KPMG was named as the bank's auditor in a recent investor lawsuit together with underwriters Goldman Sachs Group, Bank of America, Morgan Stanley, and Keefe, Bruyette & Woods over alleged misstatements that caused Silicon Valley Bank (SVB) to collapse. According to Bloomberg, the case is the first to specifically include the bank's auditors and underwriters and was submitted to the federal court in San Francisco. Due to bets on bonds that lost value when interest rates increased, the SVB collapsed last month. 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 declared bankruptcy under Chapter 11.
The value of the bank's own securities portfolio was diminished because the bank's executives, auditor, and underwriters "understated and concealed the magnitude of the risks" it faced.
Emails requesting comment on the case from KPMG, Goldman Sachs, Bank of America, Morgan Stanley, and Keefe, Bruyette & Woods were not answered. According to the lawsuit filed on Friday, the underwriters published false registration statements on the bank's stock offerings that contained "untrue statements of material facts."
The lawsuit claims that KPMG is liable because it approved SVB's 2022 annual report two weeks before the market closed on March 8.
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."
Investigations into the events that led to SVB's collapse are being conducted by the Justice Department, Securities and Exchange Commission, and Federal Reserve. These events include things like officer share sales and the bank's lack of a risk officer throughout the majority of 2022. It's significant to note that nobody at the bank has been charged with any misconduct as of yet. Charges or legal action may or may not come out of the investigations. The US District Court for the Northern District of California is currently hearing the case, City of Hialeah Employees Retirement System et al v. Becker (San Francisco).