Warren, Blumenthal Seek Comprehensive DOJ and SEC Investigation of Silicon Valley Bank Executives After Bank’s Collapse, Aggressive Prosecution of Any Lawbreaking

March 15, 2023

Warren, Blumenthal Seek Comprehensive DOJ and SEC Investigation of Silicon Valley Bank Executives After Bank's Collapse, Aggressive Prosecution of Any Lawbreaking

"Key SVB officials showed a pattern of risky and questionable decision making that may have contributed to the bank's instability and collapse."

Text of Letter (PDF)

Washington, D.C. - U.S. Senators Elizabeth Warren (D-Mass.) and Richard Blumenthal (D-Conn.) sent a letter to the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), calling on them to conduct a comprehensive investigation to determine whether senior executives and other key officials involved in the collapse of Silicon Valley Bank (SVB) met their statutory and regulatory responsibilities or violated civil or criminal laws.

"A series of reports revealed that key SVB officials showed a pattern of risky and questionable decision making that may have contributed to the bank's instability and collapse and the ripple effects being felt throughout the economy," wrote Senators Warren and Blumenthal. "The actions of bank executives and other individuals associated with the collapse raised the specter of potential illegal or inappropriate behavior that included self-dealing, failure to meet disclosure requirements and fiduciary duties, insider trading, and more, and your investigation should thoroughly investigate these matters."

The senators are calling on DOJ and SEC to thoroughly investigate these matters, including:

• Self-dealing by SVB and its venture capital and startup clients may have been "bribed by the bank into neglecting" risk management.
• Bank officials lobbied Congress for regulatory rollbacks (which they ultimately received) testifying that "SVB … does not present systemic risks," and that SVB was engaged in "low risk activities."
• SVB executives received oversize compensation packages and bonuses - and other employees reportedly received bonuses paid out just hours before the bank was taken over by federal regulators.
• In the weeks leading up to SVB's failure, senior bank executives sold extensive amounts of stock, a move that "add(ed) fuel to the fire" of the SVB bank run. CEO Gregory Becker sold $3.6 million of company shares just two weeks before the crash.
• SVB used "exclusivity clauses," which limited customers' "ability to tap banking services from other institutions," and "made it impossible for those clients to safely diversify where they kept their money."
• SVB may not have adequately disclosed risks and financial problems in advance of the March 8, 2022 announcement that it would need to raise $2.25 billion to "shore up" its balance sheet - an announcement that precipitated the "wheels start(ing) to come off."
• The bank's asset-liability committee reportedly ignored "an internal recommendation to buy shorter-term bonds … (to) reduce the risk of sizable losses if interest rates quickly rose," and failed to act even as "employees pleaded to reposition the company's balance sheet into shorter duration bonds."
• In the days leading up to the collapse, there was a coordinated, "herd-like" activity of venture capital fund leaders and their portfolio companies, including one founder who publicly described his participation in the run on the bank and his attempt to take advantage of the ensuing panic by "buy(ing) shares of SVB at what I consider significantly low prices."

"One of the enduring failures in the aftermath of the 2008 financial crisis was the inability or unwillingness of DOJ and bank regulators to hold bank executives accountable for behavior that destroyed millions of lives and cost trillions of dollars of wealth. The nation's bank regulators cannot make the same mistake twice. We are not prejudging this matter, and are not in position to do so. But your agencies have extensive investigative authority and should use it appropriately," continued the senators.

Senator Warren is a leading voice on the financial system, advocating for critical regulations to protect consumers, the financial system, and the economy:

