Jonathan Stempel
(Reuters) - The FDIC on Thursday sued 17 former executives and directors of Silicon Valley Bank, seeking to recover billions of dollars, alleging gross negligence and breach of fiduciary duties that led to the bank's collapse in March 2023, becoming the largest U.S. bank One of the industry closures.
In a complaint filed in federal court in San Francisco, the FDIC, acting as the bank's receiver, said the defendants ignored basic standards of prudent banking and the bank's own risk policies, allowing the bank to take on excessive risks to boost short-term profits and its stock price.
The FDIC accused the bank of being overly reliant on unhedged, rate-sensitive, long-term government debt such as U.S. Treasuries and mortgage-backed securities because rates looked set to rise, and eventually did.
It also objected to an "egregiously imprudent" $294 million dividend payment to its parent company in December 2022, less than three months before the company's collapse, "at a time of financial difficulties and weak management," depleting needed of capital.
“SVB represents a case of gross mismanagement of interest rate and liquidity risk by the bank’s former officers and directors,” the complaint states.
The defendants include former CEO Gregory Becker, former CFO Daniel Beck, four other former executives and 11 former directors.
A spokesman said Becker's attorney was traveling Thursday and unavailable for comment.
Lawyers for former chief risk officer Laura Izurieta called naming her a defendant "outrageous" and said she provided sound risk management advice before resigning in April 2022. before the bank failed.
"Their actions reflect the outgoing FDIC leadership's disinterest in the truth," Izurieta's attorney said.
Lawyers for the other defendants did not immediately respond to requests for comment.
Silicon Valley Bank collapsed and was seized by the FDIC on March 10, 2023, shocking financial markets.
It disrupted many tech startups whose deposits were taken and left many customers on edge because a large portion of their deposits were uninsured.
The collapse heralded the collapse of two other banks, Signature Bank and First Republic Bank, and raised fears of a repeat of the 2008 banking crisis.
First Citizens BancShares, a North Carolina bank, acquired Silicon Valley Bank's deposits and tens of billions of dollars in loans in a sale arranged by the FDIC.
Silicon Valley Bank had approximately $209 billion in assets when it collapsed. Larger bank failures in the United States include Lehman Brothers in 2008, Washington Mutual (including its banking unit) in 2008, and First Republic Bank in 2023.
The case is FDIC as Receiver v. Becker et al., U.S. District Court, Northern District of California, No. 25-00569.
(Reporting by Jonathan Stempel in New York; Editing by Stephen Coates)