US prosecutors are reviewing stock trading by some of First Republic Bank’s employees during the lender’s recent collapse, according to people familiar with the matter.
(Bloomberg) — US prosecutors are reviewing stock trading by some of First Republic Bank’s employees during the lender’s recent collapse, according to people familiar with the matter.
The Justice Department is looking at whether anyone working at the firm used inside information in transactions as it was crumbling in the second-biggest bank failure in American history, said the people, who asked not to be named discussing the confidential probe. The probe, which is in an early stage, is also scrutinizing the company’s financial disclosures.
Representatives for Justice Department and JPMorgan Chase & Co., which agreed to buy First Republic in a government-brokered deal, declined to comment. The Securities and Exchange Commission, which conducts civil inquiries, is also looking at whether any senior executives traded based on inside information.
The review by prosecutors, which could end without charges being filed, significantly adds to legal scrutiny surrounding the collapse of a bank that was once known for catering to wealthy clients. It couldn’t immediately be determined which people were the focus of the inquiries, and no one has been accused of wrongdoing.
Compared with the swift undoing of Silvergate Bank, Signature Bank and Silicon Valley Bank, First Republic’s demise was slow and tortured. For weeks, Wall Street analysts and traders speculated on whether the firm could withstand deposit outflows.
Ultimately, First Republic was seized by the Federal Deposit Insurance Corp. on May 1 after a flood of customer withdrawals and declining asset prices. The regulator struck an agreement for JPMorgan to take over the bank’s $173 billion of loans and $30 billion of securities, as well as $92 billion in deposits, after talks to rescue the lender dragged on for weeks.
Since then, the circumstances surrounding the bank’s failure — and its cost — have been politically contentious. Critics have railed against the billions of dollars it is expected to cost the US’s bedrock deposit insurance fund and blasted federal officials for picking JPMorgan, which is already the country’s biggest bank.
First Republic’s former employees aren’t the only bankers facing scrutiny in the wake of the collapse of four regional lenders.
The Justice Department’s fraud section has been examining the collapse of Silicon Valley Bank for misconduct by officers, including whether stock sales by executives violated trading rules. SVB collapsed and was taken over by the government in March in what at the time was the second-biggest failure in US history.
Separately, federal prosecutors were investigating Signature Bank’s work with crypto clients before regulators suddenly seized the lender earlier this year. Silvergate is being probed by the Justice Department over dealings with Sam Bankman-Fried’s defunct FTX exchange and Alameda Research. No one at those banks has been accused of wrongdoing as a result of those probes.
–With assistance from Hannah Levitt, Sabrina Willmer and Austin Weinstein.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.