Federal authorities are considering legal action against former executives of SVB for alleged misconduct
The Federal Deposit Insurance Corporation (FDIC) is contemplating legal action against 17 individuals, including six former officers and eleven former directors, from Silicon Valley Bank (SVB). The move comes in response to the bank's collapse, which occurred on March 10, 2023, and was triggered by a bank run.
As the receiver of SVB, the FDIC has the duty to recover the losses incurred. The FDIC typically holds senior management accountable for a bank's collapse and mismanagement, which in this case includes allegations of mismanagement of interest rate risk, liquidity risk, and excessive risk-taking that led to SVB's insolvency and collapse.
FDIC Chairman Martin Gruenberg has expressed support for this action, stating that it is crucial to hold bank leadership accountable for their failures. He further noted that the FDIC's statement in this case is more detailed compared to others he's seen, indicating a strong emphasis on accountability.
One of the key concerns is the removal of interest rate hedges from the available-for-sale securities portfolio as interest rates increased. If properly hedged, the bank would have been protected against losses from rising interest rates.
The lawsuits, if filed, would likely be governed by California law, given SVB's headquarters and business concentration. In California, officers, including those at SVB, can be sued for simple negligence, a lower standard compared to the business judgment rule that shields directors from liability. Under federal law, the FDIC can hold bank officers and directors personally liable for civil monetary damages in cases of gross negligence.
However, the specific allegations or legal causes of action against the former officers and directors have not been publicly disclosed. For more detailed information, recent FDIC press releases or legal filings may need to be consulted.
It is worth noting that the FDIC has a history of taking legal action against bank leaders. For instance, during the 2007-09 financial crisis, the FDIC filed dozens of lawsuits and recovered about $4 billion.
This news serves as a reminder of the importance of sound bank leadership and proper risk management in the financial sector. As the FDIC moves forward with its investigation, it is expected that more details will emerge regarding the specific allegations against the former officers and directors of SVB.
In their legal action against the former officers and directors of Silicon Valley Bank (SVB), the Federal Deposit Insurance Corporation (FDIC) aims to hold individuals accountable for the bank's collapse, which involved allegations of mismanagement of interest rate risk, liquidity risk, and excessive risk-taking. As the bank's headquarters and business concentration are in California, the lawsuits, if filed, would likely be governed by California law.
