Human Capital & Careers

Bank Reports Client Backdating Risks

Many of SVB's borrowers could become mired in the scandal, the lender acknowledged.
Stephen TaubNovember 13, 2006

A leading lender to venture capital-backed technology companies has warned investors that it is vulnerable to the risk that some of its client-borrowers might become ensnared in the backdating scandal.

In a regulatory filing last week, Santa Clara, Calif.-based SVB Financial Group, which operates as a bank holding company for the Silicon Valley Bank, acknowledged that it is concerned about the number of media reports and regulatory probes questioning public company stock option practices.

The bank noted that many of its client borrowers use stock options in their employee compensation packages and therefore risk mishaps related to the grants. As a result, SVB warned, any rise in lawsuits, investigations, or other regulatory actions that hurt companies that grant options, or that adversely affect the technology sector more generally, could hit its client borrowers. And that could result “in a material adverse impact on our results of operations.”

The company did not provide further details about specific clients or potential liability. SVB accounts for about half of the U.S. market for lending to venture capital-backed technology and life sciences companies, according to the Financial Times.

SVB also acknowledged that in light of the scandal, the company voluntarily has launched its own internal review of its historical stock option grant activities and their accounting treatment. No results of the review are yet available.