Signature Bank Facing Investor Class Action After Collapse-Induced Takeover by NY Dept. of Financial Services

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Signature Bank and three former executive officers face a proposed investor class action in the wake of the cryptocurrency-linked bank’s seizure by the New York Department of Financial Services (NYDFS), which took over the institution two days after California regulators took control over Silicon Valley Bank following its collapse. 

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The 15-page lawsuit alleges the New York-based bank, which is now in the hands of the Federal Deposit Insurance Corporation (FDIC), damaged investors financially by misrepresenting and/or failing to disclose that the institution either lacked the “strong fundamentals” it claimed to have in the days immediately preceding its takeover by NYDFS or otherwise “took action that left it susceptible to a takeover” by regulators. Per the case, the bank, a key cog in the cryptocurrency ecosystem, essentially failed to warn investors that it had become a target for regulatory action. 

According to the complaint, the truth began to come out when, on Sunday, March 12, NYDFS announced that it had taken possession of Signature Bank in an effort to essentially protect both consumers and the stability of the global financial system. By state law, the NYDFS can make such a decision should a banking institution, among other things, be in an “unsound or unsafe condition to transact its business” or have an “impairment of capital,” the suit says. 

The collapse of Signature Bank, which had around $110.4 billion in total assets as of the end of 2022, marks the third-largest bank failure in U.S. history, behind that of Silicon Valley Bank, the case relays. 

In the run-up to the NYDFS takeover, namely in a March 2 mid-quarter financial update and March 9 press release, Signature Bank illegally failed to provide investors with the full picture of the risks the institution faced, much less “hint that it might be taken over,” the case claims. Per the suit, the March 9 press release, titled “Signature Bank Issues Updated Financial Figures as of March 8, 2023; Reiterates Strong Financial Position and Limited Digital-Asset Related Deposit Balances in Wake of Industry Developments,” was meant to calm investors and depositors in the face of “chaos in the banking sector,” in particular the collapse of Silicon Valley Bank. 

“The March 9 Update overstated the Company’s market position, given that just a few days later, it was shut down by [NYDFS],” the filing says. 

On March 12, trading of Signature Bank shares was halted and, as of the suit’s filing, remains halted, “essentially rendering the Company’s shares illiquid and valueless given the bank’s failure,” the lawsuit states. 

“As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s shares, Plaintiff and the other Class members have suffered significant losses and damages,” the case summarizes. 

The lawsuit looks to cover all persons or entities who bought or otherwise acquired publicly traded Signature Bank securities between March 2 and March 12, 2023, including those who purchased Signature Bank call options and/or sold put options during that time period. 

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