Fed, SEC investigate Goldman Sachs over Silicon Valley Bank’s securities portfolio: Report

Federal Reserve and SEC Investigating Goldman Sachs

Goldman Sachs is reportedly under the microscope of the Federal Reserve and Securities and Exchange Commission (SEC) due to its involvement in the acquisition of Silicon Valley Bank’s securities portfolio prior to the bank’s failure, as per sources familiar with the situation, The Wall Street Journal has stated.

As per the report, both organizations are examining Goldman Sachs’ behavior during its unsuccessful capital raise prior to the downfall of SVB. Moreover, it is said that the Department of Justice has also served a subpoena to Goldman Sachs as part of its inquiry into SVB.

Insiders have purportedly stated that the Federal Reserve and SEC are particularly keen on obtaining records concerning Goldman Sachs’ double purpose as purchaser of SVB’s securities portfolio and the consultant for the bank’s capital raise. The organizations are allegedly probing if there were any unlawful communications between Goldman’s investment banking department and its trading department in connection with the sale of the portfolio.

In response, Goldman has stated that it is assisting and providing information to various governmental entities in relation to their investigations and inquiries concerning SVB, including the firm’s dealings with SVB in or around March 2023.

Silicon Valley Bank’s Failure and Bankruptcy Protection

In the period prior to SVB’s downfall, Goldman Sachs was said to be recruited to help the bank in securing funds. At the same time, its trading arm acquired SVB’s portfolio of $21 billion worth of available-for-sale debt securities, at a reduced price. According to the Wall Street Journal, bankers and financial lawyers are of the opinion that it is unusual for banks to act both as advisors and purchasers of a company’s assets, except in times of financial hardship.

Sources close to the situation have reportedly revealed that Goldman Sachs recommended to SVB’s executives that they “partially or entirely divest their securities portfolio” to demonstrate the necessity of additional capital. This suggestion was once again highlighted by Greg Becker, SVB’s ex-CEO, when he gave evidence to the Senate Banking Committee.

In reply to the accusations, a representative from Goldman Sachs declared that:

Powell states that the Federal Reserve is perplexed by the downfall of SVB, asking “How did this happen?”

On the 10th of March, California regulators took the extraordinary action of shutting down Silicon Valley Bank, a well-known lender to venture capital firms and technology companies. Before its closure, SVB ranked as the 16th largest bank in the United States, with assets exceeding $212 billion.

On March 17, SVB Financial Group submitted a voluntary petition to the United States Bankruptcy Court to file for Chapter 11 bankruptcy protection in order to initiate a court-supervised reorganization process to safeguard the company’s worth.

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