Goldman Sachs Faces Fed And SEC Probe For SVB’s Securities Portfolio: Report

Goldman Sachs is currently under investigation by federal regulators for its involvement in the acquisition of Silicon Valley Bank’s securities portfolio while simultaneously providing advisory services to the struggling lender regarding capital raising, prior to its subsequent collapse this year. 

The US Federal Reserve, the Securities and Exchange Commission, and the Department of Justice have requested documentation from Goldman Sachs as part of wider investigations into the downfall of SVB, The Wall Street Journal reports. 

The focus of scrutiny lies on potential inappropriate communication between Goldman Sachs’ trading division and its investment banking department in relation to the portfolio sale, as sources informed The Journal.

Goldman Sachs Questioned Over Dual Role In SVB Downfall

According to sources, the regulators are particularly interested in obtaining documents related to Goldman Sachs’ simultaneous roles as the buyer of SVB’s securities portfolio and the advisor for the bank’s capital raise. Insiders have alleged that the agencies are looking into whether there were any improper communications between Goldman’s investment banking division and its trading division in relation to the sale of the portfolio.

In addition to the Federal Reserve and the SEC, the Department of Justice has reportedly issued a subpoena to Goldman Sachs as part of its separate investigation into SVB’s downfall. The subpoena serves as a further indication of the heightened scrutiny surrounding Goldman Sachs’ actions and potential misconduct in its dealings with SVB.

Goldman Sachs Responds To Allegations 

Amid the investigations, a representative from Goldman Sachs responded to the allegations by stating that the bank had explicitly notified SVB in writing that it would not serve as their advisor for the sale. They further advised SVB to seek the services of a third-party financial advisor, emphasizing that SVB should not rely on any advice provided by Goldman Sachs in this matter.

Goldman Sachs has confirmed its cooperation with various governmental bodies involved in investigating SVB, including sharing information in relation to their inquiries and investigations into the bank’s business activities with SVB in or around March 2023. The bank’s statement suggests a willingness to collaborate and provide relevant details to assist the ongoing investigations.

Silicon Valley Bank’s Closure And Bankruptcy Filing

On March 10, Silicon Valley Bank faced an unprecedented closure enforced by California regulators. The bank was renowned for its services to venture capital firms and tech companies. It was also a lifeline for cryptocurrency firms, and held a prominent position as the 16th largest bank in the United States, with assets exceeding $212 billion. The sudden SVB collapse sent shockwaves through the financial and crypto sector.

Subsequently, on March 17, SVB Financial Group made the decision to file for Chapter 11 bankruptcy protection. The voluntary petition sought the court’s supervision in facilitating a reorganization process intended to preserve the company’s value amidst its financial turmoil and challenges.

Goldman Sachs’ And SVB’s Involvement With Crypto

Goldman Sachs intends to invest tens of millions of dollars in cryptocurrency businesses. The bank takes advantage of the recent banking industry crisis as it perceives a growing demand for dependable players in the market. This financial behemoth now has investments in 11 firms that deal in crypto assets.

Silicon Valley Bank, for its part, was one of the only institutions in the US supplying services to crypto firms, while other banks avoided the industry out of concern of risk and a rapid regulatory crackdown. The bank’s collapse is the largest since the 2008 financial crisis.

Featured image from Divulgação