On March 14, a class-action lawsuit was filed against the recently shuttered crypto-friendly New York-based Signature Bank and former CEO Joseph DePaolo, CFO Stephen Wyremski and COO Eric Howell for alleged fraud, Reuters reports .
Shareholders accused the bank of making false claims of "financial strength" three days before it was seized by state regulators. 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. The plaintiffs allege that Signature Bank concealed its sensitivity to the acquisition by making false or misleading statements about its health. The purpose of the announcements was said to be to stem fears over troubles facing Silicon Valley Bank, which was taken into custody by the FDIC two days before Signature Bank.
According to the lawsuit, Signature Bank issued a statement claiming that it can meet "all client needs," has sufficient capital and liquidity to differentiate itself from competitors during "challenging times," and is financially strong. The statements are alleged to have concealed the true financial position of the bank. The lawsuit was reportedly filed by the same law firm that sued Silicon Valley Bank parent SVB Financial Group and its CEO and CFO on Monday.
U.S. regulators decided on Sunday to fully compensate depositors at Signature Bank and Silicon Valley Bank, regardless of their account balances, in an effort to boost public trust in the banking industry and protect the economy. However, the same protections do not extend to shareholders. On March 12, the New York State Department of Financial Services officially closed and took over New York-based Signature Bank. The decision to close the bank was made in cooperation with the Fed to protect the U.S. economy and increase public confidence in the banking system, according to a March 12 Fed statement.
On March 13, former U.S. Rep. Barney Frank, who also happens to sit on the bank's board of directors, said the recent closure of Signature Bank appeared to be a show of force. Frank said the only sign of trouble at Signature was a $10 billion deposit run on March 10, which he attributed to the contagion from the Silicon Valley Bank incident.
Frank shared that he thinks regulators want to send a strong anti-encryption message, even without fundamentally based bankruptcy. He shared in an interview with CNBC: “I think part of what’s happening is that the regulators want to send a very strong anti-encryption message. We’re setting an example because there’s no bankruptcy based on fundamentals.”
