A class action lawsuit for damages alleges a tech-focused bank failed to disclose risks from rising interest rates.
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 failing to disclose the risks that anticipated interest rate increases would have on its business.
The lawsuit, filed Monday in federal court in the Northern District of California, seeks unspecified damages from SVB Financial Group and its chief financial officer Daniel Beck, as well as the bank’s chief executive, Greg Becker.
THE the bank collapsed and its assets were seized by the US government late last week after a massive withdrawal of funds by customers.
The lawsuit, which accuses SVB of violating federal securities laws, noted that the Federal Reserve, the US central bank, had signaled as early as 2021 that it would raise interest rates to tame inflation.
The shareholders’ attorneys said in the filing that the annual bank reports “underestimated the risks posed to the company by failing to disclose that likely interest rate hikes, as outlined by the Fed, had the potential to cause irrevocable damage to the company”.
Class actions allow plaintiffs to sue on behalf of a larger group of similarly situated people, in this case SVB shareholders. The lead plaintiff in the lawsuit is Chandra Vanipenta, who the legal filing says bought shares in the company at “artificially inflated prices.”
“If the plaintiff and the other members of the class had been aware that the market price of the company’s securities had been artificially and falsely inflated, … they would not have purchased the company’s securities at the artificially inflated prices which they have done, or not at all,” the lawsuit says.
SVB Financial Group did not immediately respond to Al Jazeera’s request for comment.
SVB was the 16th largest bank in the United States when it collapsed on Friday. Specializing in lending to tech start-ups and the venture capitalists who fund them, it had invested much of its money in US government bonds, which fell in value as interest rates have gone up.
The failure of SVB was followed by the collapse of Signature Bank, another American financial company, raising fears of wider economic fallout similar to that of the 2008 financial crisis.
US President Joe Biden’s administration moved quickly to respond to bank failures, with his government guaranteeing the money of all depositors at both banks, even those who were uninsured.
“This step will ensure that the U.S. banking system continues to play its vital role of protecting deposits and providing access to credit to households and businesses in a way that supports strong and sustainable economic growth,” the agencies said. US government financial statements in a joint statement on Sunday.
A day later, Biden also pushed to reaffirm confidence in the United States banking systemsaying, “Americans can rest assured that our banking system is safe.”
Banking stocks showed signs of recovery on Tuesday after falling in recent days.
New York reporter Gabriel Elizondo of Al Jazeera said measures taken by the Biden administration to assuage filers’ concerns appeared to be working.
“What the market is basically signaling here is that it looks like the worst is over and it’s not going to spill over to the broader banking industry in the United States — at least not yet,” Elizondo said.
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