Shareholders Sue Silicon Valley Bank’s Parent Company CEO and CFO for Fraud
- ByStartupStory | March 14, 2023
The aftermath of the closure of Silicon Valley Bank (SVB) is still reverberating across the tech startup community. Recently, SVB shareholders filed a lawsuit against the financial group and its top executives for failing to disclose how the increase in interest rates could affect the bank’s operations, leaving it vulnerable to a possible bank run.
In the wake of the bank’s collapse, this legal action is the initial of several that may be filed, and it targets Silicon Valley Bank’s parent corporation, as well as its CEO Greg Becker and CFO Daniel Beck. The class action lawsuit has been submitted to the San Jose, California, federal court. Silicon Valley Bank’s (SVB) recent collapse has been hailed as the biggest failure of a financial institution since Washington Mutual in 2008. The bank’s unexpected announcement of a $1.8 billion after-tax loss from investment sales caught the market off guard. To address the firm’s balance sheet concerns and meet redemption requests, SVB planned to raise capital, which further compounded the situation.
According to reports, Silicon Valley Bank (SVB) had approximately $209 billion in assets, out of which it lost nearly $42 billion from its deposits valued at $175 billion. The bank’s collapse has been attributed to its decision to trim its HTM securities holdings, which coincided with the Federal Reserve’s aggressive hike in yield rates. Moreover, the bank was unable to keep up with client withdrawals, which further contributed to its downfall.
SVB Financial Group’s CEO and CFO have been accused of failing to reveal how the bank’s business model would be impacted by the rising interest rates in a lawsuit filed on Monday. The suit, which seeks unspecified damages for investors between June 16, 2021, and March 10, 2023, alleges that the bank did not disclose how this factor could have led to a worse outcome compared to other banks with different client bases. Reuters reported on the legal proceedings.
The collapse of Silicon Valley Bank (SVB), following Silvergate’s and Signature Bank’s downfall, has shed light on the vulnerabilities of the banking system as a whole. This has raised concerns among lenders who provide services to start-ups, venture capital-based economies, and regional banks. The situation has highlighted the reliance on a single mid-sized bank to function. On March 13, HSBC acquired SVB’s UK arm for a nominal amount of 1 pound. Otta CEO Sam Franklin confirmed that the company would continue to use the UK subsidiary’s services while planning to add accounts to other banks.
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