Silicon Valley Bank | Fraud case against SVB execs puts C-suite transparency in spotlight

Fraud case against SVB execs puts C-suite transparency in spotlight

Bosses at Silicon Valley Bank are being sued by shareholders following the firm’s financial collapse, prompting questions about whether C-suite execs need to be more transparent about potential crises.

Shareholders have claimed that the company’s Chief Executive Greg Becker and Chief Financial Officer Daniel Beck are guilty of hiding the bank’s financial situation which ultimately led to its collapse.

The SVB’s bust has sent shockwaves across the financial and tech sectors. The bank historically focused on lending to US tech companies, the tech space having experienced a marked boom over the pandemic.

The bank invested much of its funds in US government bonds, but when the US Fed started to raise interest rates in response to inflation, the value of these bonds fell.

This combined with the tech sector levelling out to pre-pandemic levels caused SVB to sell its bonds at losses, causing many to withdraw funds from the bank leading to its collapse – the second biggest US bank collapse in history.

An issue of transparency

In the lawsuit, which was filed on Monday, shareholders said that SVB failed to share how interest rates had compromised its business model. This begs the question: Is it always necessary for executives to be transparent in moments of crisis?

Some might argue that if the bank’s executives were open to stakeholders, its employees and the public, then that would have sealed the business’ catastrophic fate, as deposits would have been withdrawn faster and the bank may have collapsed earlier.
Reportedly, employees received their yearly bonus hours before regulators seized the bank.

Despite this, employees have criticised SVB’s CEO for a lack of honesty. In a video message sent on Friday to the bank’s 8500 employees, Becker said: “It’s with an incredibly heavy heart that I’m here to deliver this message. I can’t imagine what was going through your head and wondering, you know, about your job, your future.”

“I have an ask, and it’s a completely unfair ask,” Becker continued. “My unfair ask is this: Can you guys just hang around, try to support each other, try to support our clients, work together to what may be a slightly better outcome to where we are right now?”

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According to The San Francisco Standard, any empathy from employees soon turned into anger as it was revealed that Becker sold $3.6 million (£2.6 million) in company shares days before the bank’s losses were officially disclosed. This was especially frustrating for employees with a stock in the company as it was now essentially worthless.

The gravity of the fast collapse can be seen in the impact it has had on many businesses. Beyond SVB’s internal employees, its depositors were primarily tech start-ups who were subject to the risk of losing deposits and potentially not being able to pay their employees.

American Investor and Entrepreneur David Sacks told The Megyn Kelly Show: “There are 40,000 small businesses who use SVB, and 10,000 of them were in danger of missing payroll on Monday and having to lay off employees because they couldn't get to their cash.

“If you subject small businesses to the risk of losing their deposits, we are going to have runs on the banks just like that Jimmy Stewart movie, and we are going to be right back to the Great Depression...”

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