Silicon Valley Bank execs' insider trading

Avoid insider trading allegations with this one weird trick.

Silicon Valley Bank execs' insider trading

Silicon Valley Bank went bust.

The CEO and CFO sold around $4M worth of stock two weeks prior.

$4M isn't that crazy a number, but that was 11% of the CEO's holdings, and 32% of the CFO's holdings.

Obviously, angry citizens of the internet crawled out of their caves to shun this insider trading.

But the angry citizens don't realise there's this thing called pre-scheduled stock sale plans, which executives often use to avoid insider trading allegations. And that's exactly what the execs did.

It works like this: An exec has to specify in advance how many stocks they want to sell, and at what price, and on what far-away future date. This means they won't have insider knowledge, because nobody can see the future. It's called a 10b5-1 plan.

... or that's what I thought.

I took a deeper look into the SEC filings and compiled this complex timeline:

  • January 26 - CFO and CEO enter into 10b5-1 trading plans.
  • February 27 - they dump a bunch of shares. (CEO sauce, CFO sauce)
  • March 10 - the bank is pronounced dead.

If that ain't insider trading, I don't know what is.

So... pre-scheduled isn't really that pre-scheduled?

Uh, yeah, so here's the thing. The law Investopedia says:

Rule 10b5-1 permits major holders to sell a predetermined number of shares at a predetermined time.

A predetermined time.


One would THINK that means it has to be at some point in the not-so-imminent future, no?

Yeah, nah.

As I have discovered, there were no laws around how far in advance that had to be. Legally, theoretically, you could enter a 10b5-1 plan for the next day if you really wanted to. It would be called ✨ predetermined ✨.

In practice, many issuers imposed their own 30-day minimum waiting periods.

And guess how long it was between Silicon Valley Banks CEO and CFO entering their 10b5-1 trading plans and selling their stock? 30 days.

So I guess their issuer had that 30-day period imposed.

Wait really? Surely the law is not that rubbish?

Okay, I lied. Kind of.

The good news is there is a mandatory waiting period between setting up a trading plan and selling stocks.

That is to say, there's a mandatory waiting period now. It came into effect on Feb 27, 2023, which happened to be after the Silicon Valley Bank execs sold their shares.

There's a period of 90 days imposed by law now. More nuance here.

Will they get done for insider trading?

I don't know.

Should they? I don't know.

They must've known the bank was in pretty deep trouble. But it's not insider trading if the public knows that too, and maybe the public knew that too.

What I care about is getting more knowledge about how players in the market act. More knowledge about how the world works == more trading knowledge.  

Maybe a bank CFO selling one third of their stock will be a bigger tip off next time, and I'll be buying some Puts, or at least sitting on the sidelines with 🍿.