U.S. Regulators Were Investigating Signature Bank Before Collapse
Signature Bank was under the investigation of the U.S. Department of Justice (DoJ) and the Securities and Exchange Commission (SEC) prior to its astronomical collapse last week, read a report published by Bloomberg on March 15. However, it is unclear when the probes opened and whether they had any effect on the decision taken by state regulators to shut down the crypto-focused bank last Sunday.
Signature Bank Faced Criminal Probe By DoJ and SEC Before Its Demise
Investigators from the Justice Department are looking at whether the New York-based bank had taken preemptive measures to detect potential money laundering activities by its crypto clients, like stopping customers with criminal records from opening accounts at the bank and monitoring transactions that showed signs of financial wrongdoing.
According to Bloomberg’s sources that wanted to remain anonymous, the SEC is looking into Signature Bank’s activities in a separate probe. Details of the investigations remain confidential at this stage as it is still ongoing. The report also stated that the bank and its staff haven’t been accused of any wrongdoing, and there are chances the probe could end without further action.
Signature Bank was shut down by the New York State Department of Financial Services (NYDFS) on March 12. The state regulator took possession of the bank’s assets and appointed the U.S. Federal Deposit Insurance Corporation (FDIC) to handle the liquidation process.
At the time of its closure, the 29th largest bank in the United States had approximately $110.36 billion in assets under management and total deposits of $88.59 billion.
Signature Bank was one of the banking partners of crypto firms, including Coinbase and Paxos, allowing the companies to maintain cash reserves and facilitate crypto-to-fiat exchanges via its blockchain-based payments network called Signet.
Shareholders Sued Signature Bank And Top Executives For Financial Fraud
On March 14, shareholders sued Signature Bank and three of its top executives, including former CEO Joseph DePaolo, chief financial officer Stephan Wyremski, and chief operating officer Eric Howell, in a class action lawsuit for fraudulently claiming the New York bank to be financially sound just three days before it was seized by the federal government.
The lawsuit filed in the federal court in Brooklyn, New York, alleges that the bank claimed it was financially strong, could meet all client needs, and had enough liquidity to distinguish itself from rival banks during challenging times, all the while it hid its true financial state. Shareholders seek unspecified damages for their losses between March 2 and March 12.
Federal regulators have been forcing banks and other regulated financial institutions to distance themselves from cryptocurrencies and other digital assets as they posed “potential risks to the financial system.”
Signature Banks’ demise was part of a series of bank failures that took place last week. Tech startup incubator Silicon Valley Bank and Silvergate Bank also collapsed days before Signature in what is now called the largest banking collapse since the 2008 financial crisis.
Federal Prosecutors Investigating Wrongdoing In Largest Bank Failure Since 2008
All three banks are facing regulatory scrutiny. The DoJ is investigating Silvergate for its business relationship with bankrupt crypto exchange FTX and hedge fund Alameda Research, two companies founded by disgraced former billionaire Sam Bankman-Fried. Meanwhile, federal prosecutors have launched a probe into Silicon Valley Bank CEO Greg Becker and CFO Daniel Beck after security filings disclosed that the executives cashed out on SVB shares two weeks before it shut down.
In a statement released by the SEC after Federal authorities took over Signature Bank and SVB, Chairman Gary Gensler said the agency will investigate and bring enforcement actions against the institutions if it finds violations of federal securities laws.
