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FDIC seeks billions of dollars in damages

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Officials faulted for 'egregious mismanagement'

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Bank's demise sparked fears of banking crisis

By Jonathan Stempel

Jan 16 (Reuters) - The FDIC on Thursday sued 17 former

executives and directors of Silicon Valley Bank, seeking to

recover billions of dollars for alleged gross negligence and

breaches of fiduciary duty that caused the bank's March 2023

collapse, one of the largest U.S. banking failures.

In a complaint filed in San Francisco federal court, the

FDIC, in its capacity the bank's receiver, said the defendants

ignored fundamental standards of prudent banking and the bank's

own risk policies in letting the bank take on excessive risks to

boost short-term profit and its stock price.

The FDIC faulted the bank's overreliance on unhedged,

interest rate-sensitive long-term government bonds such as U.S.

Treasuries and mortgage-backed securities, as rates looked set

to - and eventually did - rise.

It also objected to the payment of a "grossly imprudent"

$294 million dividend to its parent that drained needed capital

"at a time of financial distress and management weakness" in

Dec. 2022, less than three months before its demise.

"SVB represents a case of egregious mismanagement of

interest-rate and liquidity risks by the bank's former officers

and directors," the complaint said.

The defendants include former Chief Executive Gregory

Becker, former Chief Financial Officer Daniel Beck, four other

former executives, and 11 former directors.

Becker's lawyer was traveling on Thursday and unable to

comment, a spokesperson said.

Lawyers for former Chief Risk Officer Laura Izurieta called

it "outrageous" to make her a defendant, saying she provided

sound risk management advice before stepping down in April 2022,

well before the bank's collapse.

"Their actions are reflective of outgoing FDIC leadership

that is not interested in the truth," Izurieta's lawyers said.

Lawyers for the other defendants did not immediately respond

to requests for comment.

Silicon Valley Bank's March 10, 2023 collapse and seizure by

the FDIC shocked financial markets.

It disrupted many technology startups whose deposits it

held, and upset many customers because an unusually large

percentage of its deposits was uninsured.

The collapse presaged the demise of two other banks,

Signature Bank ( SBNY ) and First Republic Bank ( FRCB ), and prompted fears of a

replay of the 2008 banking crisis.

First Citizens BancShares, a North Carolina

lender, acquired Silicon Valley Bank's deposits and tens of

billions of dollars of loans in an FDIC-arranged sale.

Silicon Valley Bank had about $209 billion of assets when it

failed. Larger U.S. bank failures include Lehman Brothers in

2008, Washington Mutual including its banking unit in 2008, and

First Republic in 2023.

The case is FDIC as receiver v Becker et al, U.S. District

Court, Northern District of California, No. 25-00569.