Shareholders Are Suing Signature Bank And Its Former CEO For Fraud.

Shareholders have filed a lawsuit against Signature Bank and three former senior executives, alleging that the New York bank falsely said it had a healthy financial position just three days before it was taken over by a state regulator. At the federal court in Brooklyn, a proposed class action lawsuit was filed against Signature and its Joseph DePaolo, a former chief executive, Stephen Wyremski, a former chief financial officer, and Eric Howell, a former chief operating officer.

Two days after the Federal Deposit Insurance Corp. relinquished authority over Signature, the New York Department of Financial Services did so. Seized Silicon Valley Bank; it sought unspecified damages for stockholders between March 2 and 12. Requests for feedback from Signature did not immediately receive a response. Since its inception in 1999, Signature has focused on real estate loans, offered a wide range of services to legal firms, and recently pushed for Bitcoin deposits. Donald Trump, a former president of the United States, was a customer until 2021.

Signature, the second-largest U.S Bank to fail (thinking about 2008), had $110.4 billion in assets and $88.6 billion in deposits by the end of 2022. The biggest bank is Silicon Valley Bank. In a lawsuit filed on Tuesday, shareholders led by Matthew Schaeffer claimed. Signature concealed the fact that it had been “susceptible to a takeover” by giving false or deceptive information about its financial situation, perhaps to allay concerns raised by Silicon Valley Bank’s problems.

Among these claims was that Signature could “meet all customer demands” and had sufficient cash and liquidity to set itself apart from competitors in “difficult circumstances.  Before its bankruptcy, Signature had a market value of around $6.5 billion. The legal team that on Monday sued Silicon Valley Bank’s parent company SVB Financial Group (SIVB.O) and its CEO and CFO filed the case.

U.S. officials decided on Sunday to compensate all depositors at Silicon Valley Bank and Signature regardless of the balances in their accounts. There would be no safeguards for shareholders. Authorities said that by boosting public trust in banks, the action would safeguard the American economy. The case is Schaeffer v. Signature Bank et al., No. 23-01921, in the Eastern District of New York of the United States District Court.

Criminal Investigation of Signature Bank before Firm’s Demise

When authorities abruptly seized the institution this past weekend, US prosecutors were looking into Signature Bank’s dealings with cryptocurrency clients, according to sources with knowledge of the situation.

According to the persons, Justice Department officials in Washington and Manhattan were looking into whether the New York bank took enough precautions to stop possible money laundering by customers, such as checking up on account applicants and keeping an eye out for suspicious activity.  Two persons who asked to remain anonymous because the probes are privately stated that the Securities and Exchange Commission was also looking into the matter.

A request for comment was not answered by a representative of the bank’s ongoing activities. The company’s new owner, the Federal Deposit Insurance Corp., declined to comment.

The US Attorney’s Office in Manhattan, the SEC, and the Justice Department’s representatives all declined to comment. Nevertheless, a representative for the agency, which exclusively files civil lawsuits, cited a statement made on Sunday by Chair Gary Gensler, when authorities took action to strengthen US lenders and close Signature.

The inquiry may be over without taking further action because neither the bank nor its employees have been charged with any wrongdoing. When the investigations into Signature Bank began and if they had any bearing on the state authorities’ decision to shut the bank on Sunday are both unknown. As a result of the bank’s failure to deliver “reliable and consistent data,” state authorities have claimed that they have lost trust in management.

Since then, the FDIC has been seeking a buyer.

To reduce possible threats to the financial system, regulators have been encouraging banks and reducing the vulnerability of other regulated corporations to other assets, including digital currencies. After the failure of Silvergate Capital Corp., a company that specialized in the cryptocurrency sector, and Silicon Valley Bank of SVB Financial Group last week, Signature has now failed.

Now, the US is looking into all three banks. According to Source, the Justice Department is looking into Silvergate’s interactions with Sam Bankman-now-defunct Fried’s FTX exchange and Alameda Research. The SEC and federal prosecutors are also investigating Silicon Valley Bank’s demise, including any possible violations of trading regulations by officials’ stock transactions.

When FTX failed in November, more than a quarter of Signature’s deposit base, executives said they planned to remove up to $10 billion in deposits from clients who owned digital assets.  

Potential Purchaser of Signature Bank Must Agree to Abandon All Crypto Business

After being shut down by state officials on Sunday, Signature Bank is now up for sale, but any prospective buyer needs to accept a significant stipulation: no cryptocurrency.  The weekend shutdown of the New York-based bank came less than a week after the closure of another California-based bank, Silvergate Bank, and two days after the failure of another bank, the Silicon Valley Bank (SVB), also situated in California. All three of the now-defunct banks were recognized as financial entities that supported cryptocurrencies.

According to reports, the Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) were looking into Signature Bank because of possible weak monitoring that may have permitted money laundering. Crypto customers made up a quarter of the bank’s deposits.

In February, a class action lawsuit was brought against Signature Bank because the bank had knowledge of the “now infamous FTX scam” and had helped to assist it. The lawsuit specifically charges Signature Bank with knowing of and allowing “the commingling of FTX client monies within its proprietary, blockchain-based payments network, Signet.

Several are in the cryptocurrency sector, including Brian Brooks, a former CEO of Binance. The US and acting Comptroller of the Currency have hypothesized that the closure of the three crypto-friendly banks is a sign of a coordinated attempt by authorities to cut off the crypto business from the banking system.

Former Democratic congressman and Dodd-Frank Act co-author Barney Frank, a Signature Bank board member, believes the takeover was driven by anti-crypto sentiment, even though Signature Bank was solvent, and that authorities intervened to send a message.

Frank said, “I think the government wanted to send a very strong anti-crypto message, which I think contributed to what transpired. Instead of citing cryptocurrency as the reason for the bank’s liquidation, the New York Department of Financial Services (NYDFS) blamed a “crisis of trust” in the administration of the institution.

Edited by Prakriti Arora