Class action lawsuit seeking damages alleges the tech-focused bank failed to disclose the risks of rate hikes.
Silicon Valley Bank’s parent company and two senior executives are facing a class action lawsuit in the United States, where shareholders have accused the financial institution of failing to disclose the risks expected rate hikes would pose to its company.
The lawsuit, filed Monday in federal court in California’s Northern District, seeks unspecified damages from SVB Financial Group and its Chief Financial Officer Daniel Beck, as well as the bank’s Chief Executive Officer Greg Becker.
The bank collapsed and its assets were seized by the US government late last week following a massive customer withdrawal.
The lawsuit, which accuses SVB of violating federal securities laws, noted that the Federal Reserve had already signaled in 2021 that it would raise interest rates to contain inflation.
Shareholder lawyers said in the filing that annual bank reports “underestimated the risks to the company by failing to disclose that likely rate hikes, as outlined by the Fed, had the potential to cause irreversible damage to the company.”
Class action lawsuits allow plaintiffs to litigate on behalf of a larger group of people in a similar situation, in this case SVB shareholders. The lead plaintiff in the lawsuit is Chandra Vanipenta, who bought stock in the company at “artificially inflated prices,” according to the legal filing.
“Had the Plaintiff and the other members of the Class known that the market price of the Company’s securities had been artificially and improperly inflated, … they would not have purchased the Company’s securities at the artificially inflated prices they did , or not at all,” the lawsuit said.
SVB Financial Group did not immediately respond to Al Jazeera’s request for comment.
SVB was the 16th largest bank in the US when it collapsed on Friday. Specializing in loans to technology start-ups and the venture capitalists who fund them, it had invested much of its money in US Treasury bonds, the value of which fell as interest rates rose.
SVB’s bankruptcy was followed by the collapse of Signature Bank, another US financial company, sparking fears of a wider economic aftermath similar to the 2008 financial crisis.
US President Joe Biden’s administration responded quickly to the bank failures, with his administration guaranteeing the money of all depositors at both banks, even those who were uninsured.
“This move will ensure that the U.S. banking system continues to fulfill its vital role in protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” said U.S. government financial institutions in a statement. a joint statement on Sunday.
A day later, Biden also pushed to restore confidence in the US banking system, saying “Americans can rest assured that our banking system is safe.”
Bank shares showed signs of recovery on Tuesday after the fall in prices in recent days.
In a message from New York City, Al Jazeera’s Gabriel Elizondo said the Biden administration’s moves to address depositors’ concerns seemed to be working.
“Essentially what the market is signaling here is that it appears that the worst is over and that this is not going to spread to the wider US banking sector — at least not yet,” said Elizondo.