On March 14, a class action lawsuit was filed against the recently shut down, crypto-friendly, New York-based Signature Bank and former chief executive officer Joseph DePaolo, chief financial officer Stephen Wyremski, and chief operating officer Eric Howell for allegedly committing fraud Reuters reported.
Shareholders have accused the bank of falsely claiming to be “financially strong” just three days before it was seized by the state regulator. The lawsuit seeks unspecified damages for shareholders who held stock between March 2 and 12.
The lawsuit was filed in federal court in Brooklyn by shareholders led by Matthew Schaeffer. The plaintiffs claim that Signature Bank hid its susceptibility to a takeover by making false or misleading statements about its health. The purpose of these statements was allegedly to curb fears sparked by the troubles faced by Silicon Valley Bank, which was seized by the Federal Deposit Insurance Corporation two days before Signature Bank.
According to the lawsuit, Signature Bank made statements claiming that it could meet “all client needs,” had enough capital and liquidity to distinguish itself from rivals during “challenging times,” and was financially strong. These statements allegedly concealed the bank’s true financial state. The lawsuit was reportedly filed by the same law firm that sued Silicon Valley Bank’s parent company, SVB Financial Group, and its CEO and chief financial officer on Monday.
To boost public trust in the banking sector and protect the economy, regulators in the United States made a decision on Sunday to provide full compensation to depositors of Signature Bank and Silicon Valley Bank, regardless of the balance in their accounts. However, the same protections will not be extended to shareholders.
Related: Marathon Digital: Deposits held at Signature Bank are secure and available
On March 12, the New York State Department of Financial Services officially shut down and took over the New York-based Signature Bank. The decision to close the bank was made in collaboration with the Federal Reserve to safeguard the U.S. economy and increase public confidence in the banking system, according to a statement released by the Federal Reserve on March 12.
@federalreserve @USTreasury @FDICgov issue statement on actions to protect the U.S. economy by strengthening public confidence in our banking system, ensuring depositors’ savings remain safe: https://t.co/YISeTdFPrO
— Federal Reserve (@federalreserve) March 12, 2023
On March 13, former U.S. Representative Barney Frank, who also happens to be a board member of the bank, suggested that the recent closure of Signature Bank was done as part of a seeming show of force. Frank said that the only sign of issues at Signature was a $10 billion deposit run on March 10, which he attributed to contagion from the Silicon Valley Bank fallout.
Frank shared that he believes regulators wanted to send a strong anti-crypto message, even though there was no insolvency based on the fundamentals. He shared in an interview with CNBC:
“I think part of what happened was that regulators wanted to send a very strong anti-crypto message. […] We became the poster boy because there was no insolvency based on the fundamentals.”