The collapse of Signature Bank of New York last month was reportedly preceded by the sale of more than $100 million worth of stock by insiders during the surge of cryptocurrency prices. The insider trading of the crypto-friendly bank was not widely known because the transactions were disclosed in a rather unorthodox manner. Of the sales, about half were done by three key executives, namely Chairman Scott Shay, CEO Joseph DePaolo, and Chief Operating Officer Eric Howell.
Current Status of Signature Bank
On March 12, federal regulators took control of Signature Bank after panicked customers made a run to withdraw their deposits. The bank’s failure came on the heels of the collapse of Silicon Valley Bank (SVB), causing the two banks to become the second- and third-largest bank failures in US history, after the collapse of Washington Mutual in 2008.
The Insider Trading Allegations
According to a report from the Wall Street Journal (WSJ), the bank executives allegedly sold their company shares for around $220 in the spring of 2021 before the valuation of each stock peaked at $366 in January 2022. It should be noted that although the buying and selling of company shares by its own executives are allowed by law, they cannot trade them based on material information withheld from the public.
Signature, which was one of the few FDIC-insured lenders to embrace cryptocurrency, experienced a significant jump in its stock price in 2021. This was mainly attributed to the surge of prices in crypto markets and the bank’s strong support for them.
Most companies of Signature’s size disclose insider trades to the Securities and Exchange Commission (SEC), but Signature opted to report the trades to the Federal Deposit Insurance Corporation (FDIC) instead, hoping to skirt the rules. The source still awaits the official response of the SEC for its inquiry regarding the matter at hand.
In related reports, government regulators are also currently conducting investigations into the suspected insider stock transactions made by executives at SVB before its collapse and the sales of company stock made by top executives at First Republic Bank prior to its failure.
JPMorgan Warns Investors
In a letter for shareholders released last week, JPMorgan Chairman and CEO Jaime Dimon warned that the banking crisis is not yet over. He explained that the industry is under renewed stress after the recent failure of SVB as well as Credit Suisse’s rescue by UBS. The exec wrote that the market’s odds of a recession have increased and while it is not as severe as the 2008 financial crisis, it remains unclear when this current crisis will end.
Final Thoughts
The uncovered insider trading in Signature Bank before its collapse has raised concerns about the transparency and regulation of the banking industry. The ongoing investigations into insider trading at SVB and First Republic Bank suggest that this issue is not isolated to one bank but may be widespread across the industry. The warning by JPMorgan CEO Jaime Dimon that the banking crisis is not over adds to the uncertainty and instability in the sector, highlighting the need for greater oversight and accountability.
The current crisis in the financial sector, along with investigations into insider trading in the stock market by bank executives, could lead investors to lose faith in traditional financial systems and turn towards alternative options like cryptocurrencies. This could potentially benefit the crypto market as more people seek to diversify their investments and hedge against market instability.