SVB Shareholder Files First Lawsuit Against Bank Executives Over Historic Collapse

Topline

A Silicon Valley Bank shareholder filed a lawsuit Monday against the financial firm just days after it collapsed in the biggest bank failure since 2008, marking the first of what will likely be a string of lawsuits against the bank and its top executives for their roles in its collapse.

A security guard looks out a door as customers line up at Silicon Valley Bank headquarters in Santa … [+] Clara, California, on Monday. (Photo by NOAH BERGER/AFP via Getty Images)

AFP via Getty Images

Key Facts

The suit was filed by a shareholder named Chandra Vanipenta, but it seeks class-action status for shareholders, naming the bank itself, CEO Greg Becker and CFO Daniel Beck as defendants.

The plaintiff argues the executives failed to disclose how rising interest rates would impact the bank’s business, claiming it was in a “particularly susceptible” position for a bank run after continually issuing reports suggesting the Federal Reserve’s rate hikes over the last year were not cause for concern.

Doing so meant the executives and the company managed to “artificially” inflate the stock price, the suit alleges.

The Federal Deposit Insurance Corporation fired Becker and Beck after the bank collapsed.

The suit identifies shareholders who acquired SVB stock at any point between June 16, 2021 and Friday as eligible class members, as the 2021 date marked Federal Reserve Chairman Jerome Powell’s first public indication the Fed was planning to raise interest rates in an effort to cool inflation.

SVB did not immediately respond to a request for comment from Forbes.

Crucial Quote

“Had Plaintiff and the other members of the Class been aware that the market price of the Company’s securities had been artificially and falsely inflated by the Company’s and the Individual Defendants’ misleading statements … they would not have purchased the Company’s securities at the artificially inflated prices that they did, or at all,” the suit says.

What We Don’t Know

The exact number of potential class members is unclear, as the lawsuit notes: “The members of the Class are so numerous that joinder of all members is impracticable.”

Key Background

SVB’s stock collapsed more than 60% Thursday after the company announced it sold $21 billion in securities at a $1.8 billion loss and planned to sell off additional stock to raise capital—suggesting liquidity issues. Venture capital funds then urged SVB clients to pull money out of the bank, further straining the company that relied on funding startups as its business model. The sudden collapse has been linked to the Fed’s push to stem inflation by raising interest rates: Clients deposited hundreds of billions of dollars into the bank over the past few years, which SVB then invested in mortgage-backed securities and U.S. Treasuries that lost value when interest rates went up. Higher interest rates also caused more SVB’s tech clients to withdraw funds as startup funding grew scarce. The federal government took control of the bank Friday, and the Treasury Department has said SVB clients should have access to their full funds on Monday—beyond the typical $250,000 threshold the FDIC protects—though shareholders will not be able to recoup what they held in SVB stock.

Tangent

SVB’s failure caused stock crashes at similar regional banks over concerns they might suffer a similar fate. Cryptocurrency-focused Signature Bank failed on Sunday after customers withdrew funds en masse Friday. The New York-based regional bank had been in business for 23 years. And First Republic Bank’s share price has plummeted more than 50% Monday.