates looked set to -- and eventually did -- rise. It also objected to the payment of a "grossly imprudent" $294 million dividend to its parent that drained needed capital "at a time of financial distress and management weakness" in December 2022, less than three months before its demise.
"SVB represents a case of egregious mismanagement of interest-rate and liquidity risks by the bank's former officers and directors," the complaint said. The defendants include former Chief Executive Gregory Becker, former Chief Financial Officer Daniel Beck, four other former executives and 11 former directors.
"SVB represents a case of egregious mismanagement of interest-rate and liquidity risks by the bank's former officers and directors," the complaint said. The defendants include former Chief Executive Gregory Becker, former Chief Financial Officer Daniel Beck, four other former executives and 11 former directors.
Billions from 17 executives? (Score:3)
Curious how these 17 people collectively have billions. Guess FDIC is setting a high bar to get something if they win?
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I don't think so. There seems to be a lot of assets left in the bankruptcy, this help determine the order in who gets to claim it.
17 persons accused (Score:2)
Here are the 17 executives from the failed Silicon Valley bank.
FDIC Acts to Protect All Depositors of the former Silicon Valley Bank, Santa Clara, California - March 13, 2023
https://www.fdic.gov/news/pres... [fdic.gov]
- Silicon Valley bank's depositors got preferential treatment so that depositors who would lose everything deposited over $250,000 for other FDIC bank failures, did not lose any of their deposits. .
- "The transfer of all the deposits was completed under the systemic risk exception approved yesterday
- "Al
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notice how the rich never go to jail, no matter how guilty, this is typical of a classist and corrupt legal industry
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As I recall (Score:4, Interesting)
As I recall, one of the main issues was that the bank wildly over-invested in long-term, low-interest bonds, and when customers wanted their money the bank had to sell the bonds at significant losses to meet the requests for cash...
SVB simply had no idea what it was doing, and it blew-up in their face... I don't think fraud/malfeasance was a big part of this bank's failure - it was more a case of ignorance on an epic scale.
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they knew exactly what they were doing
No, that's ridiculous.
They didn't intentionally lose billions of dollars. That makes no sense.
Hanlon's razor [wikipedia.org]
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They literally did things "real" bankers knew not to do, they over-invested in bonds, they bought low-yield, long-term bonds, and lacked the imagination that bond rates would go up or that customers would want to withdraw their money.
When customers wanted their money, the bank had to sell their 10 year 0.5% interest bond at a steep discount, causing them to lose capital they needed as word spread about what was happening at the bank.
I don't think they knowingly drove the bank into the ground, I think it was
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No, they didn't 'intentionally' lose billions of dollars. What they did do was use financial strategies that would artificially boost short-term profits at the cost of long-term stability. They gambled that they could weather it, and we lost. Which is something fundamentally broken about the system. If you steal $20, it's theft. If you steal $20 million, that's capitalism, hand's off (unless they stiff the shareholders, then they get the book thrown at them). It's a classist double standard that shoul
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The bonds were already discounted on the open market. Banking regulator Federal Reserve allows banks to account at face value rather than market value on the flawed presumption the bonds will be held to maturity. The open market price was simply realized when they were forced to sell. Federal Reserve allows the magic accounting, so banks use it to compete with their peer banks. Also, CEO Greg Becker was a director at S.F. branch of Federal
Where's the line (Score:1)
between ordinary greed that is practiced by nearly every executive of every company, and greed that warrants being personally sued?
As much as I detest the carelessness and greed of these guys, limited liability of corporations is a feature, not a bug. In general, people shouldn't be sued by the government for poor judgment. Bankruptcy is the proper forum for handling the consequences of money lost due to mismanagement or any other leadership flaw. If their actions weren't illegal (and the lawsuit doesn't se
Re: Where's the line (Score:5, Insightful)
SVB was a C-Corp not an LLC (and Iâ(TM)m not aware of any U.S. bank that is or can be an llc).
The people being sued had a fiduciary duty to not do what happened, and were, or should have been, quite aware that they can be held Legally Liable if I court finds that they did not uphold the duty.
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Though "limited liability" isn't in the name C-Corp, the principle still applies in American law. C-Corps also provide limited liability to owners, just as LLCs do.
I don't dispute that these men were responsible, and that they acted irresponsibly. But the government suing them is akin to suing the software developers who built the software that led to the Boeing 737s being grounded in 2019. Were the developers responsible for the flaw? Yes, an argument could be made. But did they bear sufficient responsibil
Re: Where's the line (Score:3)
Itâ(TM)s not the share holderâ(TM)s being sued (the owners) itâ(TM)s the officers. The law is clear in regards to what is required by them, and that if they fail to do that, and are found to have failed to do they, they can be held responsible.
They accept this responsibility and risk for the paychecks that they get.
If they follow the rules, and lose money they are fine.
I donâ(TM)t know all the details on the charges. But limited legal liability does not apply here. I do know that. If the
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"Can be" legally liable is not the question. Of course they can be.
The question is, "should" they be legally liable.
The law, and especially litigation law, is full of injustices. Very much real harm is done simply by the threat of a lawsuit, when the defendant is completely innocent, but can't afford to defend themselves against malicious lawsuits. Is this all legal? Yes. Is it right? Absolutely not.
In theory, you personally know that you "might" be liable for your actions. But in practice, you do your dail
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But a proper analogy is that you can sue the pilots that flew the plane into the ground because they decided to do loop-de-loops.
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The FDIC isn't alleging fraud.
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For what its worth, it isn't obvious to me that Limited Liability is relevant in this situation. Limitd Liability is a limit placed on the investers in the company (the shareholders) whereby if the company owes money to third parties, the shareholders are not themsevles liable. So, if a company you own shares in goes bust oweing money, the people it owes money to can't come after yor house or your car (since you are technically the owner of the company).
In this case, from what I can tell the FDIC are trying
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With private companies, it happens that a company gives a loan to a director / owner (which is intented to be never repaid). If a limited company goes insolvent then the director / owner can be made to repay that loan.
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I agree entirely. If dividends have been paid out while insolvent then they ought to be claimed back. That's perfectly reasonable. One of the responsibilities of being a shareholder of a company is to monitor its financial performance - if you are receiving dividends and don't know the company's insolvent then that's on you (not sure how it works in practice if the shareholders are citizens or businesses of a foregin country, I assume there are treaties that ocver this?).
For your second point, I suppose so,
President (Score:2)
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The bankers strategically supported Biden and Harris, and all too easily convinced the administration to bail them out. This may explain why the FDIC waited so long until after the election to move forward - as if it's threading the needle and playing both sides - leaving the option of quietly burying the investigation if Harris pulled through and signaled her desire to do so.
Commercial banks shouldn't hedge (Score:2)
Forcing commercial banks into hedging is insane, that will only increase instability of the financial system more. Play stupid games with long term inflation expectations, win stupid prizes.
Long term treasuries should be safe, if not and a bank is overexposed. Oh well that's the cost of doing business, the business being running massive government deficits. Not their fault.