The executive teams of Silicon Valley Bank (SVB) and Signature Bank are now facing lawsuits by investors, after both banks succumbed to bank runs and subsequent collapse last week.
SVB was shuttered on March 10 and subsequently on March 13 was transferred via the FDIC to Silicon Valley Bridge Bank. The FDIC, which took over Signature Bank on March 10, will be receiving bids from potential acquirers through Friday, March 17.
CFO Daniel Beck of SVB and CFO Stephen Wyremski of Signature bank are both named in the respective lawsuits filed against parent company SVB Financial Group and Signature Bank. The suits were filed in U.S. district court for the Northern district of California and Eastern District of New York, respectively. The Rosen Law firm, a notable investor rights law firm, has taken on both cases to represent the plaintiffs.
In the U.S.’s biggest bank collapses since the FDIC’s takeover of Washington Mutual in 2008, these cases have new information, processes, and precedent for consideration since the last collapses at this scale took place.
These investor lawsuits are presumed to be the first of many cases filed against both institutions, given the size of losses the banks have incurred. In the collapse of just these two institutions, $319B in combined assets failed. By contrast, 2008’s entire run of bank failures saw a combined asset loss of $373B.
Silicon Valley Bank
Investors accuse the firm not only of being aware of SVB's susceptibility of a bank run due to rising interest rates, but that the bank actively concealed it. The lawsuit, led by shareholder Chandra Vanipenta, specifically accuses SVB and its executives of failing to reveal the consequences a continually hawkish fed would have on their balance sheet and ability to stay solvent.
“[SVB] understated the risks posed to the company by not disclosing that likely interest rate hikes, as outlined by the Fed, had the potential to cause irrevocable damage to the company,” the lawsuit states.
Investors seek an unspecified amount of damages for those who invested in SVB shares between June 16, 2022, and the FDIC closing the bank last week. CEO Greg Becker, a 15 year veteran of the company, and Beck, who worked at Washington Mutual as a finance and home equity controller during its 2008 collapse, sold over $4M dollars in shares just weeks before SVB’s failure.
After Signature Bank, the country’s 30th largest financial institution by assets, collapsed on Monday, some have blamed the bank’s insolvency on ripples from SVB’s collapse. On top of both institutions ultimately failing to meet withdrawal demands of account holders, Signature Bank also had large amounts of deposits outside FDIC insured limits, increasing the likelihood depositors would withdraw funds quickly if the bank had financial troubles.
Wyremski, alongside CEO Joseph DePaolo and chief operating officer Eric Howell, have been named in the putative class action lawsuit led by plaintiff and shareholder, Matthew Schaeffer. The complaint, which stems from a press release earlier this month in which the company claimed they were doing well, claims shareholders were misled.
“The March 9 update overstated the Company’s market position, given that just a few days later, it was shut down by the New York Department of Financial Services,” the lawsuit says.
As a stipulation to Signature Bank’s FDIC takeover, regulators have said that any potential purchasers of Signature Bank must give up all crypto dealings in order to qualify for a takeover — a move in which some executives in the space have described as a coordinated effort by regulators to choke the crypto industry off from the banking system. Much like SVB, Signature Bank did significant amounts of business in the technology and cryptocurrency space and was heavily invested in both industries.