Signature Bank and three former top executives were sued on Tuesday by shareholders who accused the New York bank of fraudulently proclaiming it was financially strong a mere three days before it was seized by a state regulator.
The proposed class action against Signature and its former Chief Executive Joseph DePaolo, Chief Financial Officer Stephen Wyremski and Chief Operating Officer Eric Howell was filed in the federal court in Brooklyn.
It seeks unspecified damages for shareholders between March 2 and 12 when New York’s Department of Financial Services took over Signature, two days after the Federal Deposit Insurance Corp. seized Silicon Valley Bank.
Signature did not immediately respond to requests for comment.
Founded in 1999, Signature specialized in real estate lending and provided many services to law firms, and in recent years made a push for cryptocurrency deposits. Former President Donald Trump had been a client until 2021.
Signature ended 2022 with $110.4 billion of assets and $88.6 billion of deposits, and is the second-largest US bank to fail since 2008. Silicon Valley Bank is the largest.
In Tuesday’s lawsuit, shareholders led by Matthew Schaeffer said Signature hid how it had been “susceptible to a takeover” by making false or misleading statements about its health, in part to quell fears sparked by Silicon Valley Bank’s troubles.
These statements included that Signature could meet “all client needs,” and had enough capital and liquidity to distinguish itself from rivals during “challenging times.”
Signature’s market value was about $6.5 billion before its collapse.
The lawsuit was filed by the law firm that sued Silicon Valley Bank’s parent SVB Financial Group and its CEO and CFO on Monday.
On Sunday, US regulators decided to make Signature and Silicon Valley Bank depositors whole regardless of how much they held in their accounts.
Shareholders would receive no protections. Regulators said the move would protect the US economy by strengthening public confidence in banking.
The case is Schaeffer v Signature Bank et al, US District Court, Eastern District of New York, No. 23-01921.
[Written in collaboration with other media outlets with information from the following sources]
