Signature Bank Insiders Sold $100M in Stock During Crypto Surge

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Kraken’s new CEO, Dave Ripley, reacts to reports that the FDIC is requiring any buyer of the closed Signature Bank to abandon all cryptocurrency activity on “The Claman Countdown”.

According to a Wall Street Journal analysis, insiders of collapsed Signature Bank sold more than $100 million worth of stock in the years after the bank pivoted to lure cryptocurrency companies and become a stock market darling.

Sales over the past three years by the bank’s president, his former chief executive and his successor accounted for about half of the amount sold, according to the Journal’s analysis of company filings. All three have served on the board committee responsible for overseeing the bank’s risk profile for the past year.

Insider trading at Signature was not widely known due to where it was filed and how the trading was described in the documents.

A worker arrives at Signature Bank headquarters in New York, U.S., March 12, 2023. (REUTERS/Eduardo Munoz/Reuters Photos)

New York regulators placed Signature in receivership on March 12 after it had “a crisis of confidence in the management team” during a run on its deposits triggered by the collapses of SVB Financial Group, the parent company. Silicon Valley Bank, and Silvergate Bank a few days earlier. SVB and Signature were the second and third largest bank failures in U.S. history, respectively, after Washington Mutual.

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Signature Bank did not respond to a request for comment. New York Community Bancorp’s Flagstar Bank, which will assume all of Signature Bank’s cash deposits, had no comment.

It was a steep and sudden downfall for Signature, a nearly 22-year-old bank that was one of the few lenders to embrace the cryptocurrency industry. The sector’s cash helped push deposits up 68% in 2021 and launch the bank’s shares to a 140% gain that year. Insiders raked in $70 million from stock sales that year, selling twice as many shares as in 2020.

A woman leaves a branch of Signature Bank in New York, Monday, March 13, 2023. New York Community Bank has agreed to buy a large share of bankrupt Signature Bank in a $2.7 billion deal of dollars, said the Federal Deposit Insurance Corp. Sunday, M (AP Photo/Seth Wenig/AP Newsroom)

The executives sold many of their 2021 shares in the spring at around $220. The stock has continued to rise throughout the year, reaching an all-time high of $366 in early 2022.

At a hearing last week, members of the Senate Banking Committee criticized bank executives, saying they had sat back while their banks’ risks grew unchecked.

Karen Petrou, managing partner at banking advisory firm Federal Financial Analytics, said in an interview that someone at the bank should have called for a break and asked, “Do we have the right kind of brakes for this speed? direct the car to us?”

At Signature, the executives tasked with overseeing the bank’s risk were also champions of its courting of the crypto industry. This strategy focused on an internal payment platform called Signet, used by crypto companies to manage their cash. Signature did not hold or loan cryptocurrency itself.

Chairman Scott Shay called himself a “crypto enthusiast” at a conference in 2022. It was Mr. Shay who had sketched by hand the initial idea for Signet on a piece of paper he kept framed in his office.

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Mr. Shay also chaired the risk committee of the bank’s board of directors. He sold $5.4 million worth of stock in 2021, according to bank disclosures. He sold almost none in 2020 or 2022. He also bought $1.5 million worth of stock in those three years, and about $644,000 in 2023, before the bank collapsed, according to revelations.

Joseph DePaolo, the bank’s chief executive, and Eric Howell, its chief operating officer, who joined the board and risk committee last April, joined Mr. Shay on the bank’s risk committee. bank. Mr. DePaolo sold $13.9 million worth of stock in 2021, according to the disclosures. Mr. Howell sold $14.9 million that year, according to the disclosures. MM. DePaolo and Howell sold an additional $9.2 million worth of stock between them in March 2022, according to the disclosures.

A branch of Signature Bank is pictured, late Sunday, March 12, 2023, in New York. New York Community Bank has agreed to buy a sizable share of bankrupt Signature Bank in a $2.7 billion deal, Federal Deposit Insurance Corp. Su said (AP Photo/Bobby Caina Calvan/AP Newsroom)

From 2004 to 2019, Mr. DePaolo sold shares most years around the same time, grossing around $39 million. Mr. Howell sold about $23 million worth of stock over the same period.

