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Comment by hn_throwaway_99 | Hacker News Reader

Wow, how prescient. Articles like this are especially damning to the execs that sold stocks just a few weeks ago. This was not some huge surprise. They may not have anticipated the ferocity with which there would be a run on the bank, but they absolutely knew they were in deep shit and would need to do a capital raise. And I hope nobody tries to defend this with "those stock sales were from 10b5-1 plans!". Those can easily be gamed by execs waiting to release bad news until after their sales go through, or by cancelling sales if things look good for the future (courts have said you can't be charged with insider trading for not selling shares, which means you can basically just set up 10b5-1 plans but cancel them as needed based on your insider knowledge).

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> They may not have anticipated the ferocity with which there would be a run on the bank

Bank runs are pretty much always ferocious because 1) that's what a run is, rather some euphemism for the prelude like "temporary liquidity processing anomaly" and 2) they're positive feedback loops that end up ferocious as soon as someone responding to the "TLPA" gets noticed by someone else.

A more charitable interpretation of what the OP is saying: the execs may not have anticipated how fast the shit would hit the fan. I doubt they believed there would be a run on the bank this month, not even the short sellers were predicting that. They did know they were in trouble, but I think everyone, even those being against SVB, was surprised by the speed and ferocity with which this played out.

You might be validly surprised by the short time between "uh.." and a full-on run, but the run itself is no more ferocious than people responsible for avoiding one should have been thinking of.

It's like a airline blaming the ground for being unexpectedly hard and the crash happening so soon and it's not their fault why there were no survivors and not because of the deferred maintenance of the aircraft under a loophole in the FAA regulations.

That's true, though most bank failures aren't bank runs. IDK if there's been a bona fide bank run in the U.S. since the 1930s.

The reason this was a bank run is that FDIC insurance meant approximately nothing, as opposed the the usual situation where a huge amount of depositors are fully insured.

> Articles like this are especially damning to the execs that sold stocks just a few weeks ago.

You mean the reverse, right?

You can't insider trade if it's not insider information!

This article supports the execs, not damns them.

No. Because a short seller speculates the bank is in trouble doesn't mean it gives execs carte blanche to sell their stock.

The "inside information" piece is exactly when SVB would need to do a highly risky capital raise, which SVB did (or tried to do) conveniently 2 weeks after the CEO sold millions.

Yes, the timing of the sale and raise it suspicious.

The existence of the article only hurts and not helps the insider trading accusation.

At least so far the story is that SVB got in trouble because it invested in bonds that went down in value, not because of its loan portfolio. We’ll see if that is true or the whole story, but if it is true, the scenario is entirely different from what that article is suggesting.

> ... entirely different ...

The article nailed the "unrealized losses in its htm (hold to maturity) fixed income portfolio", and it nailed the risk of deposit bleeds forcing liquidation of the htm assets, realizing the unrealized losses, leading to insolvency.

their AAA bond assets suffered big losses, but their loan assets are even worse. there is a big PR effort to focus on the bond losses, but the real shit is the 10's of billions in loans to companies that will never make a profit, and the systemic contagion risk that entails. they lost 15% on 100B of their book, but they are going to lose 100% on 10's of billions (unknown) from the other half of their book.

if all of their assets were AAA and they were only down 15% they wouldnt be a failed bank right now. nobody knows how big the losses really are, but the people they were in business with knew best, and those people pulled their money as fast as they could, so everyone else can make assumptions based on that.

Who got hurt by execs selling stock into the market? Hopefully sophisticated investors who should’ve known better. For over a year there were indicators SVB was not healthy.

“We are selling to willing buyers at the current fair market price.”

Edit: if you don’t like the 10b5-1 rules as they stand, feel free to submit a comment to Gensler and Co at the SEC. If you can’t trade on positive material non public information, why would you expect them to trade on negative MNPI? Follow the rules and what is least likely to cause you to end up in handcuffs or in front of Congress. That is a logical and rational decision.

>Hopefully sophisticated investors who should’ve known better.

You mean like your retirement fund manager?

“Sophisticated” doing a lot of lifting in this case. Very aspirational. If you’re buying single named securities without any due diligence, you deserve the returns you encounter. That’s your job!

No one index investing is going to feel this in a material capacity. Depositors will be made “whole enough”, and an irresponsible bank got blown out and dismantled. The system worked. If there was fraud, regardless of criminal and/or civil, prosecute those responsible.

When you say "the system worked" because depositors will get back some as-yet-undetermined percentage of their deposits, that's not relevant to an insider trading discussion -- that's shifting the topic from whether investors in SVB were harmed, to whether depositors were harmed.

I don't quite understand your position on insider trading. The idea behind making it a crime is that no matter how "sophisticated" an outsider is, they don't have insiders' non-public information. Insiders can profit from the information gap between them and the people they sell their shares to. There's certainly disagreement about how to ban insider trading while making it possible for officers of the company to trade at all, but the basis of the law is that no amount of due diligence can undo that imbalance in information.

It sounds like you're saying that one might decide, as an individual, that the system is unfair or imperfect or corrupt, and decide to diversify. That's probably good advice. But that is a practical measure that doesn't really address the problem being discussed.

Please explain what action could’ve been taken. Cancelling the 10b5-1 scheduled sale of securities based on material non public “inside” information?

>No one index investing is going to feel this in a material capacity.

Over what timeframe are you making this claim? A week? A year? 10?

The entire index dropped, driven by a selloff in the Financial Services sector after FDIC placed them on the failed bank list, so in effect it has already affected the index.

If you are investing in actively managed funds, then you chose that agency risk.

“Even though we have insider knowledge that indicates it’s worth less than market and quite possibly nothing at all.”

> “We are selling to willing buyers at the current fair market price.”

A line from the really good movie Margin Call:

* https://en.wikipedia.org/wiki/Margin_Call

Worth checking out.

In my opinion, it’s the best movie ever about finance, and it’s not even close.

It really is. Above referenced scene: https://www.youtube.com/watch?v=ag14Ao_xO4c

"It's not a panic if you're the first one out the door."

Another great quote from Margin Call. Love every bit of that movie. Very underrated too, as it was (unfairly) overshadowed by The Big Short.

> Edit: if you don’t like the 10b5-1 rules as they stand, feel free to submit a comment to Gensler and Co at the SEC.

The SEC already tried this. Courts have ruled that you can't be charged with insider trading for not executing a trade, but the end result is the same: just set up plans that you cancel if you don't want them to trade. Can't remember the name of the court case but shouldn't be too hard to find by Googling. SEC has tried to tighten the rules by requiring that cancellation of any trade cancels the whole plan, but their hands are also tied based on court rulings.

Well, in case of those SVB execs we talk potential insider trading. Margin Call is fiction, and MBSs or MBS based CDOs are not shares in the company you run.

> If you can’t trade on positive material non public information,

In America you can, if you're not an insider and didn't get the information from an insider in violation of their duty of trust. For instance, it is legal for a trader to use satellite LIDAR/SAR data to estimate the fill level of oil storage tanks and trade on that obviously material non-public data.

We don't need to assume the execs knew their held to maturity MBS scheme would blow up when they are selling weeks before announcing a loss (which they would definitely be acutely aware of).

If they're regularly selling securities, there is no good time to make the announcement

The executive stock sales were only for a few million dollars, and a relatively minor percentage of their holdings. I doubt there will be any criminal charges.

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