On March 14, a class-action lawsuit was filed against the recently closed, crypto-friendly New York-based Signature Bank and former CEO Joseph DePaolo, CFO Stephen Wyremsky, and COO Eric Howell, alleging fraud. Reuters reported.
Shareholders accused the bank of falsely claiming it was “financially strong” just three days before it was seized by the state regulator. The lawsuit seeks unspecified damages for shareholders who held shares between March 2 and 12.
The lawsuit was filed in federal court in Brooklyn by shareholders led by Matthew Schaeffer. Prosecutors say so Signature Bank she concealed her susceptibility to takeover by making false or misleading statements about her health. The purpose of these statements was said to be to quell the concerns raised by the difficulties he was facing Silicon Valley Bankwhich was seized by the Federal Deposit Insurance Corporation two days before Signature Bank.
According to the lawsuit, Signature Bank made statements claiming it could meet “all client needs,” had enough capital and liquidity to differentiate itself from competitors during “challenging times” and was financially strong. These statements allegedly hid the true financial condition of the bank. The suit was reportedly filed by the same law firm that sued Silicon Valley Bank’s parent company, SVB Financial Group, and its CEO and CFO on Monday.
To boost public confidence in the banking sector and protect the economy, regulators in the United States decided on Sunday to provide full refunds to depositors at Signature Bank and Silicon Valley Bank, regardless of their account balances. However, the same protection will not be extended to shareholders.
Related: Marathon Digital: Deposits held at Signature Bank are safe and affordable
March 12 New York State Department of Financial Services officially spun off and took over New York-based Signature Bank. The decision to close the bank was made in cooperation with the Federal Reserve System to protect the U.S. economy and increase public confidence in the banking system, according to a statement issued by the Federal Reserve System on March 12.
@federalreserve @USTreasury @FDICgov issue a statement on measures to protect the U.S. economy by strengthening public confidence in our banking system and ensuring that 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 on the bank’s board, suggested that the recent closing of Signature Bank was done as part of an apparent show of force. Frank said the only sign of trouble at Signature was a $10 billion deposit made on March 10, which he attributed to contagion from the Silicon Valley Bank fallout.
Frank shared that he believes the regulators wanted to send a strong anti-crypto message, even though it was no insolvency based on fundamentals. In an interview with CNBC, he said:
“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 fundamentals-based insolvency.”