A class action lawsuit filed Monday against the parent company of Silicon Valley Bank, its chief executive and its chief financial officer alleges that the company misrepresented the risk posed by rising interest rates before the bank’s collapse last week.
The suit, filed in the U.S. District Court for the Northern District of California, named SVB Financial Group, CEO Greg Becker and CFO Daniel Beck. It alleged that the company “understated the risks posed to the Company by not disclosing that likely interest rate hikes, as outlined by the (Federal Reserve), had the potential to cause irrevocable damage to the Company.”
The lawsuit claimed that the company failed to tell investors that, with higher interest rates, it would be in a worse position than banks that are not focused on working with technology startups and companies backed by venture capitalists. The company also “failed to disclose that, if its investments were negatively affected by rising interest rates, it was particularly susceptible to a bank run,” according to the lawsuit.
Led by shareholder Chandra Vanipenta, the suit seeks unspecified damages for people who invested in the company between June 16, 2021, and March 10, 2023.
The lawsuit is one of the first to be filed since the Federal Deposit Insurance Corporation, or FDIC, took control of the bank on Friday, according to The Washington Post. The incident marked the second-largest bank failure in U.S. history.
Silicon Valley Bank was the “go-to” financial institution for venture capitalists who were looking for partners open to unconventional business proposals, The Associated Press reported. The bank had about $175 billion in customer deposits, according to the lawsuit filed on Monday.
Concerns rose over the bank’s ability to fulfill its financial obligations last week after the company disclosed a $1.8 billion loss following the sale of $21 billion of securities.
President Joe Biden on Monday assured customers of Silicon Valley Bank and of Signature Bank, a New York financial institution closed by regulators on Sunday, that they “can rest assured they’ll be protected, and they’ll have access to their money.”
“Your deposits will be there when you need them,” the president said in remarks from the White House. “Small businesses across the country that deposit accounts at these banks can breathe easier knowing they’ll be able to pay their workers and pay their bills, and their hard-working employees can breathe easier as well.”