The three men have advocated doing business with cryptocurrency companies and investors, according to speeches and other statements they made. At a conference in 2021, DePaolo raised the possibility of the bank lending against crypto assets, an idea that was later scrapped.

The three had been with the bank since its launch in 2001 and suffered heavy losses on their shares when the bank collapsed. On the last business day before it closed, Mr. Shay’s stake was worth $35 million, Mr. DePaolo’s was worth about $15 million and Mr. Howell’s was about $3 million, according to filings. by the company and the closing prices of the shares on the last day before the bank closes. grasped.

Mr. Howell, Mr. Shay and Mr. DePaolo declined to comment.

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The extent of the executive sales was difficult to determine in part because Signature filed the paperwork with the Federal Deposit Insurance Corporation, rather than the Securities and Exchange Commission, which is typical for companies of its size.

Most banks of this size have their securities regulated by the SEC and file their forms there.

Signature was one of only two S&P 500 companies that did not file insider trades with the SEC. The other was First Republic Bank, which was rescued with a $30 billion deposit by a group of big banks.

Filings with the FDIC generally escape the notice of investors and services that track insider trading, according to professors who have studied the disclosures. The FDIC website hosting the filings allows viewing of only one filing at a time.

The bank also appeared to incorrectly categorize some of its FDIC filings as company assignments, meaning the shares were sold to the company, rather than open market sales. It’s unclear why the selloffs were described this way, but the upshot is that they went undetected by websites that track insider selling for investors. Investors watch these sites closely for insight into executives’ opinions on the prospects of their companies.

Alan L. Dye, an attorney at Hogan Lovells and co-author of a book on corporate insider disclosure rules, reviewed a cross-section of documents filed by Signature. He said he believed the reports did not follow instructions on the forms or the position of SEC staff on how they should be completed.

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“At a minimum, the information they report, including footnotes, makes it difficult to determine the nature of the transactions,” he said.

Signature’s crypto betting took a turn for the worse in 2022 as some cryptocurrencies imploded and the price of bitcoin crashed. The company’s shares were dragged with it, falling 64% on the year, while the bank’s deposits were down 17%. Signature’s price decline far outpaced the SPDR S&P Regional Banking ETF’s 15% decline over the same period. Signature Bank’s risk committee met four times in 2022, according to a company filing with the FDIC.

In December, Signature announced that it planned to significantly reduce its exposure to the crypto industry. The bank had already lost billions of dollars in crypto-related deposits, bank executives said. In February, the bank announced that Mr. DePaolo would step down as president and chief executive officer of the bank. Mr. Howell was named his successor.

Signature did not have the balance sheet losses that other troubled banks faced, but about 90% of its deposits were not FDIC-insured, meaning customers were incentivized to flee. The crypto meltdown that began late last year has shaken confidence in the lender. The demise of Silvergate Capital Corp., another bank that had bet on crypto, and the seizure of Silicon Valley Bank came before Signature’s collapse.

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Signature executives continued to support the bank. Silvergate collapsed on March 8. That day and the next, Mr. Howell purchased approximately $960,000 worth of Signature preferred stock.

On Friday March 10, regulators announced they were closing SVB. Signature customers withdrew $18 billion from the bank, or about 20% of the lender’s total deposits. On the same day, Mr. Shay bought about $414,000 worth of shares, according to a filing.

Over the following weekend, withdrawal requests continued to pile up as the bank looked for a buyer or a capital injection. In the early evening of Sunday, March 12, New York regulators said they were shutting down the bank and fired its senior management. Shareholders, like executives, were wiped out.

During the Senate hearing, Martin Gruenberg, chairman of the FDIC board, told the committee that the agency was conducting a required investigation of directors and officers of banks for their management and conduct that could result in civil monetary penalties, restitution or professional penalties. prohibitions. Bank executives declined to comment.

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