In a recent investor lawsuit based on alleged misstatements leading to the collapse of Silicon Valley Bank (SVB), KPMG was sued as the bank's auditor, along with underwriters including Goldman Sachs Group, Bank of America, Morgan Stanley, and Keefe, Bruyette & Woods. The complaint, filed in the federal court in San Francisco, is the first to target the bank's auditors and underwriters, Bloomberg reported. The SVB collapsed last month due to bets on bonds that lost value as interest rates rose. The bank's venture capital clients started withdrawing their deposits on a large scale, leading to the bank selling off assets at losses and triggering a frantic rush to withdraw funds from the bank. As a result, SVB's parent company filed for Chapter 11 bankruptcy.
According to the lawsuit, collectively, the defendants "misrepresented the strength of the company's balance sheet, liquidity, and position in the market." The executives, auditor, and underwriters "understated and concealed the magnitude of the risks" facing the bank, which undermined the value of its own securities portfolio.
KPMG, Goldman Sachs, Bank of America, Morgan Stanley, and Keefe, Bruyette & Woods did not return emails seeking comment on the lawsuit. The underwriters issued misleading registration statements on the bank's stock offerings that contained "untrue statements of material facts," according to the lawsuit filed on Friday.
KPMG's alleged liability is based on the fact that it signed off on SVB's 2022 annual report two weeks before the March 8 market close, according to the suit. That was when the bank said it was seeking to raise $US2.25 billion ($3.37 billion) to address its liquidity problems and announced an approximately $US1.8 billion loss on the sale of its securities.
The lawsuit claims that "even though SVB's deposits began to decline in 2022, falling $US25 billion during the final nine months of 2022 and reducing SVB's liquidity, KPMG did not identify risks associated with SVB's declining deposits or SVB's ability to hold debt securities to maturity in its report."
The Justice Department, Securities and Exchange Commission, and Federal Reserve are investigating the circumstances leading to SVB's collapse, which include issues such as share sales by officers and the bank's lack of a risk officer for most of 2022. It's important to note that as of now, no one at the bank has been accused of any wrongdoing. The investigations may or may not result in charges or lawsuits.
The case, filed by the City of Hialeah Employees Retirement System et al v. Becker, is currently in the US District Court for the Northern District of California (San Francisco).
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