On March 14, a class action lawsuit was filed against the recently closed New York-based cryptocurrency bank Signature Bank and its former CEO Joseph DePaolo, CFO Stephen Wyremski, and COO Eric Howell for alleged fraud, as reported by Reuters.
Shareholders have accused the bank of falsely claiming it was “financially strong” just three days before it was seized by the state regulator. The lawsuit seeks unspecified damages for shareholders who owned shares between March 2 and March 12, 2023.
The lawsuit was filed in Brooklyn federal court by shareholders led by Matthew Schaeffer. The plaintiffs allege that SignatureBank concealed its susceptibility to an acquisition by making false or misleading statements about its financial health. The purpose of these statements was supposedly to curb fears raised by the problems faced by Silicon Valley Bank, which was seized by the Federal Deposit Insurance Corporation two days before Signature Bank.
According to the demand, Signature Bank made statements saying it could meet “all customer needs,” had enough capital and liquidity to stand out from rivals in “difficult times,” and was financially strong. These statements allegedly concealed the bank’s true financial status. The suit was reportedly filed by the same law firm that sued Silicon Valley Bank’s parent company, SVB Financial Group, and its CEO and chief financial officer on Monday.
To bolster public confidence in the banking sector and protect the economy, US regulators took a decision on Sunday to fully compensate depositors at Signature Bank and Silicon Valley Bank, regardless of their account balances. However, the same protections will not be extended to shareholders.
On March 12, the New York Department of Financial Services (NYDFS) officially closed and took over Signature Bank of New York. The decision to close the bank was made in collaboration with the Federal Reserve to safeguard the US economy and increase public confidence in the banking system, according to a statement released by the Federal Reserve on March 12.
@federalreserve @USTreasury @FDICgov Issue statement on actions to protect the US economy by strengthening public confidence in our banking system, ensuring depositors’ savings remain safe: https://t.co/YISeTdFPrO
—Federal Reserve (@federalreserve) March 12, 2023
On March 13, former US representative Barney Frank, who is also a member of the bank’s board of directors, suggested that the recent closure of Signature Bank was done as part of an apparent show of force. Frank said the only sign of trouble at Signature was a wave of $10 billion deposit withdrawals on March 10, which he blamed on contagion from the Silicon Valley Bank crash.
Frank shared that cHe believed that the regulators wanted to send a strong message against cryptocurrencies, despite there was no insolvency based on the fundamentals. She said it in an interview with CNBC:
“I think part of what happened was that the regulators wanted to send a very strong message against cryptocurrencies. […] We became the poster boy because there was no fundamentals-based insolvency.”
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