Silicon Valley Bank's former CEO and several other past members of the bank's top brass must face a suit from the Federal Deposit Insurance Corp. accusing them of mismanagement that led to the bank's costly 2023 failure, a California federal judge has ruled.
According to a minute order on the court docket, U.S. District Judge Noël Wise denied all the defendants' dismissal motions and ordered them to answer the complaint within 21 days. The judge did not issue an opinion on the matter.
In its suit, the FDIC seeks to recover "billions of dollars in damages" that it alleges California-based SVB could have avoided if more than a dozen of its former leaders had properly overseen and managed it.
The complaint names 17 defendants who served as officers or directors of SVB and its parent company, SVB Financial Group, before the bank's collapse. In addition to former CEO Gregory Becker, the bank's former chief financial officer, chief credit officer, chief risk officer, president, treasurer and board chair are named.
In an April dismissal motion, the defendants claimed that they did not mismanage SVB but that the bank suffered an "unprecedented, social media-fueled bank run."
"Indeed, due to the officers' prudent management, SVB withstood a remarkable $40 billion in deposit withdrawals in a single day — the largest bank run in U.S. history — before regulators closed the bank on March 10, 2023," the motion said.
The defendants argued that the FDIC's complaint did not contain any "coherent theory" of negligence, breach of fiduciary duty, or lack of care or diligence on the officers' part, adding that it suffers from group pleading.
"The complaint itself alleges that the officers were informed and deliberated about SVB's securities portfolio and interest rate risks and that they made sure SVB's board committees were well informed as well. The law requires no more," the motion said.
Additionally, the defendants said that the complaint does not allege that SVB incurred any losses due to misconduct and that SVB's regulator concluded that the bank was in "sound financial condition" the day before the bank run.
"When stripped of its inflammatory rhetoric, the complaint reflects that the officers carefully, diligently, and in good faith executed their responsibilities," the motion said.
In a June response, the FDIC pushed back, saying its complaint is a "detailed factual recitation of how certain Silicon Valley Bank officers and directors gambled depositors' funds on the direction of interest rates, thereby causing the bank billions of dollars in damages."
The FDIC argued its complaint describes how each defendant knew of and ignored repeated violations of SVB's own risk limit and other red flags, including that the bank had rapidly grown its assets based on funding through unstable deposits, entered into massive investments in long-term securities carrying high interest-rate risk and lacked key risk-management functions.
"The complaint contains more than enough information to plausibly show that each of the defendants owed duties to the bank and that they breached those duties by imprudently investing in long-duration securities in disregard of known or obvious risks of substantial harm to the bank, including criticisms from regulators and warnings from the bank's own risk models, which the defendants first ignored and then simply changed to mask breaches instead of bringing the bank into compliance," the response said.
SVB was once a dominant player in California's high-flying tech scene, serving as a major lender to startups and venture capital firms, while providing a suite of additional offerings to their founders and personnel.
But regulatory postmortems have since drawn attention to SVB's structural vulnerabilities, including its concentrated business model and high levels of uninsured deposits. The bank was also heavily exposed to interest rate risk from its bond investments.
When the Federal Reserve started raising rates rapidly in 2022, the bank took massive paper losses on those investments, which left it unexpectedly weakened and struggling to meet withdrawal demands. Panic eventually set in, depositors fled and the bank failed.
SVB's collapse ranks as the third-largest bank failure in U.S. history. The FDIC, which ultimately stepped in to backstop all the bank's depositors, at one point estimated that the final cost to its deposit insurance fund would be $23 billion.
The FDIC declined to comment Thursday. Counsel for the defendants did not immediately respond to requests for comment.
The FDIC is represented by Stephen Sorensen and Elliott McGraw of Bailey Glasser and Lynn R. Fiorentino, Lawrence H. Heftman, David C. Giles and Michael K. Molzberger of ArentFox Schiff LLP.
Gregory Becker is represented by James N. Kramer, Kevin M. Askew and James D. Houghton of Orrick Herrington & Sutcliffe LLP.
Defendant Marc Cadieux is represented by Jordan Eth and Jamie A. Levitt of Morrison & Foerster LLP.
Daniel Beck, the bank's former CFO, is represented by Daniel Ketani, Barry Berke, Michael D. Celio and Darren LaVerne of Gibson Dunn & Crutcher LLP.
Defendant Michael Kruse is represented by Christopher L. Garcia, Raquel Kellert, Matthew P. Valenti and Alexander Wyman of Latham & Watkins LLP.
Defendant Michael Descheneaux is represented by Peter G. Spivack, Megan R. Nishikawa and Nicholas Lauridsen of Hogan Lovells.
Defendant Laura Izurieta is represented by Mark R.S. Foster, David Meister, Anita Bandy and Abby Davis of Skadden Arps Slate Meagher & Flom LLP.
The other individual defendants are represented by Philip D. Anker, Lorraine Beaman Echavarria, Michael A. Mugmon, Caleb Jonathan Lin and Erika M. Schutzman of WilmerHale.
The case is Federal Deposit Insurance Corp. as Receiver for Silicon Valley Bank v. Becker et al., case number 5:25-cv-00569, in the U.S. District Court for the Northern District of California.
Oct 23
Deal Summary
