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Banking Crisis: KPMG, Goldman Sachs, and Morgan Stanley are being sued by investors due to the failure of SVB

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 Goldman Sachs Group Inc., Bank of America Corp., 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 to the federal court in San Francisco, similar to earlier lawsuits. It appears that the lawsuit is the first to specifically include the bank’s auditors and underwriters.

Combined, the defendants “misrepresented the strength of the Company’s balance sheet, liquidity, and position in the Market,” the lawsuit claims. The value of the bank’s own securities portfolio was diminished, it said, since management, the auditor, and underwriters “understated and concealed the scope of the risks” facing the company.

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 were unsuccessful.

The complaint asserts that the underwriters published false declarations of registration on the bank’s initial public offering which included “untrue statements of material facts.”

Considerable Doubt

In further detail, the lawsuit claims that KPMG is liable in part because it approved SVB’s 2022 annual report two weeks before the market closure on March 8. At that time, the bank disclosed a loss of almost $1.8 billion on the sale of its own securities and stated it was looking to raise $2.25 billion to solve its liquidity issues.

The suit claims that “KPMG failed to identify risks related to SVB’s decreasing deposits or SVB’s ability to hold debt instruments to maturity in its report” despite the fact that SVB’s deposits “began to decline in 2022, falling $25 billion during the final nine months of 2022 and reducing SVB’s liquidity.” 

Furthermore, the bank’s capacity “to continue as a going concern for an appropriate amount of time” was “silent” in KPMG’s audit report, the company said.

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 officials and the lack of a risk officer at the bank for a significant portion of 2022. Since no one at the bank has been accused of misconduct, the inquiries may not result in any charges or legal action.

The original article is posted on livemint.com.