SVB: Shareholders sue Silicon Valley Bank parent, CEO, and CFO for fraud

The lawsuit is the first among many that can be filed over the collapse of the bank and takes on Silicon Valley Bank's parent company, CEO Greg Becker, and CFO Daniel Beck

As the effects of the demise of Silicon Valley Bank (SVB) continue to ripple through the tech start-up world, in the most recent development, shareholders have brought suit against the SVB financial group and top executives of the bank for not revealing how the rise in interest rates could impact the bank’s business which made it susceptible to a bank run.

The lawsuit is the first among many that can be filed over the collapse of the bank and takes on Silicon Valley Bank’s parent company, Chief Executive Greg Becker, and Chief Financial Officer Daniel Beck. The class action suit has been filed in the federal court in San Jose, California. 

Considered the largest downfall of a financial institution since the failure of Washington Mutual in 2008, SVB’s disclosure of a $1.8 billion after-tax loss from investment sales took the market by surprise, further aggravated by its plans to raise capital to shore up the firm’s balance sheet and meet its redemption requests. 

The bank reportedly had an estimated $209 billion of assets and lost nearly $42 billion out of its deposits worth $175 billion. The failure has been attributed to the pruning of HTM securities held by SVB, as the Federal Reserve aggressively increased the yield rates and the inability to keep up with the bank withdrawals by clients. 

According to Monday’s lawsuit filed against SVB financial group CEO and SVB financial group CFO, the bank failed to “disclose how rising interest rates would undermine its business model, and leave it worse off than banks with different client bases”, Reuters reported. The legal proceeding seeks unspecified damages for SVB investors between June 16, 2021, and March 10, 2023. 

The second bank to collapse after Silvergate, subsequently followed by the fall of Signature Bank, has exposed vulnerabilities of the entire banking system and has sparked fears amongst lenders who also cater to start-ups, venture capital-backed economies and other regional banks. The series of falls has brought to spotlight the over-dependency on a single mid-sized bank for functioning. On March 13, HSBC acquired SVB’s UK arm for 1 pound. Start-up Otta CEO Sam Franklin confirmed the company’s continual services with the UK’s subsidiary and planned to add accounts to more banks.