US SEC investigates First Republic Bank executives over suspicious trades

The Securities and Exchange Commission (SEC) in the United Statesis investigating executives at the First Republic Bank, media reports said on Monday.

As per reports, some executives at the now-defunct bank allegedly sold a significant amount of stock just before the bank was sold to JPMorgan Chase. While no charges have been filed, the inquiry has cast a shadow over the once-respected institution.

The bank's founder and former executive chairman, James Herbert II, allegedly sold a total of $11.8 million in stock between January and early March, as per San Francisco Chronicle.

Herbert's spokesperson claimed that his sales had been a part of annual estate planning and philanthropy, the timing of the sales has raised eyebrows.

Other executives who sold shares include Robert Thornton, then-president of private wealth management, and former CEO Michael Roffler.

The SEC and Department of Justice are also investigating former executives of Silicon Valley Bank of Santa Clara for possible insider trading.

Billionaire Warren Buffett, a well-known critic of the bank, has accused it of engaging in a "crazy proposition" by offering jumbo, fixed-rate mortgages that weren't backed by the government. He also claimed that the bank engaged in the practice in plain sight while the world ignored it until it was too late.

The Downfall of the First Republic

The federal government had earlier seized the First Republic and sold it to JPMorgan Chase, making it the second-largest banking failure in U.S. history after the 2008 collapse of Washington Mutual.

The bank's stock plummeted 43 percent on its final trading day, dropping around 98 percent lower than its 52-week high.

Despite assurances from Biden administration officials that there is no cause for major concern about the stability of the American financial sector, First Republic's collapse has raised the warning signs. This is especially true since similarly structured regional banks, such as Silicon Valley Bank and Signature Bank, have also failed due to the Federal Reserve's continued interest rate hikes.

Forbes reported that these banks faced significant liquidity problems due to social media-driven runs that led to customers withdrawing cash, primarily because of concerns about the firm's heavy investment of deposits into U.S. Treasuries, which lost value as the Fed rapidly increased interest rates.

In a year filled with layoffs and business shutdowns, the collapse of First Republic Bank and subsequent investigations into potential insider trading have added to the drama. The repercussions are yet to be determined as the investigation unfolds.