NEW YORK, Aug 19 (Reuters) - A U.S. appeals court on Wednesday revived an investor lawsuit over the 2023 collapse of Signature Bank, saying the Federal Deposit Insurance Corp (FDIC) seizure of the lender did not take away shareholders' right to sue.
In a 3-0 vote, the 2nd U.S. Circuit Court of Appeals in Manhattan rejected the FDIC's argument that a 1989 law adopted in the wake of that decade's savings-and-loan crisis gave the regulator sole power to pursue securities fraud claims after becoming the receiver
of a failed bank.
The decision is a victory for shareholders led by the Swedish pension fund Sjunde AP-Fonden, which accused seven former Signature executives and directors and Signature's former auditor, KPMG, of misrepresenting the bank's liquidity risks and risk management, inflating its share price. Their proposed class action sought compensation for their losses.
The FDIC declined to comment. Lawyers for the shareholders did not immediately respond to requests for comment.
Regulators closed Signature on March 12, 2023, after worried customers withdrew several billion dollars, or about 20% of its deposits following the collapse of the larger Silicon Valley Bank two days earlier.
Both banks had growing exposure to cryptocurrency clients. Fallout claimed another large bank, First Republic, in May 2023.
MANY UNINSURED DEPOSITS
The FDIC blamed Signature's demise on inadequate risk management in pursuit of "rapid, unrestrained growth." By 2021, about 92% of Signature's deposits were uninsured, and 40% belonged to just 60 clients.
In Wednesday's decision, Circuit Judge Richard Wesley said that while the "succession clause" of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 gave the FDIC many powers to oversee failed banks, these powers did not include "ownership" of the right to sue.
He cited a 2021 Supreme Court decision addressing the rights of Fannie Mae and Freddie Mac shareholders following a 2008 government takeover.
Stockholder rights "derive from the ownership of stock or the corresponding legal relationship between stockholders and the corporation," Wesley wrote. "The Succession Clause does not reach those rights a stockholder holds personally and separately from their ownership of a particular stock or their status as a stockholder."
The appeals court returned the case to U.S. District Judge Frederic Block in Brooklyn, who dismissed it in March 2025. Wednesday's decision did not address the lawsuit's merits.
Flagstar Bank acquired substantially all Signature deposits. The FDIC provides deposit insurance to about 4,250 banks and savings associations.
(Reporting by Jonathan Stempel in New York; Editing by Sanjeev Miglani)
