Investors at Silicon Valley Bank have filed a lawsuit against management over their role in the bank’s sudden collapse. This lawsuit may not be the last.
This is the first, but probably not the last.
On March 13, he issued a statement to the chief executives of Silicon Valley Bank, in particular CEO Greg Becker and Chief Financial Officer Daniel Beck, saying, “Dissemination of false and misleading statements or information A lawsuit was filed as Balance sheet of a bankrupt bank.
The lawsuit is also directed against all managers who were “directly involved in the day-to-day operations of the company at the highest level and who were involved in sensitive confidential information regarding the company and its business and operations.” 17 page lawsuit Reviewed by TheStreet.
The plaintiff also attacks the bank itself.
Lawsuit alleges ‘misleading statements’
Plaintiff Chandra Vanipenta accused SVB executives. (SIVBMore)- Get Free ReportFailure to mention the risk of rising interest rates federal reserve (Federal Reserve Board) has a portfolio of securities. The bank was forced to sell he was closed on March 10 by regulators after depositors rushed to withdraw their funds. government bonds at a discount.
Vanipenta said Fed Chairman Jay Powell hinted at upcoming changes in a speech on June 16, 2021, so banks will reference these risks in all financial statements related to their second quarter 2021 results. I argue that I should have.of Financial policy.
“Despite suggesting that the Fed may hike interest rates in the future, the second-quarter 2021 report failed to disclose the risks that future rate hikes pose to the company’s business, suggesting that the I was prepared to do so if I had to. inflation‘, the plaintiff argued in the lawsuit.[t]There have been no material changes to the risk factors described in the 2020 Annual Report on Form 10-K. ”
The company repeated the same sentence in various results publications and regulatory filings that lasted until March 8, 2023, plaintiffs alleged.
“Defendants have made and/or failed to disclose false and/or misleading statements. The company has failed to disclose to investors the risks posed by the imminent interest rate rise.” “The company failed to disclose to investors that in a high-interest-rate environment, technology startups and venture-backed companies would be at a disadvantage over banks that were not prepared,” the lawsuit said.
“The company did not disclose that it would be particularly sensitive if its investments were adversely affected by rising interest rates. bank runas a result, defendants’ public statements were substantially false and/or misleading at all relevant times. ”
SVB did not immediately respond to a request for comment.
Seeking Class Action Certification
Founded in 1983, Silicon Valley Bank has positioned itself as a “partner in the innovation economy”, offering higher deposit rates than its larger rivals to attract customers. The firm then invested client funds in long-term government bonds. Mortgage bonds with strong returns.
This strategy has worked well in recent years. Bank deposits doubled from $49 billion in 2018 to $102 billion at the end of 2020. In 2021, deposits he increased to $189.2 billion.
But when the Fed started raising rates, everything turned upside down and the SVB’s existing bond holdings fell in value. As a result, banks had to sell bonds at discounted prices to cover withdrawals from customers. In selling these bond positions, SVB had to suffer a hefty $1.8 billion loss.
Due to this loss, SVB suddenly announced that it would need to raise $2.25 billion in additional capital by issuing new common and convertible preferred shares. The decision caused the bank to panic and go on a run.
About $42 billion in deposits had been withdrawn by the end of March 9, according to regulatory filings. By the close of business that day, SVB said he had a negative cash balance of $958 million, according to filings.
“During the course of the class action, the Company and the individual defendants, individually, jointly, directly or indirectly, disseminated or endorsed the false statements specified above, including but not limited to It was either knowingly or willfully ignoring that it was misleading in that it failed to disclose the facts necessary to make a statement,” plaintiffs argued.
According to the lawsuit, the alleged “misrepresentations” and “omissions” tend to “lead reasonable investors to misjudge the value of the company’s securities.”
As a result, plaintiffs want the lawsuit to turn into a class action lawsuit and go to trial.
It is seeking damages and attorney’s fees.
The action was filed in the United States District Court for the Northern District of California by plaintiffs’ attorneys, Rosen Law Firm.
https://www.thestreet.com/banking/svb-collapse-the-ceo-and-other-top-executives-hit-by-first-lawsuit SVB Collapse: First Lawsuit Hits CEO and Other Executives