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Counsel Kate Gee comments on Silicon Valley Bank’s US bosses facing a class action lawsuit from shareholders over fraud allegations in Commercial Dispute Resolution.

Kate’s comments were published in Commercial Dispute Resolution on 15 March 2023, and can be found here.

Kate commented: “The market was taken aback when SVB disclosed its $1.8 billion after-tax loss from investment sales, but that the bank now faces an action in California comes as no surprise. To the contrary, it is likely to be the first of many claims that will be filed as a result of SVB’s collapse.”

“The claim is brought by shareholders in the federal court of San Jose, and targets SVB’s parent company and its top executives, Greg Becker and Daniel Beck, for breaching federal securities laws, including by not disclosing how a rise in interest rates could negatively impact the bank’s business, thereby leaving it “particularly susceptible” to a bank run.”

“The claimants assert that SVB should have – but didn’t – warn its investors that, in a high interest rate environment, it would be worse off than other banks that didn’t have such a focus on start ups, tech companies and companies backed by VCs. It lists various financial reports which the claimants assert excluded important information about the risk of interest rate hikes. They go on to allege that statements made in SEC filings were “materially false and/or misleading because they misrepresented and failed to disclose […] adverse facts pertaining to the company’s business which were known to defendants or recklessly disregarded by them”.”

“Whether or not the claim succeeds, the collapse of SVB is arguably the most significant banking failure since the financial crisis of 2008, and serves as a reminder of the vulnerabilities of parts of the banking sector. While the rescue of the UK bank has had a positive reception, it is hard not to think back to the market turbulence of 2008 and the years of litigation that followed. Since then, however, the mechanisms for bringing a group action have – in both the US and the UK – developed and become more commonplace and more sophisticated. Accordingly, we anticipate seeing more claims framed in this way in the coming weeks and months.”