In an investor case based on alleged misstatements that caused the bank’s failure, KPMG LLP, who served as Silicon Valley Bank’s auditor, was sued together with underwriters Bank of America Corp., Goldman Sachs Group Inc., and Morgan Stanley & Co.
Greg Becker, the chief executive of Silicon Valley Bank, and other bank directors and officials are named as defendants in a complaint that was submitted on Friday, the 7th of April 2023 to the federal court in San Francisco. It appears that the complaint is the first to specifically mention the bank’s auditors and underwriters.
According to the lawsuit, all of the defendants misrepresented the strength of the company’s balance sheet, liquidity, and position in the market. The lawsuit further claimed that the executives, auditor, and underwriters “understated and concealed the magnitude of the risks” facing the company.
As reported by Bloomberg, attempts to reach KPMG, Goldman Sachs, Bank of America, Morgan Stanley, and Keefe, Bruyette & Woods, Inc., which is listed as an underwriter defendant, by email for comment on the case ended in futility.
Following wagers on bonds that lost value when interest rates rose, SVB collapsed last month. Its venture capital clients started withdrawing money in large quantities, forcing the bank to sell assets at a loss and causing a frantic run on the bank. The parent business of SVB filed for Chapter 11 bankruptcy.
KPMG’s role in SVB’s collapse
According to the lawsuit filed on Friday the 7th of April 2023, the underwriters published misleading registration statements on the bank’s stock offerings that contained “untrue statements of material facts.”
More specifically, the action claims that KPMG’s asserted responsibility is predicated in part on the fact that it approved SVB’s 2022 annual report two weeks before the market closure on March 8. In addition to announcing a loss of about $1.8 billion on the sale of its securities, the bank also stated that it was looking to raise $2.25 billion to solve its liquidity issues.
Despite the fact that SVB’s deposits started to decline in 2022 and fell by $25 billion during the last nine months of that year, decreasing SVB’s liquidity, the suit claims that KPMG failed to mention the risks related to SVB’s declining deposits or its capacity to hold debt securities until maturity in its report.
Furthermore, the bank’s ability “to continue as a going concern for a reasonable period” was “silent” in KPMG’s audit report, the lawsuit claimed.
According to persons with knowledge of the situation, the Justice Department, Securities and Exchange Commission, and Federal Reserve are looking into matters related to SVB’s collapse, such as share sales by officers and the absence of a risk officer at the bank for most of 2022. Since no one at the bank has been accused of wrongdoing, the investigations may not result in any charges or legal action being taken.