• On March 14, 2023, Senator Warren and Representative Katie Porter (D-Calif.) led dozens of Democratic lawmakers to introduce the Secure Viable Banking Act, legislation that would repeal Title IV of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 following the collapse of SVB and Signature Bank. In 2018, Senator Warren was outspoken about the dangers of passing the Economic Growth, Regulatory Relief, and Consumer Protection Act, which reduced critical oversight and capital requirements for large banks.
• On March 14, 2023, Senator Warren sent a letter to ex-SVB CEO Greg Becker, asking for answers about his and SVB lobbyists' efforts to roll back Dodd-Frank rules prior to the collapse of the bank.
• On March 14, 2023, Senator Warren called on Federal Reserve Chair Jay Powell to recuse himself from the Federal Reserve's announced internal review of its supervision and regulation of SVB.
• On March 13, 2023, Senator Warren published an op-ed in the New York Times calling Congress and federal regulators to strengthen weakened rules to avoid another crisis, intensify bank oversight, reform deposit insurance, and hold SVB executives accountable for any malfeasance or mismanagement that led to its failure.
• On March 10, 2023, Senator Warren released a statement following the collapse of SVB.
• In March 2023, Senators Warren, Chris Van Hollen (D-Md.), and Roger Marshall (R-Kan.) sent a bipartisan letter to the world's largest crypto exchange, Binance, and its U.S. affiliate, Binance.US, asking for answers about the company's finances, risk management, and regulatory compliance as it faces investigations into potential crimes - including sanctions evasion, money laundering, and unlicensed money transmission.
• In February 2023, at a hearing of the Senate Committee on Banking, Housing, and Urban Affairs, Senator Warren raised concerns that key parts of the crypto industry are not subject to the same money laundering laws that cover other financial organizations, allowing financial criminals to use crypto to launder billions.
• On December 14, 2022, Senators Warren and Rgr Marshall (R-Kan.) introduced the Digital Asset Anti-Money Laundering Act of 2022, bipartisan legislation that would mitigate the risks that cryptocurrency and other digital assets pose to the United States's national security by closing loopholes in the existing anti-money laundering and countering of the financing of terrorism (AML/CFT) framework and bring the digital asset ecosystem into greater compliance with the rules that govern the rest of the financial system.
• On December 8, 2022, Senators Warren and Tina Smith (D-Minn.) sent letters to three key banking regulators to raise concerns about the ties between the banking industry and crypto firms.
• On December 6, 2022, Senators Warren, Marshall, and John Kennedy (R-La.) wrote to Silvergate, the bank that reportedly facilitated the transfer of FTX customer funds to Alameda Research, seeking answers about the bank's role in the loss of billions of dollars in customer funds.
• On November 30, 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren defended FDIC Acting Chair Martin Greunberg from baseless attacks and called on regulators to keep crypto out of the banking system following FTX's collapse.
• On November 23, 2022, Senators Warren and Sheldon Whitehouse (D-R.I.) sent a letter to the Department of Justice requesting personal accountability for former FTX CEO Sam-Bankman Fried and any complicit FTX executives for wrongdoing following the exchange's collapse.
• On November 22, 2022, Senator Warren published an op-ed in the Wall Street Journal urging federal regulators to use their expansive authorities to crack down on crypto fraud and hold the industry to the same basic standards as other financial activities.
• On November 17, 2022, Senators Warren and Dick Durbin (D-Ill.), sent a letter to Sam Bankman-Fried, founder and former CEO of FTX Trading Ltd. (FTX), and John Jay Ray III, the newly appointed CEO of FTX, seeking information on the reported misuse of billions of dollars of customer funds and other disturbing allegations that continue to emerge about the company's fraudulent and illicit practices.
• On October 25, 2022, Senators Warren and Whitehouse and Representatives Alexandria Ocasio-Cortez (D-N.Y.), Jesús "Chuy" García (D-Ill.), and Rashida Tlaib (D-Mich.) sent a letter to the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission, the U.S. Department of Treasury, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, seeking information about the steps each regulator is taking to stop the revolving door between financial regulatory agencies and the cryptocurrency industry.
• In September 2022, Senator Warren sent a letter to Treasury Secretary Janet Yellen calling on the Treasury Department and the Financial Stability Oversight Council to build a strong regulatory framework for the crypto market.
• In March 2022, Senator Warren, Senate Armed Services Committee Chair Jack Reed (D-R.I.), Senate Intelligence Committee Chair Mark Warner (D-Va.), and Senate Defense Appropriations Subcommittee Chair Jon Tester (D-Mt.) introduced the Digital Asset Sanctions Compliance Enhancement Act to ensure that Vladimir Putin and Russian elites don't use digital assets to undermine the international community's economic sanctions against Russia following its invasion of Ukraine.
• In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren highlighted the various cryptocurrency tools that could make it easier for sanctioned individuals to hide their wealth and lessen the impact of Russian sanctions.
• In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren warned that cryptocurrency may allow Russia to dodge sanctions and urged stronger regulation of the crypto market to ensure that countries, drug traffickers, cyber criminals, and tax cheats can't evade economic pain.
• In March 2022, Senators Warren, Warner, Reed, and Sherrod Brown (D-Ohio), Chair of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Treasury Secretary Janet Yellen, asking about the Treasury Department's plans to enforce sanctions-compliance guidance for the cryptocurrency industry to ensure that economic sanctions remain an effective tool for achieving foreign policy goals.
• In January 2022, Senators Warren and Reed (D-R.I.) sent a letter to Dino Falaschetti - the Trump-appointed Director of the Office of Financial Research (OFR) in the U.S. Department of the Treasury - urging the OFR to use its critical tools to collect data to safeguard the financial system from stability risks.
• In January 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren pressed Fed Chair Jerome Powell on the role of corporate concentration in driving up prices for consumers during his renomination hearing to be Chair of the Board of Governors of the Federal Reserve System.
• In December 2021, during a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren raised concerns over the growing risks presented by stablecoins.
• In September 2021, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to step up to address crypto's regulatory gaps and ensure an inclusive financial system.
• In July 2021, Senator Warren sent a letter to U.S. Treasury Secretary Janet Yellen urging the Financial Stability Oversight Council (FSOC) to use its existing authority to address risks posed by the highly volatile cryptocurrency market and lead the financial regulatory agencies in developing a comprehensive and coordinated approach to regulating cryptocurrencies.
• In July 2021, Senator Warren sent a letter to SEC Chair Gary Gensler requesting information about the agency's authority to regulate cryptocurrency exchanges and protect consumers from risks posed by the highly volatile cryptocurrency market.
• In June 2021, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Committee's Subcommittee on Economic Policy, Senator Warren delivered remarks on the opportunities and risks that digital currencies present.
• In a June 2021 interview, Senator Warren called the market for crypto the "wild west," and said digital currency is "not a good way to buy and sell things and not a good investment and an environmental disaster."
• In May 2021, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren questioned Randal K. Quarles, Vice Chairman for Supervision at the Board of Governors of the Federal Reserve System, about his decision to weaken supervision for large foreign banks including Credit Suisse, which suffered the largest losses from the implosion of the hedge fund Archegos.

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