U.S. Prosecutors Investigated Signature Bank Before Seizure

Justice Department was investigating the New York-based bank's safeguards against potential money laundering by clients.

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U.S. Department of Justice

U.S. Justice Department officials investigated whether Signature Bank had sufficient safeguards in place to detect and prevent potential money laundering by cryptocurrency clients before regulators seized the bank over the weekend.

Key Takeaways

  • U.S. prosecutors investigated whether Signature Bank was sufficiently trying to detect potential fraud by clients before it seizure over the weekend.
  • Former board member Barney Frank said seizure was only meant to send a message to other lenders and that the bank had a strong standing, despite withdrawals beforehand.

Investigators from the Justice Department in Washington and Manhattan were examining the New York-based bank, Bloomberg reported, citing people familiar with the matter. The U.S. Securities and Exchange Commission was also looking into the bank’s measures to prevent fraud, such as extra attention on who were opening accounts and monitoring transactions to catch potential criminal activity, others told Bloomberg. 

The bank and three of its top executives were sued on Tuesday by shareholders for saying that the lender's financial position was strong just days before it was seized by regulators in the state.

The potential class-action lawsuit was filed in a federal court in Brooklyn, with shareholders seeking damages for dates between March 2 and March 12, when New York’s Department of Financial Services took over the bank, two days after the Federal Deposit Insurance Corp (FDIC) seized Silicon Valley Bank. 

On Sunday, when authorities stepped in to protect U.S. lenders and shut down Signature Bank, SEC Chairman Gary Gensler said the agency would take steps to bring enforcement action if it finds violations of the law. 

“Without speaking to any individual entity or person, we will investigate and bring enforcement actions if we find violations of the federal securities laws,” Gensler said in a statement. “Unfortunately, history tells us that events like those of this past week will occur from time to time. Thus, we should do our best to make them less frequent, strengthen the guardrails of finance for when they do occur, and protect the American public.”

While the bank hasn’t been accused of wrongdoing by law enforcement agencies, shareholders allege in their lawsuit that it hid that it has been “susceptible to a takeover” by making false or misleading statements about the bank’s financial stability. 

The suit was filed by the law firm that sued Silicon Valley Bank’s parent company, SVB Financial Group, and its top executives on Monday. 

Barney Frank, a former member of Congress who sat on Signature Bank’s board before it was taken over by the FDIC, said the regulatory action was intended to send a message to U.S. banks by making an example of the lender. Despite withdrawals, the bank was in stable standing before regulators seized the bank, he said.

“This was just a way to tell people, ‘We don’t want you dealing with crypto,’” Frank said in an interview with Reuters.

Frank was co-sponsor of the Dodd-Frank Act in 2010, which subjected banks to increased scrutiny by regulators. A law passed in 2018 weakened elements of the Act, including raising the threshold for banks covered by the heightened scrutiny to those with $250 billion in assets, from $50 billion in assets as specified by Dodd-Frank.

New York Gov. Kathy Hochul said Monday that the takeover was the state’s attempt to intervene before the problem became a larger crisis for other bank in the U.S. 

“Our view was to make sure that the entire banking community here in New York was stable, that we can project calm,” Hochul said at a news conference Monday.

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  1. Bloomberg, "Signature Bank Faced Criminal Probe Ahead of Firm's Collapse."

  2. Reuters, "Signature Bank, former CEO are sued by shareholders."

  3. U.S. Securities and Exchange Commission, "Opening Statement before the March 15 Commission Meeting."
  4. Associated Press, "Signature Bank seized to send banks a message, director says."

  5. https://www.nytimes.com/2023/03/13/business/signature-silicon-valley-bank-dodd-frank-regulation.html

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