Massachusetts Watchdog Investigating FRC Insider Stock Trades

According to a Thursday report, Massachusetts regulators have opened an investigation into the stock sales made by First Republic Bank’s insiders prior to its failure. First Republic has perhaps been the hardest-hit regional bank in the aftermath of the collapse of three US banks at the beginning of March and has seen its shares fall nearly 90% YTD.

Massachusetts Probing First Republic Bank Insider Stock Sales

According to a report from Thursday, March 30th, Massachusetts’ Secretary of the Commonwealth has subpoenaed First Republic Bank as part of the state’s probe into its executives’ 2023 stock sales. The bank is under scrutiny due to a steep drop in the value of its shares and a bank run that started with the fall of three major US banks earlier this month.

Multiple executives have reportedly sold shares since the beginning of the year. According to an FDIC filing,  First Republic’s founder and Executive Chairman James Herbert sold about $4.5 million worth of shares since January. This isn’t the first such investigation undertaken by Massachusetts regulators.

Previously, they also opened a probe into the actions of Silicon Valley Bank. SVB was shut down by California regulators and taken over by the FDIC on March 10th. Its CEO reportedly sold $3.6 million worth of stocks just before the event. The fall of Silicon Valley was one of the key events that caused the ongoing banking crisis.

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Is the US Banking Crisis Deepening?

At the very beginning of March, Silvergate, notable as one of the largest crypto-friendly banks, announced its liquidation due to numerous setbacks resulting, primarily, from the downfall of its partner FTX. While the effects of the closing were initially felt primarily in the digital assets industry, a banking contagion started only days after as the Federal Deposit Insurance Corporation announced the closing of Silicon Valley Bank—an important institution in California’s startup ecosystem.

Again only a few days later, regulators stepped in to close Signature—another crypto-friendly bank—saying they’ve identified “systematic risks” with the company. That same weekend the federal authorities implemented emergency measures and, while they did serve to stabilize banks, they also caused additional discomfort after it was revealed that US banks borrowed more in less than a week than at any point since the crisis of 2008.

In the weeks since the three banks were closed, many analysts have posited that there is no real banking crisis, or that it is over. The events have also, however, unearthed some uncomfortable truths. For example, some commentators have described banks as zombies that are sitting on trillions of dollars of unrealized losses due to the FED’s rate hikes—a stable situation unless a bank run happens. Furthermore, this week President Biden, who previously said that the “banking system is safe”, stated that the crisis isn’t over yet.

Do you think First Republic’s executives tried to illegally offload shares before the crisis? Let us know in the comments below.