Goldman Sachs is currently facing scrutiny from the Federal Reserve and Securities and Exchange Commission (SEC) regarding its involvement in the purchase of Silicon Valley Bank’s securities portfolio prior to the bank’s collapse, The Wall Street Journal has reportedciting sources familiar with the matter.
Breaking: Goldman Sachs is being investigated by the Federal Reserve and the Securities and Exchange Commission over its role in Silicon Valley Bank’s final days https://t.co/L7buF8TfvX
— The Wall Street Journal (@WSJ) June 15, 2023
According to the report, both agencies are investigating Goldman Sachs’ actions during its failed capital raise before the collapse of SVB. The Justice Department has also reportedly issued a subpoena to Goldman Sachs as part of its investigation into SVB.
Insiders have also allegedly reported that the Federal Reserve and SEC are particularly interested in obtaining documents relating to Goldman Sachs’ dual role as buyer of SVB’s securities portfolio and the advisor for the bank’s capital raise. The agencies are reportedly investigating whether there were any improper communications between Goldman’s investment banking division and its trading division regarding the sale of the portfolio.
In response, Goldman has shared that it is “cooperating with and providing information to various governmental bodies in connection with their investigations and inquiries into SVB, including the firm’s business with SVB in or around March 2023.”
In the final days leading to the collapse of SVB, Goldman Sachs was reportedly hired to assist the bank in raising capital. At the same time, its trading division purchased “SVB’s $21 billion portfolio of available-for-sale debt securities at a discount.” As WSJ reported, bankers and finanicallawyers consider it uncommon for banks to simultaneously act as both an adviser and a buyer of a company’s assets, except in times of financial distress.
Sources familiar with the matter have also reportedly disclosed that Goldman advised SVB executives to “sell part or all of its securities portfolio” before raising capital to demonstrate the need for funding. This advice was reiterated by Greg Becker, SVB’s former CEO, during his testimony before the Senate Banking Committee.
In response to the allegations, a Goldman Sachs spokeswoman stated that:
[Goldman] “informed SVB in writing that we would not act as their adviser on the sale, and that SVB should not rely on any advice from the bank in this regard, but instead hire a third-party financial adviser.”
On March 10, California regulators took the unprecedented step of closing down Silicon Valley Banka prominent financial lender catering to venture capital firms and tech companies. Before its closure, SVB stood as the 16th largest bank in the United States, boasting assets ofmore than $212 billion.
Following that incident, on March 17, SVB Financial Group filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court. The voluntary petition sought to facilitate a court-supervised reorganization process to preserve the company’s value.