Signature Bank and three of its former top executives have been hit with a proposed class-action lawsuit alleging that the bank fraudulently portrayed itself as financially sound just three days before a state regulator seized it. The lawsuit has been filed by shareholders seeking unspecified damages for those who held shares between March 2 and 12, when New York’s Department of Financial Services took over Signature. The bank did not immediately respond to requests for comment.
The lawsuit targets Signature’s former CEO, Joseph DePaolo, former CFO, Stephen Wyremski, and former COO Eric Howell. The case has been filed in federal court in Brooklyn. The plaintiffs claim that Signature Bank made false or misleading statements about its financial health to quell fears sparked by the troubles at Silicon Valley Bank, which the Federal Deposit Insurance Corp seized two days before Signature.
The lawsuit argues that Signature had been “susceptible to a takeover” and that the bank hid this fact from its shareholders. The plaintiffs allege that the bank’s statements, including those that could meet “all client needs” and had sufficient capital and liquidity, were misleading. They also accuse the bank of making these statements to protect its market value, around $6.5 billion, before its collapse.
Signature Bank was founded in 1999 and specializes in real estate lending. It provided services to law firms and made a push for cryptocurrency deposits in recent years. Former U.S. President Donald Trump was a client until 2021. The bank ended 2022 with $110.4 billion in assets and $88.6 billion in deposits. It is the second-largest U.S. bank to fail since 2008, with Silicon Valley Bank being the largest.
Ready to make a change in your legal career? BCG Attorney Search can help you find the perfect job.
The same law firm filed the lawsuit that sued Silicon Valley Bank’s parent, SVB Financial Group, and its CEO and CFO on Monday. In response to the troubles at both banks, U.S. regulators have decided to make depositors whole regardless of how much they held in their accounts. However, shareholders would receive no protections.
The move by regulators aims to protect the U.S. economy by strengthening public confidence in banking. However, it is unlikely to offer much consolation to the plaintiffs, who seek damages for their losses due to the bank’s alleged fraudulent actions.
Financial institutions have recently faced increasing scrutiny from regulators and shareholders alike, with many investors demanding greater transparency and accountability from banks. The rise of cryptocurrency and other innovative financial products has only increased the pressure on banks to demonstrate their ability to manage risk effectively.
The case against Signature Bank and its former executives is just the latest example of the legal challenges facing financial institutions. It remains to be seen how the case will unfold and whether the plaintiffs will be successful in their attempts to hold the bank and its former executives accountable for their alleged wrongdoing. Regardless of the outcome, the case reminds that financial institutions must remain vigilant when managing risk and providing accurate and transparent information to their shareholders.