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Goldman Sachs is currently under scrutiny by the Federal Reserve and the Securities and Exchange Commission (SEC) for its involvement in the purchase of Silicon Valley Bank’s securities portfolio prior to the bank’s collapse, The Wall Street Journal reported, citing sources familiar with with this question.
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 unsuccessful capital raising prior to the collapse of SVB. The Justice Department also reportedly sent a subpoena to Goldman Sachs as part of the SVB investigation.
Insiders also allegedly reported that the Federal Reserve and the SEC are particularly interested in documents relating to Goldman Sachs’ dual role as buyer of the SVB securities portfolio and advisor on the bank’s capital increase. The agencies are reportedly investigating whether there have been any inappropriate communications between Goldman’s investment banking arm and its trading arm regarding the sale of the portfolio.
In response, Goldman said it is “cooperating with and providing information to various government agencies in connection with their investigations and investigations into SVB, including the firm’s business with SVB around March 2023.”
In the final days leading up to SVB’s collapse, Goldman Sachs was reportedly hired to help the bank raise capital. At the same time, its trading arm acquired “a $21 billion portfolio of SVB available-for-sale debt securities at a discount.” According to the WSJ, bankers and financial lawyers find it unusual for banks to act as both an advisor and a buyer of a company’s assets at the same time, except in times of financial crisis.
Sources familiar with the matter also reportedly said that Goldman advised SVB executives to “sell some or all of their portfolio” prior to raising capital to demonstrate the need for funding. This advice was echoed by Greg Becker, former CEO of SVB, during his speech before the Senate Banking Committee.
In response to the allegations, a spokesperson for Goldman Sachs stated that:
[Goldman] “notified SVB in writing that we would not act as their advisor to the sale and that SVB should not rely on any advice from the bank in this regard, but instead hire an outside financial advisor.”
Related: ‘How It Happened’ – Powell says Fed puzzled by SVB collapse
On March 10, California regulators took the unprecedented step of shutting down Silicon Valley Bank, a prominent financial lender that serves venture capital firms and technology companies. Prior to its closure, SVB was the 16th largest bank in the US with over $212 billion in assets.
Following this incident, on March 17, SVB Financial Group filed for Chapter 11 bankruptcy protection with the US Bankruptcy Court. The voluntary petition was intended to facilitate a court-supervised reorganization process to preserve the value of the company.