​Signature Bank employees caught in insider trading for $100 million

What’s new? Insiders at bankrupt Signature Bank sold more than $100 million worth of stock after the bank focused on servicing cryptocurrency companies. About half of the shares sold over the past three years came from the bank’s chairman, former chief executive, and his successor, who also served on the committee that oversees risk. Reporters at The Wall Street Journal reported this, citing internal bank documents.

Material on the WSJ website

Details on the transactions. Signature’s volume of deposits increased by 68% in 2021, and the value of its shares rose by 140% over the same period. Meanwhile, insiders sold twice as many shares as they did in 2020, generating about $70 million. Some were sold in the spring of 2021 at about $220 apiece.

According to the WSJ, Signature Chairman Scott Shay sold $5,4 million worth of stock in 2021, chief executive Joseph DePaolo sold $13,9 million, and COO Eric Howell sold $14,9 million. In March 2022, DePaolo and Howell raised another $9,2 million from the sale of securities.

All three had worked at Signature since its founding in 2001, supported doing business with cryptocurrency companies, and faced significant losses on their securities after the bank went bankrupt. Shay described himself as a crypto enthusiast and was one of the authors of Signet, an internal payment platform, which was used by crypto companies to manage their funds. Shay, DePaolo and Howell’s stakes in Signature were $35 million, $15 million, and $3 million, respectively, at the time of its closing.

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The extent of the bank executives’ stock sales was difficult to determine in part because Signature had a special reporting form to the Federal Deposit Insurance Corporation (FDIC) rather than the Securities and Exchange Commission (SEC). That said, Signature was one of only two institutions in the S&P 500 that did not file insider transaction data with the SEC. The other was First Republic Bank, which was bailed out by a group of big banks with $30 billion.

Documents filed with the FDIC usually go unnoticed by investors and the services that track insider transactions. In addition, it turned out that the bank had misclassified some of the documents as sales of the company. It is unclear why the transactions were described that way, but as a result, they did not make it onto sites that track insider sales for investors.

Signature was closed by order of the New York State Department of Financial Services (NYDFS) on March 12 due to a loss of confidence in management. And on March 23 the FDIC sold it to Flagstar Bank, excluding the cryptocurrency part of the business. At the time, deposits in digital assets were valued at $4 billion. The FDIC will forcibly close the crypto deposits of Signature customers after April 5. The regulator’s plans for the Signet payment network have not yet been announced.

FDIC chairman Martin Gruenberg later announced an investigation into top executives at Signature and other collapsed banks, which could result in fines and bans from certain positions.