The holding company for collapsed Silicon Valley Bank (SVB) and two of its executives are facing a federal shareholder lawsuit that alleges the defendants artificially inflated the bank's stock price by fraudulently reporting its financial risks.
Chandra Vanipenta, a shareholder in SVB Financial Group (SIVB), filed the suit on Monday in San Jose federal district court, claiming that SIVB, along with its CEO Greg Becker and CFO Daniel Beck filed false and misleading financial reports leading up to the bank's implosion.
The complaint alleges that between August 2021 and December 31, 2022, the defendants filed U.S. Securities and Exchange Commission reports that failed to disclose to investors “the risks presented by impending rising interest rates.”
The hikes that ultimately led to Silicon Valley Bank’s collapse, Vanipenta alleges, were publicly known risks since June 16, 2021, when Federal Reserve Chairman Jay Powell remarked about anticipating future hikes.
The plaintiff goes on to say that subsequent public warnings predicting rate hikes show that the company and the individual defendants filed financial statements, which they “knew or deliberately disregarded were misleading.”
“The company failed to disclose to investors that, in an environment with high interest rates, it would be worse off than banks that did not cater to tech startups and venture capital-backed companies,” the complaint states. “[T]he Company failed to disclose that, if its investments were negatively affected by rising interest rates, it was particularly susceptible to a bank run.”
The suit requests class-action status on behalf of those who acquired SIVB shares between June 16, 2021 and March 10, 2023.
It alleges that the defendants violated Rule 10b-5 of The Exchange Act, which prohibits securities fraud. Becker and Beck, it claims, violated Section 20(a) of the Act, which prohibits “controlling persons” of an entity from contributing to unlawful conduct.
The complaint notes that in response to SVB’s March 8 announcement that it would try to prop up its balance sheet by offering $1.25 billion of its common stock and $500 million in depositary shares, the company’s stock dropped by more than half. Shares in the holding company closed on March 9 at $106.04 per share, after its prior day close at $267.83.
The defendants did not immediately respond to Yahoo Finance’s request for a response to the allegations.
The lawsuit is Chandra Vanipenta v. SVB Financial Group, Greg W. Becker, and Daniel Beck, filed in the U.S. District Court for the Northern District of California, Case No. 23-CV-01097.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.