A Silicon Valley Bank investor has filed a lawsuit in opposition to high executives for his or her function within the financial institution’s sudden collapse. This lawsuit is probably not the final.
It’s the primary but it surely’s in all probability not the final.
A lawsuit was filed on Mar. 13 in opposition to high executives of Silicon Valley Bank, notably its CEO Greg Becker and Daniel Beck, the Chief Financial Officer, for allegedly “disseminating false and misleading statements and information” concerning the stability sheet of the failed financial institution.
The lawsuit can also be directed in opposition to each supervisor who “was directly involved in the day-to-day operations of the company at the highest levels; was privy to confidential proprietary information concerning the company and its business and operations,” in accordance with the 17-page lawsuit reviewed by TheRoad.
The plaintiff can also be attacking the financial institution itself.
Suit Claims ‘Misleading Statements’
The plaintiff, Chandra Vanipenta, accused the executives of SVB (SIVB) – Get Free Report of getting failed to say the dangers that rates of interest improve by the Federal Reserve (Fed) may have on its portfolio of securities. The financial institution was closed on Mar. 10 by regulators after depositors rushed to withdraw their funds, forcing it to promote Treasury bonds at decreased valuations.
Vanipenta claims that the financial institution ought to have talked about these dangers in all its monetary statements referring to outcomes from the second quarter of 2021 since Jay Powell, the Chair of the Fed, had signaled, in a speech given on June 16, 2021, an upcoming change in financial coverage.
“The 2Q21 Report did not disclose the risk that future interest rate hikes posed to the company’s business, despite the Fed signaling that it might raise interest rates in the future, and was certainly prepared to do so in the event of rising inflation,” the plaintiff alleged of their lawsuit. “The 2Q21 report stated, in pertinent part, ‘[t]here are no material changes to the risk factors set forth in our 2020 annual report on form 10-K.”
The firm repeated, the plaintiff alleged, the identical sentences within the numerous publications of outcomes and regulatory filings that adopted till March 8, 2023.
“Defendants made false and/or misleading statements and/or failed to disclose that: the company failed to disclose to investors the risks presented by impending rising interest rates,” the lawsuit mentioned. “The company failed to disclose to investors that, in an environment with high interest rates, it would be worse off than banks that did not cater to tech startups and venture capital-backed companies.”
It continued: “The company failed to disclose that, if its investments were negatively affected by rising interest rates, it was particularly susceptible to a bank run; as a result, defendants’ public statements were materially false and/or misleading at all relevant times.”
SVB did not instantly reply to a request for remark.
Class Action Certification Sought
Created in 1983, Silicon Valley Bank, which offered itself as a “partner for the innovation economy,” offered higher interest rates on deposits than its larger rivals, to attract customers. The company then invested the clients’ money in long-dated Treasury bonds and mortgage bonds with strong returns.
This strategy had worked well in recent years. The bank’s deposits doubled to $102 billion at the end of 2020 from $49 billion in 2018. In 2021, deposits increased to $189.2 billion.
But everything turned upside down when the Fed began to raise interest rates, which made existing bonds held by SVB less valuable. As a result, the bank had to sell the bonds at a discount to cover withdrawals from its customers. In selling these bond positions, SVB had to take a significant loss of $1.8 billion.
Due to this loss, SVB suddenly announced that it needed to raise additional capital of $2.25 billion, by issuing new common and convertible preferred shares. This decision caused panic and a run on the bank.
About $42 billion of deposits were withdrawn by the end of March 9, according to a regulatory filing. By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing.
“During the category interval, the corporate and the person defendants, individually and in live performance, instantly or not directly, disseminated or authorized the false statements specified above, which they knew or intentionally disregarded had been deceptive in that they contained misrepresentations and did not disclose materials info essential as a way to make the statements made,” the plaintiff alleged.
According to the lawsuit, the “misrepresentations” and “omissions” alleged would tend to “induce an inexpensive investor to misjudge the worth of the corporate’s securities.”
As a end result, the plaintiff hopes that their lawsuit will likely be reworked into a category motion and that there will likely be a trial.
They are looking for damages and fee of their attorneys’ charges.
The lawsuit was filed with the United States District Court of Northern District of California by the Rosen Law Firm that’s the counsel of the plaintiff.